Brazil's Capitol Hill worries the markets, but much less than Lula's next moves on the economy. There Sao Paulo Stock Exchange in fact, he did not register any particular jolts in the days following theassault of Brasilia: the government's prompt response allowed the index Ibovespa to navigate above parity, driven by the favorable international context, especially by the signs of recovery in China, to whose economy Brazil is closely linked, through the exchange of raw materials but not only. Of course, tensions will have to be kept under control, but it is the economic agenda that matters most. Indeed, if the Stock Exchange withstood the coup attempt, the same cannot be said for thesettlement of Lula, on New Year's Day: on January 2nd, the Ibovespa index lost 3% in a single session.
Brazil: Ibovespa fears a halt to privatizations
Markets fears are related to the strengthening of the new president after the prompt reaction to the terrorist acts. Lula could now capitalize on the wave of consensus by avoiding unpopular but necessary measures for financial stability, such as thetax increase, and move more to the left, proposing a more interventionist state in economic matters. In the crosshairs of foreign investors, who account for more than 50% of daily trading on the Stock Exchange, there are above all the stop privatisation started by Bolsonaro and the management of the family jewel, Petrobras, and in general of the investee companies, which come from a positive 2022 even if in sharp slowdown since Lula won the elections at the end of October. One figure above all: since the last week of October, the one before the second round of the presidential elections, investee companies have burnt 227 billion reais on the Stock Exchange (at the current exchange rate they are almost 44 billion euros), with only Petrobras which lost 190 billion reais (36 billion euros), followed by Eletrobras with -27 billion.
Brazil: the Stock Exchange looks to Petrobras
Il Petrobras case is central for various reasons, starting with that of social tensions: during the electoral campaign, the former president Bolsonaro had doped the market by cutting some taxes to lower the fuel price, and Lula prudently extended the measure by two months, until the end of February, pending the decisions of the new president in pectore, Senator Jean Paul Prates, who boasts 30 years of experience in the energy sector. The first objective, in the wake of what happened in Brasilia (that day some fanatics also attempted to besiege the Petrobras refineries in the country), is therefore Avoid petrol surge and thus exorcise a new wildcat strike by truck drivers, who in 2018 had blocked the country, unleashing inflation and causing a 10% collapse in industrial production. Then there is the question of sale of some refineries, following an agreement already signed in 2019 with the Cade, a sort of Brazilian supervisory authority, which reproached Petrobras for acting in a monopoly.
Brazil: 8 refineries for sale but Lula is stalling
For this reason, the new management is expected to sell 8 of the 13 refineries in Brazilian territory, dropping to a market share of around 50%, but the government is stalling. The temptation of Lula and Prates is in fact to modify the terms of the agreement with Cade, even if this would probably give way to a very heavy sanctioning procedure. The strategy in any case will be that of iEncourage national production, taking into account the instability of the international energy market since the war broke out in Ukraine. To prevent the privatization of some refineries from causing a new surge in prices, the new government is also considering investing the money raised from the sale in new oil assets, so as to increase competition on the domestic market. The Petrobras plantsmoreover, they are coveted by large international funds: the one in Mataripe, in Bahia, which holds 14% of the Brazilian refining market, has already been sold to the Arab investment fund Mudabala.
Petrobras refinery privatization: Lula's strategies to contain prices
These are therefore very hot weeks, also because the top management will also have to establish a pricing policy. Today Brazil is a major oil exporter but also a major importer of finished products, including fuels. Currently the taxes on imports refer to international standards, but this penalizes Petrobras and therefore an adjustment is being thought of according to the imported products and the destination areas. To stabilize prices, the government is also thinking of a solution similar to the one adopted in Italy last year, that is finance the compensation with the extra profits of the companiesthus sacrificing dividends. Or by raising taxes on exported crude, but this would make Brazil less competitive in an already turbulent market. All these hypotheses are closely watched by the markets, which initially rewarded Lula's election, but there is no longer (and there never has been) a honeymoon climate. Prates tried to reassure by saying that "the prices are not set by Petrobras but by the market", and that "the government will only make small adjustments".
Petrobras: less dividends and more investments
In particular, the issue of dividends is under scrutiny. Petrobras historically has one dividend policy generous: it has come to distribute 80% of the profits to its shareholders, but things could change. In the financial year ended in November 2022, the board of directors approved the distribution of 44 billion reais (8,5 billion euros), in two tranches (the second is being paid in these days), but the new president Prates has already done so intend to be against paying exorbitant coupons going forward, preferring to focus on the investments and granting the shareholders only 25% of the profit, which is the minimum share required by law. THE profits in the two-year period 2023-2024 they are expected to be around 100 billion reais a year, a drastic drop compared to last year's 183 billion. In the industrial plan to 2027, investments of 85 billion are announced over the next two years, against a cash flow of 160 billion. Out of the remaining 75 billion, the new management will have to resolve the doubt: to please the shareholders or to invest?
