“Everything is expensive: gasoline, diesel, cooking gas. What does Petrobras have to do with it? Tomorrow, at 9:00 am, the plenary will become the General Committee to question the weight of the company’s prices for all of us. We should remember about Petrobras: its shareholders are Brazilians, ”said Arthur Lira, President of the Chamber of Deputies, on Twitter.

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The federal deputy’s public statements on Monday (13) about an audience between Lira and the current CEO of the company, General Joaquim Silva and Luna, on Tuesday (14) in the general committee of the Chamber of Deputies, serve as an example. and the political risks hanging over the largest oil company in Brazil. Petrobras (PETR4 and PETR3), with nearly 70 years of history, is a company of monumental proportions with a focus on the country.

With no relevant competitors, Petrobras is responsible for oil exploration and fuel production in Brazil, with the result that the state-owned company has sometimes been used as a political tool to lower the prices of goods that carry a lot of weight in the pockets of the population, such as gasoline, diesel. and gas, Lear is quoted as saying.

For example, during Dilma’s rule, the use of an oil company to control inflation left a billion dollar hole in its finances. The shadow of this episode continues to haunt the market, which punishes stocks for any sign of fire. In the wake of fears that arose from the audience, PETR4 closed the trading session on Tuesday (14) with a fall of 1.33% to 25.88 reais.

Currently, the pricing policy is based on international parity, that is, fluctuations in the price of oil on the international market and the dollar.

“Pricing is a very important topic for Petrobras. We have seen in the past that when a state-owned company had to practice some kind of price freeze, it ended up losing money. Thus, fuel production was costly and he had to subsidize the price at the refinery. And in addition to the financial implications, it had a negative impact on the intervention when the controller (government) took action that affected the cash flow. This is not what we see now, ”says Ricardo Fransa, analyst at Ágora Investimentos.

Return in 2021

According to a survey conducted by Economatica Brasil with US oil companies listed on stock exchanges in Latin America and the United States, or with ADRs in New York with at least US $ 1. bln at market value, Petrobras shares showed the worst performance in 2021.

Between December 31, 2020 and September 13, 2021, PETR3 and PETR4 recorded estimates ranging from 1.49% to 0.93% (in USD). For comparison, the third worst paper on the list, owned by the American Kosmos Energy, gained 6.81% in the same period.

The performance of the shares of the state-owned company differs from the indicators presented in 2021. For example, in the second quarter of this year, net profit reached R $ 42.8 billion, offsetting the R $ 2.7 billion loss in the same period last year. year. last. EBITDA (earnings before interest, taxes, depreciation and amortization) also reached R $ 61.9 billion, up 148% from the second quarter of 2020.

“Without a doubt, there is definitely a Q for political influence in this show. However, this result is also influenced by the development of a plan to sell Petrobras to sell assets, as well as the dynamics of oil barrels. These three aspects affect performance in the short term, ”says Hugo Queiroz, Director of TC Matrix. “Obviously, most of this pressure comes from the political environment, but the company has mechanisms to protect it from interference.”

Ilan Arbetman, an analyst at Ativa Investimentos, is of the same opinion. “There is no doubt that the political issue is important, yes, but you cannot put everything on top of it,” he explains. “When we look at multiples, Petrobras is closer to their Russian counterparts than their American counterparts. And there is also the issue of a green agenda with the transition to energy. ”

political sparks

Several political factors help explain this picture. At the beginning of the year, the change of former Petrobras CEO Antonio Castello Branco to Silva and Luna raised serious doubts about the continuity of the current fuel price policy based on international parity (depending on oil price fluctuations). on the international market). Fears were that the change would signal President Jair Bolsonaro’s intervention in the state-owned company in an attempt to artificially reduce gasoline and diesel levels.

At the time, Bolsonaro criticized the soaring fuel prices. On February 22nd, in the trading session following the announcement of the team change, the shares were knocked out and fell 20%. However, fears did not materialize, and today the General Silva e Luna administration is committed to maintaining the current pricing policy.

