Bloomberg) — A bitter dispute between Jair Bolsonaro and Petrobras intensified as the state-controlled oil giant shrugged off the president’s warnings and increased fuel prices, adding to the Brazilian leader’s difficulties as he struggles to contain inflation in an election year.
Petrobras shares plunged as much as 9% on Friday, extending losses after Brazil’s Lower House Speaker Arthur Lira threatened to intervene by imposing punitive taxes on the company’s record profits.
Bolsonaro raised the prospect of a congressional probe to investigate the company’s chief executive officer, its directors and the board, “because we want to know if there is something wrong with their behavior,” he told local radio. It’s “inconceivable” to raise prices given “the exorbitant profits that Petrobras is making,” he said.
The long-running conflict between the head of state and Petroleo Brasileiro SA, as the company is formally known, looks increasingly desperate, with voters being squeezed less than four months out from presidential elections.
Transportation costs already comprise the largest component of an 11.7% inflation rate, and polls show Bolsonaro trailing his main rival for the presidency, Luiz Inacio Lula da Silva. The same polls find a growing number of Brazilians blame the incumbent for the country’s economic woes.
“Petrobras may plunge Brazil into chaos,” Bolsonaro said in a pre-emptive broadside on Twitter earlier Friday, warning it against the price increases. “Its chief executive, directors and board members know very well what happened when truckers went on strike in 2018, with the nefarious consequences for Brazil’s economy and the life of our people.”
The strike paralyzed the country, and a repeat of such action by a group that has supported Bolsonaro would be very damaging for the president.
Petrobras went ahead with its hikes anyway, announcing in a statement Friday that it was raising gasoline prices at its refineries by 5.2% to 4.06 reais ($0.79) per liter, and a 14% increase for diesel to 5.61 reais per liter. It already costs more to fill up a tank of gasoline in Brazil than in most Latin American countries due to high taxes.
In an interview with GloboNews, Lira, the lower house speaker, said that he was going to gather all party leaders, including from the opposition, to discuss Petrobras’s pricing policy, and “what we can do about it.” He mentioned the possibility of doubling taxes on Petrobras profits to “direct them to the population.”
He later told Bloomberg News that the additional revenue from such taxes could be used to mitigate the difference between international and local fuel prices or to finance vouchers for truck and cab drivers, among other options.
In a Twitter post, Lira said that the company’s CEO Jose Mauro Coelho should resign for working “systematically” against the Brazilian public. Yet Bolsonaro has already fired Coelho, who continues to perform his functions until a replacement is approved at a shareholders meeting.
Read more: Bolsonaro’s next Petrobras CEO pick needs to wait a little longer
Bolsonaro, in his interview with local radio, said the Petrobras board and CEO had betrayed the Brazilian people, and insisted there must be change at the top to “put competent people in there.”
The president has publicly lambasted Petrobras for “abusive profits” and has sacked three of its chief executive officers over frustration with the company’s wholesale fuel prices that track international levels.
The aim of a new leadership at the oil giant, he said, is “to understand the social purpose of the company and not grant this adjustment that destroys the Brazilian economy, leads to inflation for the entire population, leads to loss of purchasing power for the entire population that already lives in a very critical situation.”
The oil producer has underperformed other crude majors since the war in Ukraine started, and erased gains for the year on Friday. Investors are concerned it will sacrifice profits at the government’s request to help contain fuel inflation.
What Bloomberg Economics Says
“Petrobras’ price adjustments for diesel and gasoline will push it closer to international prices, but also offset some inflation relief from tax cuts announced last week — a risk we flagged. Should President Jair Bolsonaro or congressional leaders respond by intervening in the oil company’s pricing policy, there’s a risk of renewed currency weakness — potentially widening the gap with international prices and raising the risk of additional price hikes.”
— Adriana Dupita, Brazil Economist