Petrobras in Transition

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Luiz Inácio Lula da Silva’s campaign for his third term as Brazil’s president was defined by the idea of reconstruction. This encompassed a political recovery from the antidemocratic reign of Jair Bolsonaro, as well as the promise of reindustrialization and a green transition for Brazil’s economy. The role of state-owned petroleum giant Petrobras, key to such efforts, has been a focus of debate in the Brazilian development story. 

Petrobras was created in 1953 as part of one of former president Getúlio Vargas’s popular developmentalist projects, known as the National Petroleum Policy, which secured a state monopoly over oil drilling, refinement, and transportation. The national monopoly lasted until 1997, when it was taken down by Fernando Henrique Cardoso’s administration, whose National Privatization Plan also promoted Petrobras’s massive initial public offering and allowed the firm to be traded on the international market. Currently, the Brazilian state is the majority owner of Petrobras, owning 50.3 percent of voting shares. 

Through its seventy-year history, Petrobras never lost its centrality in Brazil’s development project. From the national-developmentalist nature of its foundation, to its entry on the global market, to the contemporary debate regarding its role in Lula’s third term—the firm reflects the evolution of debates around Brazil’s development path.

Cibele Vieira is the general manager of the São Paulo Oil Workers’ Union (Sindipetro Unificado) and a director at the Oil Workers’ Federation (Federação Única dos Petroleiros, FUP), where she represents Petrobras workers nationwide. We spoke to Vieira about Petrobras’s role in the Lula administration, the history of Petrobras in the context of Brazilian development, and the country’s recent entry into OPEC+. 

An interview with Cibele Vieira

hugo fanton: Debates about oil exploration have been prominent since Lula entered office last year—how it relates to the goal of inclusive development, new industrial policy, and the administration’s environmental agenda. What has the historical relationship been between national development and the management of Petrobras?

cibele Vieira: The discussion about oil exploration in Brazil arose in the postwar context. Oil was understood as a strategic asset central to securing national sovereignty. It was fundamental for the military and automotive industries, and for consumer goods production. Petrobras was founded in 1953, seven years after developmentalists started the O petroleo é nosso (“the petroleum is ours”) campaign—its inauguration as a state-owned enterprise with a monopoly on oil exploration in Brazil was a victory for this slogan and movement.

There have been disputes ever since. Since the beginning, we invested in drilling and refining, so Petrobras became internationally prominent in deep sea drilling. And since 2006, with the discovery of the pre-salt oil reserve, Brazil has been one of the world’s largest holders of petroleum reserves. We understand that this was an important issue regarding the disputes that led to the coup of president Dilma Roussef in 2016 and Lula’s arrest in 2018.¹ There’s a close connection between Brazil’s deep internal political crisis and its position among the world’s greatest oil producers.   

Historically, the social movements and left parties in the country have understood that natural resources should be explored to support Brazil’s national development—in a sustainable way and in accordance with the population’s needs. In the case of oil, this means that exploration without concomitant investment in industrial development, new jobs, and economic growth just doesn’t make sense. But this perspective clashes with other approaches. The liberal administrations of Fernando Collor de Mello (1990–92) and Fernando Henrique Cardoso (FHC) (1995–2002) both had privatization plans for Petrobras. In 1995, a massive month-long oil workers strike erupted, halting the selloff while other key industries were privatized. When Lula came to power in 2003, it was with a completely different vision regarding the state and the role that the company should have in the economy of the country.

Lula’s (2003–11) and Dilma’s (2011–16) administrations changed Petrobras’s structure and mission from a fossil fuel exploration company to an energy management company also dedicated to the energy transition. After Dilma’s coup, Petrobras went back to focusing solely on fossil fuels during Michel Temer’s (2016–18) and Jair Bolsonaro’s (2019–22) administrations. The firm’s role as a promoter of national development was abandoned. 

Temer and Bolsonaro were way more successful than FHC in dismantling Petrobras. In the last few years, Petrobras’s own oil distributor, BR Distribuidora, was privatized along with many refineries and subsidiaries. The company’s strategy, once driven toward the supply of petroleum-based products for the domestic market, was transformed, with a new emphasis on financial markets that increased profit margins and dividend payments. The energy transition, incompatible with the new short-term profitability plan, was eliminated from the agenda. Indeed, it is impossible for a biofuel subsidiary to match the profitability of drilling in the pre-salt oil region. Additionally, the firm’s research center was completely dismantled. 

