Robert Castello Branco, sworn in on January 3 as the new CEO of Brazil’s state-owned oil company Petrobras, plans to remove fuel subsidies, sell off the company’s non-core assets to settle debts and exit fuel distribution business as part of reforms for the troubled company.
As with Petrobras, the Nigerian National Petroleum Corporation (NNPC) is struggling to remain profitable. NNPC owes its joint venture partners over $5 billion and spends the bulk of its revenue on fuel subsidies as it struggles to balance a downstream business that is yet to report significant returns.
Brazil’s new president, Jair Bolsonaro, has promised to take a wrecking ball to the political and economic institutions that shoved the country into a brutal recession which has taken four years to recover from. In its place, he is instituting business-friendly policies, including cutting subsidies and market-led reforms, elements missing from the APC-led government’s reforms.
Bolsonaro is bypassing the civil service bureaucracy and hiring private sector technocrats with advanced qualifications in economics, including Branco to head Petrobras, Paulo Guedes to run the economy, and Joaquim Levy who will take over the National Development Bank (BNDES). Branco has a post-doctorate degree from the University of Chicago and is bringing to the table pro-market, privatisation-friendly approach to running the oil company.
While truck drivers are on strike, even before being sworn in, Branco wrote in an article for a local newspaper: “One of the lessons we take from the supply crises caused by the truckers strike is the urgent need to privatise not only Petrobras, but also other state-owned companies.
It is unacceptable to keep hundreds of billions of dollars allocated to the state-owned companies for activities that could very well be performed by the private sector, while the state has no money to keep basic obligations such as healthcare, education and public safety.”
Nigeria knows too well the damaging impact of fuel strikes by truck drivers and oil workers who could send the economy in a tailspin following shutdown of operations. Nigeria’s three refineries produce below 20 percent of their capacity and the NNPC now claims no turn-around maintenance has been done for over 40 years despite huge billions allocated for it in the last decade.
In March last year, the NNPC said it was incurring N774 million daily to subsidise about 55 million litres of petrol it claims Nigeria is consuming. Analysts say Nigeria could spend over N1.6 trillion in subsidy on petrol this year, resources that could have been better utilised to fix broken infrastructure including roads, rail lines, bridges, and fund education and healthcare.
“I find no justification whatsoever for the increase in NNPC’S PMS claims,” said Jean Balouga, economics professor at the University of Lagos, commenting on the analysis of NNPC under recovery data in comparison with rise in oil prices.
This lack of reforms has left the country poorer. Nigeria emerged from a bruising recession in 2017 but the slow pace of recovery makes it feel like a depression. Growth slowed down to 1.95 percent in Q1 2018 and dropped to 1.50 percent in Q2, before rising to 1.81 percent in Q3, according to data from National Bureau of Statistics (NBS).
Decline in crude oil production and subsequent revenue was a key reason for slowdown in the economy in Q2 2018. According to the NBS, oil production, including condensate, dropped from 2.0 million barrels in Q1 2018 to 1.84 million barrels in Q2 2018. A marginal rise in the economy in Q3 coincided with an increase in oil production to 1.94 million barrels in Q3 2018.
“We are pro market economists. We like competition,” Branco told local reporters, while indicating plans to continue selling the company’s non-core assets and use the proceeds to cut debt and invest in promising projects.
Branco, who was previously a board member of Petrobras, is in favour of the company exiting the fuel distribution business as its non-core, as well as not limiting the role of Petrobras in refining crude oil. The company is Brazil’s sole refiner.
Petrobras was created in 1953 and currently produces 2.8 million barrels of oil equivalent every day, owns 9.7 billion barrels in proven reserves, and has more than 600,000 shareholders and 62,700 employees.
The company has been in stormy waters recently following corruption allegations. An investigation uncovered schemes of kickbacks paid to politicians favouring concessions or contracts. It is indebted up to the tune of over $100 billion which it is struggling to reduce.
ISAAC ANYAOGU