“Price fluctuations do not mean that Petrobras has influenced the price in any way,” Silva and Luna said in their speech at a hearing on Tuesday. “As a mixed capital company, (Petrobras) is committed to transparency, governance, integrity, social responsibility … which means taxes.”

Nonetheless, the sparks do not subside and continue to cause headaches for shareholders. For example, some states recently filed lawsuits against Petrobras for lying about the structure of fuel prices. The article by Silva and Luna states that the amount received by the company for each liter of gasoline will be only 2 reais, and the difference paid by the consumer for refueling will occur due to the presence of ICMS (state tax on gasoline turnover). goods and services) and other taxes.

This situation also reflects the clash between President Jair Bolsonaro and the state governments. “In the fuel price structure, ICMS is the most influential factor, accounting for the bulk of refinery added costs. Exchange rate fluctuations are obviously affecting Petrobras’ cash costs, but today they are putting much less pressure than ICMS, which is a big villain and is responsible for more than 20% of the average fuel price, ”says Queiroz. “And at that moment it, of course, could have been reduced.”

For Arbetman, Silva and Luna, this was necessary in the article. “He’s right when he talks about the more open play and the costs involved, it makes the discussion richer. This is the first step for sector leaders to come up with a formula, ”he says. “The text was very well written, but I avoid values ​​such as the 2 reais question because it is very difficult to be precise. It is impossible to know exactly the price at which this is done, ”he says.

Ativa also highlights the difficulty of constantly changing prices when the state-owned company cannot control the underlying variables (oil price and dollar).

The basics

Experts consulted Electronic investor unanimously highlight the unique moment that Petrobras is experiencing, with strong cash generation in recent quarters, debt control and an expectation of higher dividend payments in 2022.

“We view Petrobras as a discounted share with an attractive pricing, and much of that discount comes from Brazil’s risk and increased uncertainty as the 2022 election approaches. This leads to the fact that state-owned companies are left with poor volatility, ”says Fransa. “The company is likely to meet its leverage target this year, allowing the company to implement a new dividend distribution policy.”

“Petrobras has a positive dynamic in the market: a barrel of oil is over $ 70 and a very favorable exchange rate in terms of fuel. This has helped the company generate good income and, as a result, good operating margins, ”explains Queiroz. “In addition, he made sales, sold oil refining, distributors, now he has to sell thermal power plants, paying much more attention to oil production and production. All of this should help reduce debt. “

However, the recommendations do not follow a uniform direction. Fransa from Agora recommends buying paper with a target price of R $ 42. On the other hand, Ativa’s Arbetman remains wary of the company. “Today we give preference to positions that speak less on this political issue,” the expert said.

Defense mechanisms

According to France, one of the solutions to unleash political clashes over the formation of Petrobras prices and, as a result, the impact of noise on actions, would be a proposal to create a compensation mechanism.

“Setting up a compensation fund that is not subsidized by a state-owned company would be good to reduce perceptions of wealth,” he says. “This fund will be used during periods when the dollar or oil is very high so that the price is not too high for the consumer.”

Sale of refineries already carried out by a state-owned company will also be important to reduce the likelihood of interference. “While this is an important division for the outcome, historically there has been some kind of interference in the processing. If Petrobras continues to mitigate risk in this segment, the opportunity for intervention will ultimately be reduced and government power will ultimately be limited, ”says Fransa.

As for Arbetman, it would be rather difficult to create a fund. “To make this fund, you need resources. I don’t think this proposal is ideal, I think it is less aggressive than introducing or abolishing the tax and having, as in some countries, maximum and minimum prices, working in groups, ”he concludes.

According to Queiroz, Petrobras’ charter already protects it from potential interference, and the political uproar should not worry investors, despite the fact that it will affect actions in the short term. “The Charter stipulates that the company will receive compensation if the government intervenes. Another obstacle is the advanced process of selling refineries, ”he explains.

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