Petrobras, as any state-owned company is no transparent. It can be CNOOC, NNPC, Iran Oil Aramco, you name it. Those enterprises are recources the government use to achivee thier goals.
Political pricing is the most problematic. Indonesia has a bomb in it hands: how can they increase prices without the poor people -used to subsidies- go to the streets? Same as for Nigeria. For 16 years they've been trying to bring prices on par to market. To no avail.
There is a worse problem. Those stateowned entities are run for their empoyees. A pension hole here or there have to be plugged. They strike for more pya, even though they are already over paid fot a given market.
Must be privatized.
Reforms Pump New Life Into Brazil's Petrobras
By Heather Bourbeau
Staff Reporter
1/6/00 9:23 PM ET
Brazil's efforts to transform its federal oil company Petrobras (PTBRY:Nasdaq ADR - news) into a more transparent and competitive firm are whetting the appetite of foreign investors -- though the pace of reform has caused some Brazilians to question their commitment to open markets.
The makeover, which includes the sale of a chunk of government-owned shares and plans to sell off laggard corporate parts, has already benefited Brazil's largest and most-traded company, Petroleo Brasileiro SA, the oil giant's full name. The developments, coupled with renewed interest and recovery in Brazil, pushed the company's ADRs 126% higher in U.S. dollars in 1999. Over the same period, the benchmark Bovespa rose 152% in local currency terms and 69% in dollar terms. (In recent days, the Bovespa and Petrobras have dropped in tandem with world markets.)
"Petrobras appears poised to realize its vast potential and become an increasingly profitable entity," wrote Barry MacCarthy, Latin American oil analyst at Paribas. Paribas has done no underwriting for Petrobras in the past three years.
The company's steady climb, however, may slow this summer when the government offers nearly half its voting stake in the former state monopoly, raising an estimated 8 billion reais ($4.31 billion). Roughly 15% of the company is currently traded publicly and that will increase to 50% minus one share if the government is allowed to continue its sale.
In a quixotic effort, the Senate recently approved a draft bill that would prevent the sale of any voting Petrobras shares to the public. However, the National Privatization Committee has already approved the sale. The bill is headed to another Senate committee in February, where it is expected to be thrown out.
"The Brazilian people accept the sale, which is viewed as positive for Petrobras and the Brazilian economy," says Marcia Graz, oil investment analyst at Santander Investment in Brazil. "Brazil needs to be modernized."
As part of that modernization, Petrobras will continue inching ever closer to full privatization, using an incremental strategy called "privatization from within." While other Brazilian privatizations, such as that of phone company Telebras, have been swift and decisive, the Petrobras program has dragged on for just over two years.
Last year, the Brazilian oil market was opened up to imports and private companies began competing with Petrobras. The greatest facelift came when a new administrative council, comprised of private-sector representatives and the Mines and Energy Minister, was created to transform the company into a profit-oriented multinational.
So far, the council has been swift with reform and aggressive with exploration. There are plans to sell some refineries (Petrobras owns 11 of Brazil's 13 refineries), increase natural gas production and undertake more private company partnerships and more international projects. Ending years of guesstimates on the part of investors, the new council has instituted stricter and more transparent accounting practices in a transition to U.S. accounting standards.
Next year, however, Petrobras must deal with the fiscal and emotional leftovers of the centralized economy -- subsidies. Oil and gas subsidies for consumers ate into the company's fourth-quarter earnings due to a growing discrepancy between local and international oil prices, as world crude prices climbed to more than $25 a barrel.
The government has been raising domestic oil prices spasmodically, and subsidies for oil derivatives are scheduled to end January 2001, postponed from a full price deregulation set for August 2000. On the upside, rather than affecting the stock, the delay was absorbed by the market, which considered the original August deadline too aggressive.
Analysts and investors caution that Petrobras local stock and ADRs may dip as the government sale begins. But with domestic and international interest high, supply slack should get taken up quickly.
In fact, Mary Bourque of J.P. Morgan expects Petrobras' stock to perform well this year, albeit much slower than the crazed climb of 1999. She has a revised 12-month price target of $30 per ADR, implying a 26% U.S. dollar gain. J.P. Morgan has had an investment banking relationship with Petrobras in the past.
Over the long run, Petrobras should profit from an end to subsidies, an aggressive but reasonable international expansion plan, growing stability in the Brazilian economy and a drop in Brazil's real interest rates.
Brazilians might not appreciate the pain of full-price fuel, but international investors will appreciate the further drive toward modern competition with its increased transparency, efficiency and probability of higher stock prices.
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