Since the beginning of the war in Ukraine, the newspapers have been filled with news of possible increases in fossil fuels, both because of Petrobras’ imports of oil and oil products from Russia, and because of the different economic sanctions that the country began to suffer for the attacks
This expectation was then confirmed on March 10, when Petrobras announced the already expected increase in fuel prices for distributors. Gasoline increased by 18.8%, while diesel increased by 24.9% and cooking gas by 16.1%.
With the announcement, Petrobras’ shares went up considerably, by about 5.42% for common shares and 6.27% for preferred shares, which shows that the capital market has a good view of the fact that the state-owned company remains committed to adopting the International Parity Price (IPP) policy.
As a mixed economy company, Petrobras has the Federal Government as its largest shareholder, which, under the terms of Article 238 of the Corporation Law (Law 6404/76), has the duties and responsibilities of the controlling shareholder (articles 116 and 117), but may, however, guide the activities of the company to meet the public interest that justified its creation.
Nevertheless, the interference of the Federal Government, the state-owned company’s controlling shareholder, has worried investors and minority shareholders, considering that Petróleo Brasileiro S.A. is part of the select list of companies that are able to affect not only the Brazilian stock market, but also to raise and motivate political and macroeconomic issues.
With this in mind and with the approach of the Shareholders’ meeting scheduled for April 13, Petrobras’ minority shareholders and investors seek the strengthening of corporate governance practices at the state-owned company so that, if for political reasons Petrobras stops passing on price increases and, consequently, stops complying with the International Parity Price (IPP) policy, the managers can be judicially challenged, which can repress political interference.
The rights and duties of these managers are provided for in the Brazilian Corporation Law, which foresees in its article 154 and §1, that the manager must exercise the powers that the law and the articles of organization confer on him/her to achieve the purposes and in the interests of the company, meeting the requirements of the public good and the social function of the company.
In addition, Petrobras is also subject to the State Law (Law No. 13303/2016) and its own Articles of Incorporation[1] which states, in particular in its article 3, that the company should practice its policies according to market conditions (§1), however, they may be guided by the Federal Government in order to contribute to the public interest that justified its creation (§3).
However, the Articles of Incorporation goes on to say that “the Federal Government may only direct the Company to assume obligations or responsibilities, including the implementation of investment projects and the assumption of specific operating costs/results, such as those related to the marketing of fuels, as well as other related activities, under conditions different from those of any other private sector company operating in the same market, when […] it has its costs and revenues itemized and disclosed in a transparent manner, including in the accounting plan” (§4) (emphasis ours).
It ends in the regard that, when guided by the Federal Government to contribute to the public interest, the Federal Government “shall compensate the Company every fiscal year for the difference between the market conditions set forth in §5 above and the operating result or economic return of the obligation undertaken” (§6).
In other words, according to the legal and the articles of incorporation provisions, should Petrobras not practice its policies under market conditions, by guidance of the Federal Government, there must necessarily be ample disclosure of its losses and the consequent compensation by the Federal Government, as the controlling shareholder[2].
However, the Company still sees the need for amendments to its Articles of Incorporation in order to strengthen the governance of Petrobras and avoid greater political interference, as it can be seen from the Call for a Special Shareholders’ Meeting [3] which includes as a resolution, the proposal to rewrite the Articles of Incorporation, especially the conditions for investiture in management positions (art. 21); rules for the positions of Directors and members of the Executive Board (art. 22), and their responsibilities (art. 23), in addition to the powers of the Board of Directors (arts. 29 and 30), the duties of the Executive Board (art. 33), rules for calling meetings of the Executive Board (art. 35) and the powers of the Special Shareholders’ Meeting (art. 40).
The main adjustments, as pointed out by André Ramalho in an article for Valor Econômico[4], are “the need for a qualified quorum for election and removal of the Governance and Compliance officer by the executive board” and the strengthening of the “role of the board advisory committees [investment and minority shareholders’ committees] in the evaluation of matters related to the company’s corporate purpose.”
As Petrobras is one of Brazil’s most important state-owned companies and considering the current moment of fuel price hikes combined with the demands of investors and minority shareholders to respect the PPI policy and change in the rules of governance, there is no doubt that the shareholders’ meeting to be held on April 13 will be the stage for a great debate.
[1] Articles of Incorporation of Petróleo Brasileiro S.A. Available at <https://api.mziq.com/mzfilemanager/v2/d/25fdf098-34f5-4608-b7fa-17d60b2de47d/31da34d0-1343-0014-c905-40108ec2c11e?origin=2>. Access on 3/30/2022.
[2] COELHO, Fabio. Sobre atuação econômica de Estatais fora de condições de Mercado. Available at <https://amecbrasil.org.br/wp-content/uploads/2022/03/Flash-Amec-21-v04.pdf>. Access on 3/30/2022.
[3] Notice of Petrobras Call for Meeting. Available at <https://api.mziq.com/mzfilemanager/v2/d/25fdf098-34f5-4608-b7fa-17d60b2de47d/fc06725f-b8d8-9534-84eb-e939cb3c5f9b?origin=1>. Access on 4/05/2022.
[4] RAMALHO, André. Petrobras vai reforçar governança em estatuto social. Available at
<https://valor.globo.com/empresas/noticia/2022/03/14/petrobras-vai-reforcar-governanca-em-estatuto-social.ghtml>. Access on 3/30/2022.
Available at: https://www.conjur.com.br/2022-abr-20/negro-oliveira-proposta-alteracao-estatutaria-petrobras
Autor: Fernanda Regina Negro de Oliveira • email: fernanda.oliveira@ernestoborges.com.br
