http://www.digitaljournal.com/news/world/petrobras-brazilian-economy-s-flawed-crown-jewel/article/523645

Petrobras: Brazilian economy's flawed crown jewel

Posted Jun 1, 2018 by Eugenia LOGIURATTO (AFP)
You can't get away from Petrobras in Brazil. Whether negotiating multi-billion dollar deals with foreign oil majors or sponsoring local sports events, the state-controlled giant is everywhere.
Oil industry workers demonstrate on the first day of a nationwide strike against high fuel and cooki...
Oil industry workers demonstrate on the first day of a nationwide strike against high fuel and cooking gas costs and demanding the resignation of Petrobras' CEO Pedro Parente, who stepped down Friday
Mauro PIMENTEL, AFP/File

You can't get away from Petrobras in Brazil. Whether negotiating multi-billion dollar deals with foreign oil majors or sponsoring local sports events, the state-controlled giant is everywhere.

But the resignation of CEO Pedro Parente on Friday is a reminder that the crown jewel in the Brazilian economy is also a source of regular trouble.

- What is Petrobras? -

The company was founded in 1953 under the presidency of Getulio Vargas, when Brazil was in an economic boom.

The former CEO of Brazil's state-controlled oil company Petrobras  Pedro Parente  speaks as the...
The former CEO of Brazil's state-controlled oil company Petrobras, Pedro Parente, speaks as the company gives its quarterly report last month
Carl DE SOUZA, AFP/File

In the heavily nationalist policies of the era, the company whose full name is Petroleo Brasileiro S.A. was the pride and joy. Created under the slogan "the oil is ours," it had a monopoly on the energy market.

That status has eroded steadily over the decades, right up to last year's decision to allow competitors to operate the valuable deep-sea "pre-salt" blocks off Brazil's coast.

Today, Petrobras employs nearly 63,000 people, with daily output of 2.8 million barrels of oil equivalent a day, according to its website.

- Corruption bomb -

Under the presidency of Luiz Inacio Lula da Silva, from 2003 through 2010, Petrobras helped fuel a national economic boom, led by soaring commodities prices.

This was also the period when the pre-salt fields were discovered, putting Brazil firmly on the oil majors' map. Today, pre-salt production accounts for 50 percent of the total.

The Petrobas refinary Presidente Bernardes  in Cubatao  Sao Paulo
The Petrobas refinary Presidente Bernardes, in Cubatao, Sao Paulo
Miguel SCHINCARIOL, AFP/File

But from 2014, under Lula's hand-picked leftist successor, Dilma Rousseff, boom turned to bust, with the commodities market crumbling and a corruption scandal centered on Petrobras itself causing turmoil through the country.

The scandal, dubbed the "Car Wash" investigation, revealed that top politicians and executives at big Brazilian construction companies were colluding with Petrobras leaders to fleece the company.

More than $2 billion was stripped from the company through over-inflated contracts in exchange for bribes, making Petrobras a byword for large-scale graft.

- Question of price -

In 2016, Rousseff was impeached for illegally manipulating government accounts.

Her center-right replacement, President Michel Temer, set out to put Petrobras on a new path -- even if later he was charged with being one of the scores of politicians allegedly taking part in the embezzlement scheme.

Parente was tasked with leading the way.

A key new policy, meant to keep politicians out of Petrobras' affairs, was ending government price controls. From now on, the company could set fuel prices in line with the international market.

An oil industry worker demonstrates in front of the headquarters of Brazil's state-owned oil gi...
An oil industry worker demonstrates in front of the headquarters of Brazil's state-owned oil giant Petrobras in Rio de Janeiro, Brazil on May 30, 2018 -- the strike was suspended the following day
Mauro PIMENTEL, AFP

This helped bring investors back to the wounded giant. But it also saw prices rise inexorably, hurting Brazilians already suffering from a devastating two-year recession.

On May 21, that anger burst into a truckers' strike that took the authorities by surprise, grinding the flow of goods and fuel nationwide to a halt. Within days, major cities like Rio de Janeiro and Sao Paulo barely had any gasoline or fresh fruit.

On May 27, Temer caved in to their main demand: lower fuel prices.

This, plus another strike by oil workers that took place this week, made Parente's position untenable -- and cast doubt over Petrobras' future path.