So the debate that we have with oil workers now concerns certain parallels between Lula assuming office in 2003 and in 2023. The new administration wants to resume its previous project and mission, but there are obstacles left by the prior administrations.

hF: What is the labor movement’s assessment of Petrobras’s management and the new Lula administration, just over a year since his inauguration? 

cV: FUP was part of the government transition team’s working groups, and contributed considerably to the proposals for the oil industry. Nonetheless, given the narrow victory, the government must make concessions in order to maintain its coalition. 

Besides these disputes on the overall national political scene, the unionist movement also faces additional challenges. This year, in the oil workers’ wage campaign, we are discussing internal governance issues. Despite changes in the presidency and in the internal board, there are other divergent perspectives clashing inside Petrobras—Bolsonaro supporters are still there, alongside pro-developmentalists that frown upon the unionist movement because they think that workers must conform and follow the rules, and there are those of us in the trade union movement. So there are political disputes about the company’s role in the national arena but also over the internal power relations inside Petrobras itself.

The internal conflicts in Petrobras’s administrative council (Conselho de Administração, CA) mirror alliance disputes in the national congress. This means that there are divergences even among the advisors who were appointed by the government itself. Effectively, since the nominations reflect the government’s alliances in congress, Petrobras’s president doesn’t have the majority of seats in the CA. 

Both President Lula and Petrobras’s president Jean Paul Prates have been emphasizing the company’s role in the energy transition, securing accessible fuel prices for the population, recovering economic growth, building naval fleets, and so on. There is a public defense of Petrobras. But the number of job openings announced for the new public tender is not enough—it doesn’t even cover this year’s workforce reduction by retirement. Petrobras used to be an enterprise with 86,000 workers, and now we have 40,000. The business plan that was released foresees a very small amount of investments, not nearly as much as what is actually needed. 

hF: Is the vision of Petrobras as an explorer of fossil fuels still prevailing against the idea of an energy management company today?

cV: That is still in dispute. Today Petrobras is able to approve investments in renewables, but not on the scale that is needed. It is clear that there has been a change in vision regarding the company’s role: Petrobras is back to positioning itself as a driver of national development and has adopted a plan to operate in refining throughout all Brazilian states—not just Rio de Janeiro and São Paulo. But despite political willingness, the numbers are very far from reaching the publicized intentions. 

hF: What is the FUP’s outlook regarding Petrobras’s role in energy transition?

cV: We at FUP understand the existential need to overcome the dependency on fossil fuel resources and that this is an ongoing process. At the same time, oil will not disappear tomorrow. Even while renewable production increases, oil exploration is still on the horizon.

This means that some policies should go hand in hand: wealth generated by oil exploration must be invested in research and development of new energy sources. We have biomass and biofuel power stations in Minas Gerais and Bahia. We also have to discuss the production system, including the division between big and small producers and our relationship with regional development. 

It is unacceptable to have great power plants surrounded by poverty. In biomass production, the resources should come from small farmers and not from agribusiness—that policy once existed but it was discontinued by Temer’s administration. This would be a concrete example of a just energy transition, which is what we stand for.

Besides investing in new energy sources, it is also necessary to reduce the emissions impact of fossil fuels—for example, by reducing sulfur in petrol and diesel. Petrobras’s investments in refineries include planning to make fossil fuels less pollutant.

We should continue oil exploration. Petrobras must explore new frontiers. We are in favor of exploring the Equatorial Margin region. It is a mistake to call it the Amazon River mouth, since the region is located more than 150 kilometers away from it. Since Petrobras has a long tradition of ensuring industrial safety in exploring oil, expanding this tradition would allow us to invest in new energy sources. This is our idea of a fair and popular energy transition.

hF: Proposals for new oil exploration are controversial, particularly in the Equatorial Margin, where they have been criticized by Lula’s own environmental minister Marina Silva. Why does FUP argue in their favor?

cV: Petrobras has been exploring oil in the Amazon for a long time. There is a refinery in Manaus. For years we have been operating in the forest. Other countries in the Amazon region also explore oil and have a history of dumping waste in the woods, which isn’t our case. 

