Petrobras CEO Tackles Dividend Dispute Amid Challenges of Lula’s Split Cabinet

BRASILIA, March 13 (Reuters) – The aftermath of a missing Petrobras dividend has potentially altered the dynamics between the CEO of the state-run company and the influential energy minister who wields power over its board. Chief Executive Jean Paul Prates saw his proposal for an extraordinary dividend, widely anticipated by shareholders, rejected last Thursday by government-appointed board members. Subsequently, Petrobras shares plummeted by over 10% the next day.

This event raised concerns in the market about political uncertainties surrounding Latin America’s largest oil company, which has grappled with substantial debts, unproductive investments, and corruption scandals during the tenure of President Luiz Inacio Lula da Silva’s Workers Party a decade ago.

Prates reportedly cautioned Lula in a meeting earlier last week that withholding the dividend could be disastrous, damaging the trust of minority shareholders. However, Mines and Energy Minister Alexandre Silveira, who wields influence through the Petrobras board, persuaded Lula during the same meeting to retain cash reserves to bolster investments, according to sources familiar with the matter. These sources indicated that Lula’s chief of staff, Rui Costa, also supported Silveira’s stance.

Despite Lula’s personal selection of Prates for the Petrobras role and their enduring relationship through a turbulent initial year, the CEO evidently felt outmatched. Over the weekend, he sought to “counterbalance” the pressure from Silveira and Costa by reaching out to Finance Minister Fernando Haddad, as per one of the sources who spoke anonymously. Lula’s trust in Haddad has enabled the finance minister to implement new budget regulations and advocate for fiscal responsibility, even in the face of opposition from the leftist president’s political base.

Furthermore, a substantial dividend payout to the government, Petrobras’s largest shareholder, would aid in balancing the federal budget. Haddad was present at a subsequent meeting on Monday involving Lula, Prates, and Silveira to discuss Petrobras plans. Following the meeting, both Haddad and Silveira echoed the CEO’s assurances that funds allocated from last year’s profits would eventually be allocated for shareholder dividends. Additionally, Silveira announced that Haddad would nominate a Petrobras board member at an upcoming shareholder meeting next month, thereby diluting the energy minister’s influence. Haddad intends to appoint Rafael Dubeux to the board, according to two sources, selecting a senior Finance Ministry official responsible for a program aimed at fostering investment in sustainable development.

This marks a departure from last month’s plan, when the government reportedly intended to reappoint its six board members at Petrobras, signaling Silveira’s enduring influence. Silveira has frequently criticized Petrobras management under Prates, particularly regarding what he perceives as high fuel prices and inadequate investment strategies. These critiques have often aligned with Lula’s own sentiments about the state-controlled oil company, which he has faulted for distributing excessive dividends during the previous administration. In a television interview on Monday, Lula reiterated his call for Petrobras to reduce shareholder dividends and allocate more resources to projects benefiting all Brazilians.

Nevertheless, with Haddad’s support, Prates may find it easier to prevail in future deliberations within the presidential palace and on the Petrobras board. “Until last week, it seemed Prates was hanging by a thread. But the scenario has changed – he’s holding on,” remarked one government source.