On November 20, 2018, Brazil’s incoming government named Roberto Castello Branco to lead Petrobras, setting up a fresh debate over how far the state oil giant should go in selling assets. The University of Chicago-trained economist said he would not pursue privatization, but would push cost cuts and a narrower focus on oil exploration and production.
Castello Branco’s appointment came from President-elect Jair Bolsonaro’s camp as part of a series of market-friendly picks linked to adviser and future Economy Minister Paulo Guedes. Investors have been watching those choices closely, hoping the new administration would move ahead with reforms, including changes to Brazil’s pension system, after Bolsonaro took office on Jan. 1.
In comments to Folha de S. Paulo, Castello Branco said privatizing Petrobras was not part of his brief. He added that he expected Brazil’s Supreme Court to allow the company to keep selling assets, including majority stakes in two refinery blocks and in a gas pipeline company.
He had already told O Estado de S. Paulo that Petrobras Distribuidora, the company’s fuel distribution arm, was not a natural fit and did not deliver returns. That view helped lift shares in BR Distribuidora by almost 6 percent, as investors speculated the government could sell its 70 percent stake in the unit.
Castello Branco also said he would review all ongoing asset sales, including Liquigas, the liquefied petroleum gas distribution company. “Petrobras’ competence is in oil exploration and production,” he told the newspaper.
The new chief’s stance exposed a split inside Bolsonaro’s orbit. Guedes has argued for full privatization, while military generals around the president-elect have opposed that route. Bolsonaro himself told reporters on Monday that some Petrobras units could still be privatized, even though he described the company as strategic for Brazil.
The appointment also reinforced the influence of University of Chicago alumni in the incoming administration. Castello Branco had been a post-doctoral fellow at the school, joining Guedes and former Finance Minister Joaquim Levy, who was tapped to lead the state development bank BNDES.
Chicago’s economics department has long been associated with orthodox policy thinking in Latin America, and Brazil’s business elite has welcomed the prospect of those ideas shaping public administration. James Gulbrandsen, chief investment officer for Latin American investments at NCH Capital, said: “We basically have the University of Chicago economics department taking over the Brazilian economy,” adding that Castello Branco had previously backed less government intervention and even privatizing parts of Petrobras.
Castello Branco served on Petrobras’s board until 2016 and has also held executive roles at Brazil’s central bank and at iron ore miner Vale SA. Analysts at Banco Bradesco BBI said they expected Petrobras’s deleveraging and divestment program to continue under his leadership.
Petrobras carries about $88 billion in gross debt, even as it remains central to Brazil’s deep-water oil development. Its standing has also been damaged by the Car Wash corruption investigation, which has weighed on the company’s image and finances for years.
Markets reacted unevenly on the day. Petrobras preferred shares rose 0.8 percent after swinging during trading, while Brazil’s benchmark Bovespa index fell 0.7 percent. Bolsonaro also said Petrobras’s outgoing chief, Ivan Monteiro, could move to Banco do Brasil, though no final decision had been made. Petrobras said Monteiro would leave on Jan. 1.
The company’s leadership change, and the debate around asset sales, signaled that Petrobras would remain at the center of Bolsonaro’s economic agenda as the new administration prepared to take office.
