On the Current Petrobras Challenge in Brazil

When I lived in Brazil six years ago, the country announced the discovery of a massive offshore deep-sea oil field, leading to high hopes within Brazil  for the future energy needs and economic growth. However, from one perspective, it would appear things have not gone so smoothly:

 Half a decade has passed since Brazilians celebrated the discovery of huge amounts of oil in deep-sea fields by the national oil company, Petrobras, triumphantly positioning the country to surge into the top ranks of global producers. But now another kind of energy shock is unfolding: the colossal company, long known for its might, is losing the race to keep up with the nation’s growing energy demands.

Saddled with a nationalist mandate to buy ships, oil platforms and other equipment from lethargic Brazilian companies, the oil giant is now facing soaring debt, major projects mired in delays and older fields, once prodigious, that are yielding less oil. The undersea bounty in its grasp also remains devilishly complex to exploit.

Now, instead of symbolizing Brazil’s rise as a global powerhouse, Petrobras embodies the sluggishness of the nation’s economy itself, which, after racing ahead at 7.5 percent in 2010, slowed to less than 1 percent last year, eclipsed by growth in other Latin American nations like Mexico and Peru.

Macroeconomically, that certainly sounds troubling. But from a social perspective, things appear a bit different. From the same article:

[…]Petrobras is building new refineries, pursuing offshore oil and buying most of its equipment from Brazilian companies, all of which have created tens of thousands of jobs and delivered some tangible political benefits.

“My life is better,” said Adinael Soares Silva, 38, a welder at a Petrobras refinery under construction in Itaboraí, a city near Rio de Janeiro. He said he was pleased with his salary of about $800 a month. “Where I was, I didn’t have enough to have a savings account,” he said. “Now I do.”

And then there’s the fact that,

Despite the challenges it faces, Petrobras remains profitable and much less constrained by political ideology than some other large national oil companies. In Mexico, for instance, Pemex has long retained its monopoly status despite production declines, and now the government is considering opening it to greater private investment.

Petrobras is also far more transparent than Petróleos de Venezuela, the national oil company that President Hugo Chávez, who died this month, transformed into an extremely politicized pillar of his government, purging it of thousands of employees after a bitter strike and forcing it to focus on new tasks like food distribution.

Maria das Graças Foster, the chief executive of Petrobras, has been exceptionally frank about the company’s problems. In recent conference calls with analysts, she said that oil production should remain steady this year or perhaps even decline slightly again. But she also responded sharply to critics, claiming that output from the new deep-sea fields had reached 300,000 barrels a day. By 2020, the company expects to double overall production to 4.2 million barrels a day.

A few quick comments regarding these seemingly contradictory views. First, this isn’t the first time that energy dependence on importing oil/gas has caused economic problems in Brazil. Indeed, the oil shocks of the 1970s and Brazi’s dependency on foreign oil played no small part in the end of the economic “miracle” and the rising inflation of the 1970s and early 1980s. That’s not to say that this new situation is nothing, nor is it to say that the inflation crises of the 80s and 90s are going to repeat themselves now; for the time being, this seems a hiccup, and an addressable one.

One way to address that situation that is probably not available, however, is to privatize Petrobras. It is not just because such an option is off of the table for Dilma Rousseff; it is because the Brazilian population would likely push back against such a process. How do we know? Because of the 1990s. Between 1995 and 2003, president Fernando Henrique Cardoso implemented neoliberal policies that privatized many state-run industries, and (unsuccessfully) attempted to even privatize Brazi’s federal education system. However, when he considered privatizing Petrobras, he ran up against such significant public opposition that he had to abandon the full privatization and selling off of the company. Indeed, in many ways, the election of Lula in 2003 marked a repudiation of Cardoso and his party’s neoliberal policies, which by 2000s had led to significant problems in the Brazilian economy once again, even while social programs had failed to address gross socioeconomic inequalities that affected an not-insignificant portion of the population. Privatization hit Brazil (and much of Latin America) particularly hard in the 1990s and early-2000s, leading to the rise of the so-called “Pink Wave”/”New Left” of leaders throughout the region.

Certainly, Brazil’s energy challenges (and the related economic issues) are not limited to just gasoline. A burgeoning population is creating real questions in energy policy beyond gas. This is not to say the Petrobras issue is inconsequential, or that these economic issues are phantoms; rather, it’s to say that the economic level is not the sole, nor even the final, determinant of success or impact.


About Colin M. Snider

I have a Ph.D. in history, specializing in Latin American History and Comparative Indigenous History. My dissertation focused on Brazil. Beyond Latin America generally, I'm particularly interested in class identities, military politics, human rights, labor, education, music, and nation. I can be found on Twitter at @ColinMSnider.
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