MOVES: Brazil Petrobras CEO resigns in wake of trucker strike

01 June 2018 18:15 Source:ICIS News

HOUSTON (ICIS)--The CEO of Petrobras has asked to be dismissed of his duties, following a tumultuous week marked by nationwide strikes protesting against rising fuel prices, the Brazilian state energy producer said on Friday.

parentePedro Parente became CEO in mid-2016.

Petrobras will search for an interim CEO, it said in a filing with the Sao Paulo stock exchange (Bovespa).

The company's US-listed shares fell sharply following Parente's resignation, dropping by more than 15% midday.

In his resignation letter, Parente said that his tenure as CEO is no longer making a positive contribution to the company, given the recent trucker strike.

The strike started on 21 May with truckers protesting fuel prices. It ended on Monday after the Brazilian government agreed to lower diesel prices.

"The trucker strike and its serious consequences to the country unleashed an intense and at times emotional debate," Parente said in his letter. This debate focused on Brazil's policy for setting fuel prices.

As Brazil seeks alternatives to its pricing policy, Parente said he would be a hindrance to these discussions.

Those discussions will likely centre around the agreement that the government and the truckers reached to end the strike.

As part of that agreement, the price of diesel fuel will be reduced by real (R) 0.46/litre (47 cents/gal). The amount is equivalent to how much the government collects through the Contribution for Intervention in the Economic Domain (CIDE) and Social Integration Program (PIS) taxes on the fuel.

Prices will be frozen for 60 days, the government said. After those 60 days, diesel prices will be adjusted every 30 days.

The Brazilian government said the decline in fuel prices will not be absorbed by Petrobras. Instead, the government will cover the difference to prevent the agreement from damaging the company's finances.

The agreement raises the question of Petrobras's independence in setting fuel prices.

In the past, the government had more control over fuel prices, and it pressured Petrobras to keep them below international rates. The result gave Brazilians lower prices for gasoline and diesel, but it caused Petrobras to lose millions.

That policy changed in July 2017, and Petrobras has exercised that flexibility to increase fuel prices, in response to a weaker national currency and to higher oil prices.

It remains to be seen whether a less flexible pricing policy will hurt Petrobras's finances or whether it will lead to more intervention by the government.

The government reached the agreement as the strike became increasingly damaging to the nation's economy.

The strike was especially disruptive to Brazil because it relies overwhelmingly on trucks to deliver goods, given the paltry state of its rail network.

The strike disrupted operations at several chemical plants, which could not receive raw materials or ship out finished products.

Brazil's largest petrochemical company and sole polyolefins producer, Braskem, is operating its plants in Brazil at 50% capacity because of logistical disruptions caused by the strike.

Braskem had been gradually reducing the utilisation rate of its central petrochemical plants in the country, it said in a filing on Thursday with Bovespa. As the nation's logistics return to normal, Braskem will bring operating rates back to normal, the company said.

Other chemical producers, such as AkzoNobel, BASF and Elekeiroz, also reported disruptions because of the strike.

Solvay Group's Rhodia said on Wednesday that some of its operations are being impacted by the truckers blockading of highways. It has informed customers and is "preparing to regulate recovery of some of its production units and delivery of products, so the transport situation is normalised".

ARLANXEO's plants are running according to the company's monthly production schedule, the company said on Wednesday. Some shipments could face delays because fewer trucks are available and because of leftover highway blockages from the strike.

Just days after the truckers ended their strike, Brazilian refinery workers called for their own strike on 30 May that affected most of the country's refineries.

Like the truckers, the Federation of Petroleum Workers (FUP) also protested the new pricing fuel policy of the company, which gives it more flexibility.

The FUP also requested the resignation of Parente.

Parente did not mention this request in his resignation letter.

The FUP ended its strike ahead of schedule on Thursdsay after the Brazilian labour court raised the daily fine it would impose on the union to R2m ($536,000) from R500,000. It was supposed to last for 72 hours.

"The oil workers are leaving the strike with their heads held high, as they have fulfilled an important chapter in this fight by revealing the private and international interests that rule the management of Petrobras," the FUP said.

($1 = R3.73)

Pictured above: Pedro Parente. (Photo by Francisco de Souza/Agência Petrobras )

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By Al Greenwood