By Carlos Alberto Sardenberg.
Less than three years ago, then Brazilian President Lula gave a triumphant interview to newspaper Valor Economico. Among other things, he said bluntly that Petrobras did not want to build refineries and also had a plan for meager investments in 2008. “Then I called the company’s Board,” said Lula. Outcome of his call: not one but four refineries were added to its investment plan, and oil production forecasts were revised up for fantastic numbers.
Last month Petrobras officially informed investors that out of the four refineries only one (in Pernambuco) continued to be on track to meet the original plan. And yet, with huge delays, increased costs and no money from Chavez’s oil company PDVSA (part of the original plan). All production targets set by Petrobras have been reduced. The previous forecasts were “unrealistic,” said recently the company’s now CEO Graca Foster. According to her, among other examples of mis-management is the fact that heavy machinery were purchased even before the projects were approved.
So far, nothing has yet been said about the cost of all this mess to Petrobras. Graca Foster said the Pernambuco refinery will start operating on November 2014, at 14 months delay compared to the previous goal, and it will cost US$ 17 billion, three billion more than forecasted. In fact, the error is much greater.
In the way it was announced by Lula, the refinery would cost only US$ 4 billion and would be ready before 2010. Question: How can a company like Petrobras make a huge planning mistake like this? The answer is simple: the state-company did not have any plan for this project, but Lula decided, gave orders to the Board of Directors, and put together a project sketch. Then he just announced it and made inaugurations.
It’s called populism. And this is the Lula
not Brazil cost. Yes, because the result of this populism becomes a loss to shareholders, the government and the private sector. And the full responsible for this is the former President and Petrobras’ board of directors that agreed to his demands.
But wait, there’s more to it. In this same interview, Lula said he ordered state-bank Banco do Brasil (BB) to buy Banco Votorantim because it had a good portfolio of auto loans and he had to encourage this sector, an important one to the economy. Said and done. BB bought Votorantim only to find out it was full of problematic loans, so it bailed out Votorantim and swallowed a loss of over US$1 billion due to above average default rates. That’s bad business, as many experts warned at the time. But then Lula explained his rationale: “When we went to buy Votorantim, we had to disregard valuation and market speculation.”
Giant iron-ore company Vale escaped from Lula’s injury. In the same interview, Lula confirmed that it was trying to convince Vale to invest in steel mills and aluminum manufacturing plants. When many argued that the mining company may not be interested in these investments because of the high costs, Lula answered by saying that private companies have to have nationalism as their first commitment in business.
Vale accommodated to Lula’s demand as much as it could, including the ousting of its then president Roger Agnelli, but if it had invested in the steel plants as Lula wanted it would have been bankrupt by now. Same as for the aluminum plants whose production requires a lot of electricity, which in Brazil remains the most expensive in the world. In other words, it was not the time build refineries and steel mills. The experts were right. Lula was wrong. Private companies turned Lula down and are ok, while the state companies agreed to him and are suffering.
How many other projects and goals from the Lula government are off? The works of transposition of the Sao Francisco river are also delayed and more expensive. The bullet train project started costing R$ 10 billion and has already surpassed the R$35 billion mark. The same way that Petrobras revised its project plans, it is urgent that other giant public plans are reviewed.
But there is the other major point, the political one. President Dilma worked for the Lula government, in positions of authority on Petrobras. Graca Foster was director. One can’t imagine how Petrobras CEO Foster could have possibly made these criticisms without the authorization of Dilma.
Is it possible that the duo only became aware of Petrobras’ problems now? Or they fully knew about the previous mistakes, but remained silent before Lula’s strength and authoritarianism?
Anyway, the Lula cost is starting to show up. Even in politics.
Source: O Globo (“Custo Lula”)