This is the difference that emerges from Petrobras being a state-owned enterprise—it is a more responsible company regarding the production process. The new frontier of exploration is the Equatorial Margin, which is not in the pre-salt field but is a very large offshore petroleum reservoir. This means that it isn’t about land exploration or exploration near the shore, as some have been saying. Also, Petrobras is the organization with the most adequate technology for this kind of drilling. Oil reserves don’t comply with our geographical borders. The recent Guyana-Venezuela dispute is related to exploration in the region that encompasses the Equatorial Margin. In today’s world, stopping the use of fossil fuels is not a feasible option. The Equatorial Margin will be explored, that’s for sure—by Brazil or other countries. 

Our understanding is that new frontiers should be explored in a manner that ensures the proceeds are invested in energy transition. 

If we look at the petroleum world map, most of the reservoirs are ancient and are going through a production decline. But Brazil is discovering new fields with huge reserves, enabling production to increase. We have an ever-more important role in producing oil while the production capacity of alternative energy sources continues to grow. If we don’t explore, as a pragmatic matter, we won’t have energy alternatives capable of meeting demand and we’ll have to pay a higher price for consuming oil nationally. 

hF: What is Petrobras’s role in Brazil’s new industrial policy regarding foreign competition?

cV: When we talk about global competition, it is not worth it to dispute in sectors where China has a much larger productive scale—it is not possible to compete with the prices they reach. But this doesn’t mean that we can’t have more complex industries, or that we should focus solely on providing commodities. There’s space for diversifying our market and overcoming economic dependency. Brazil isn’t in a bad economic position compared to other countries—we have agriculture, services, and industry. Continuing to invest in industrial expansion enables the generation of quality jobs, provides workers with a decent wage, and produces positive effects across the service chain. 

Petrobras has a strategic role in this. Energy’s price and transportation are core issues for the industry. Building new natural gas pipelines is one of the main concerns both in Petrobras’s business plan and the new Growth Acceleration Program (Programa de Aceleração do Crescimento) infrastructure projects. I attended some of the meetings that the chemical industry had with Vice President Alckmin, and the main concern was gas supply. As Petrobras provides resources for the national industry, it is crucial for securing good prices and stability. There’s also Petrobras Diesel, which supplies fuel for a country that is highly dependent on road transportation. Besides the oil production chain, Petrobras also plays a major role in agribusiness by providing fertilizers. 

The debate around local inputs for Brazilian production stems from this. When you build an oil rig, is the strategy to use imported projects, technologies, and components, or to invest in local resources?

hF: Finally, what was the overall reaction in the oil workers unionist movement after the invitation for Brazil to join OPEC+?

cV: FUP doesn’t have an official stance. I’ll share my personal point of view regarding this topic. Being a member of OPEC+ is different from being an OPEC member because it doesn’t necessarily imply compliance with OPEC’s provisions. If we look at our productive capacity and think about the petroleum reservoirs we have and how much oil we produce, it makes sense to join OPEC+. This organization directly influences oil’s international price, and following such decision-making processes is always positive. 

Brazil’s pre-salt production costs are higher than Saudi Arabia’s and many OPEC members, but are still lower than others. Since many different countries have production costs above ours, the price determined by OPEC won’t hinder our production. From my point of view, taking part in the discussions about oil price formation doesn’t imply any risk of us having to comply with a lower production rate than what is feasible for Brazil. 

Keeping up with this discussion makes Brazil safer. Unlike most of the biggest oil-producing countries, we don’t solely depend on oil as an energy source. This gives us a more comfortable position to discuss price formation. 

Besides that, as Lula himself stated, there’s the energy transition issue. Our president was heavily questioned about the apparent contradiction in positioning Brazil as an environmental leader while joining OPEC+. The most salient question in the debate is whether it is best to leave these decisions in the hands of other countries or to actively take part. 

Oil enterprises are central actors of the energy transition. They represent companies that already produce energy and that are expanding their activities to other sources. There is no possible way to create a responsible energy transition plan without engaging producers. Thus, the energy transition also depends on the discussions carried out by OPEC. If oil companies want to undermine any energy transition initiative, economically impairing alternative energy sources, all they have to do is lower oil prices. 

Since Brazil is a large producer whose energy matrix isn’t completely oil dependent, we are in an even more comfortable place to promote the debate regarding energy transition within the organization.

This interview was translated from Portuguese for Phenomenal World by Bruna Barro.