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”)

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11 Responses to The “Lula Cost”: Petrobras underperforms due to ex-President Lula’s intervention and populism

  1. marcos says:

    If Petrobras underperformed under Lula, what one could say about his predecessors? Brink of bankruptcy?

    I don’t know if it’s a problem in the translation, but the bullet train example is pathetic, it doesn’t exist as a cost, simple as that.

    Sardenberg is a shill, and his rhetoric is weak as hell, how can anyone buy his “arguments” is a mystery…

    Seriously, any of you really believe that Lula himself came up with the plans? He was part of the problem, but the bullish behavior is/was pervasive of the whole government/society.

    Finally, when you compare the shareholders’ “losses” against the boom that Abreu Lima created for the region, it makes you want to slap that little-crook Sarderbeng.

  2. alexNY says:

    a combination of the words lula + underperform
    or lula + corruption on any site on the net will trigger a army of “lazy socialists” defending the government
    they have a buiding full of people hired (with public money) to monitor the net for any negative comment writtem about the ex populist dictator

  3. samuel says:

    A very good text. If somebody as Sardenberg does’nt bring those problems alive how could we understand why economic growth is 0,2% this year (ohh I love the precision of government statistics).

  4. rosenstein says:


  5. McIvor says:

    Lula is an illiterate and populist moron. It is a fact that his constant interfering in Petrobras business was a disaster for the company.
    And the idiot wants to be president again. Only in Brazil.

  6. ROSENSTEIN says:

    Brazil is full of illiterate clowns who vote for…? Illiterate clowns, of course.

  7. wake up says:

    marcos, petrobras only “underperformed” under lulla mollusco because the price of the barrel of oil shot up more than 10 fold during his administration. same goes for the rest of the economic growth that came thanks to a rise in commodity prices. had china not poured so much into building and infrastructure during the past 10 years which inflated commodity prices so much, brazil (and petrolulla) would be bankrupt today.

    wake up and smell the homeless.

  8. Fernando says:

    Marcos, there is no “if” Petrobras underperformed, it is a fact. In fact “underperform” is a light word to describe what in reality was a complete disaster.

    In 2005 Petrobras released with great fanfare its Business Plan 2006-2010, which set the goal of producing 2.8M BOE/day in 2010. After five years of mismanagement, demagoguery and populism, in 2010 the company was only producing 2.3M BOE/day, a full 500 thousand BOE/day less than expected.

    The losers – Petrobras shareholders (the Brazilian Federal Government and the muppet investors who believed Lula), who saw their stock value being wiped out.

    The winners – Lula and its usual gang of cronies (Odebrecht, Camargo Correia, Queiroz Galvao), who profited immensely from EAS, Abreu e Lima and other crappy investments.

  9. XXXL says:

    You didn’t need to know at that time the details to be sure there was a lot of oba-oba going on on midia insuflated by Lula and his fellows. Bombastic numbers, knowing the way things happen inside these estate company’s. I really would like to see all the midia channels which backed up Lula and his populist propaganda, show the result now to country. And there’s still a lot to come, since he expanded the size of state way over the reality of tax income, we will carry this overweight state the next years. What really is a surprise is Dilma’s administration, one hand with Lula, the other searching better partners. Really curios to see who wil be the PT candidate for presidency in 2015.

  10. ana says:

    “Finally, when you compare the shareholders’ “losses” against the boom that Abreu Lima created for the region, it makes you want to slap that little-crook Sarderbeng.”

    Ah, concentrated benefits, dispersed costs! Who cares about that silly taxpayer?

  11. samuel says:

    The PT party man is coming very slowly in relationship groups. Pretend like the subject, put photos, images comments, etc.
    If the subject are trains and railways, for example, he starts just talking about that privatization of the railways was a “property crime” (?) And such.
    Pull the subject of the accident subway and so on. Quickly – it’s easy to see – forget that it is a passion for trains (which would not be many, if there had been privatized).
    They are infecting even those who appreciate pages Donald Duck and Cebolinha
    The Google translator is so good That I Will be Applying for a literary prize!

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