Petrobras Dividends Under Fire by Cash-Strained Lula

(Bloomberg) — It didn’t take long for Brazil’s state-controlled oil giant Petrobras to come under fire from newly elected President Luiz Inacio Lula da Silva, who is struggling to avert a major slowdown in Latin America’s largest economy.

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This week Petroleo Brasileiro SA, as the company is formally known, got hit with a four-month tax on oil exports. Its asset sales have been put on hold for 90 days, and it has been pressured to constrain fuel prices. The government also has plans to reduce the amount of dividends it pays, according to a person familiar with the matter.

It all points to Lula changing Petrobras from a profits machine to a vehicle for national development, a prospect that caused a selloff this week. Lula has long favored a stronger role of the state in the oil industry, and since his presidential campaign has been calling on the company to invest more in lower-margin businesses such as refining and renewables and also criticized its pricing policies.

Even so, the government has strongly denied it’s intervening in Petrobras’s internal decisions and said fuel prices were above international levels before the company adjusted them lower.

Oil majors the world over are flush with cash after oil prices soared last year, putting them under scrutiny for windfall profits at a time consumers are suffering from inflation. Chevron Corp. has been bashed by the White House after unveiling a $75 billion share buyback. In Europe, TotalEnergies SE and Shell Plc are among producers hit with windfall taxes.

Gleisi Hoffmann, the speaker of the lower house and a Lula ally, summed up the ruling Workers’ Party position in a tweet, where she called for an end to the “indecent distribution of dividends” and more “fair” fuel prices. The recent developments confirm fears investors have had since the election cycle about the company becoming less profitable under Lula.

The export tax could undermine confidence in Brazil as a destination for oil investments and even hurt prospects for production growth, the Brazilian Oil and Gas Institute, an industry group known as the IBP, said in a statement.

If the export tax expires as planned in four months, it will cost Petrobras an estimated 2.2 billion reais ($420 million), JPMorgan Chase & Co. said in a note to clients, adding that there are concerns the levy will remain in place.

“Investors will also ask if these taxes will really be temporary,” JPMorgan said. “This would shave 9.2% of export revenues of the industry forever, which becomes substantially more material.”

Petrobras is scheduled to report fourth-quarter earnings after the close of trading Wednesday. Total dividend payouts through the third quarter of 2022 stand at around 180 billion reais, well above the prior year’s record of 101.4 billion reais.