Newsmaker: Brazil minister faces uphill fight to fix battered energy sector

Valecha Engineering

23/05/2016 19:20

By Jeb Blount and Rodrigo Viga Gaier 
    RIO DE JANEIRO, May 23 (Reuters) - Interim President Michel 
Temer has given one of the biggest jobs of his administration to 
the youngest and least known of his cabinet members: Mines and 
Energy Minister Fernando Coelho Filho, 32. 
    Trouble in the oil, electricity and mining industries is 
responsible for nearly a third of last year's 3.8 percent 
economic decline, deepening Brazil's worst recession since the 
1930s. 
    Sliding crude prices and a corruption scandal have rocked 
state-run oil company Petrobras  PETR4.SA , which may need 
government help to deal with its $130 billion of debt, the 
largest in the world oil industry. The scandal has also hit 
state-run utility Electrobras  ELET6.SA , which this month had 
its shares delisted on the New York Stock Exchange and also may 
need a bailout. 
    Coelho, the baby-faced son of a powerful political family, 
was handed one of the government's biggest portfolios on May 12. 
Hoping to pay the debt without huge bailouts, the Temer 
government wants him to speed the sale of Petrobras and 
Eletrobras assets and open the oil sector to more foreign 
investment.  urn:newsml:reuters.com:*:nL2N1731BF 
    These moves will likely offend the deep nationalist feelings 
of many Brazilians, including suspended President Dilma 
Rousseff, who is still respected by many for expanding social 
programs that lifted millions from poverty. 
    Leftist and union groups are fighting her impeachment and 
impending Senate Trial. Believing the state must direct all 
energy development, they have also promised to fight Temer's 
more free-market oil, electricity and economic policies. 
 urn:newsml:reuters.com:*:nL2N1850JX 
    "The previous government ... killed the goose that lays the 
golden eggs," said Edmilson dos Santos, an energy policy 
professor at the University of Sao Paulo. "Rousseff was warned 
her policies would end in disaster, but she refused to listen."  
    Ceolho's experience in the energy sector is slim, beyond 
bills to cut taxes on hybrid and electric cars and to support 
farmers making ethanol from manioc, a staple root vegetable. 
    He does, though, have 10 years under his belt in Brazil's 
rough and tumble Congress. When elected at 22, he was then the 
youngest person ever seated in the lower house. 
    "He has more political than technical experience," said 
Helder Queiroz, former head of Brazil's petroleum regulator ANP. 
"But the ministry requires more technical knowledge. The 
companies he'll be dealing with demand much of a minister in a 
strategic job." 
    Coelho did not return calls seeking an interview for this 
story. 
     
    EXPERIENCED ASSISTANTS 
    Ready or not, Coelho is now in charge of promoting, 
regulating and in some cases running a huge portion of Brazil's 
economy. 
    The oil industry alone is responsible for 13 percent of 
gross domestic product. Add mining and electricity and that 
rises to nearly 20 percent. The electricity industry is bigger 
than Britain's and Italy's combined, and Petrobras operates more 
ships than the U.S. Navy.     
    "His success will depend on who is picked for the 
second-level jobs," José Marcio Camargo, an economics professor 
at Rio de Janeiro's Pontifical Catholic University and an 
advisor to Temer's Brazilian Democratic Movement Party. 
    Some of those people were picked last week.   
    Paulo Pedrosa, executive secretary, or No. 2 at the Energy 
Ministry, knows electricity. A former director of Brazil's 
electricity regulator, he recently ran Brazil's association of 
major power consumers. 
    Former Bunge Ltd executive Pedro Parente was named Chief 
Executive officer of Petrobras. A former Petrobras board member, 
he is expected to speed stalled asset sales and get the company 
out of ancillary businesses like shipping and pipelines. 
 urn:newsml:reuters.com:*:nL2N18G2GV 
    Eletrobras may be the most urgent problem. The NYSE 
suspended its shares  EBR.N  after the price-fixing, bribery and 
political kick-back scandal expanded from Petrobras, preventing 
the utility from delivering accounts to U.S. regulators. 
    Eletrobras needs an 8 billion real ($2.27 billion) bailout, 
said Luis Pinguelli Rosa, professor of energy planning at the 
Federal University of Rio de Janeiro.  urn:newsml:reuters.com:*:nL2N18F1CQ 
   The problems stem from Rousseff's decision in 2012 to slash 
power rates in exchange for early renewal of hydroelectric power 
concessions. 
    "Eletrobras' return on the renewed hydro dams dropped to 
almost zero overnight," said Pinguelli, who was CEO of 
Eletrobras in 2003 and 2004 when Rousseff was Brazil's Energy 
Minister. "Eletrobras' ability to generate cash and invest dried 
up." 
    Petrobras may also need government cash, Pinguelli said, 
though Dos Santos and Camargo say the amounts contemplated - as 
much as 150 billion reais ($43 billion) - would strain the 
government's finances and undermine its credit rating. 
 urn:newsml:reuters.com:*:nL2N14Z19A 
    The only alternative is for Coelho to push the faster sale 
of Petrobras assets, Dos Santos said. This would raise cash and 
get the company out of businesses, such as refining, that 
prevent it from focusing on exploration and development in giant 
offshore fields, he added.  
    ($1 = 3.5253 Brazilian reais) 
 
 (Additional reporting by Marta Nogueira in Rio de Janeiro and 
Luciano Costa in Sao Paulo; Editing by David Gregorio) 
 ((Jeb.Blount@thomsonreuters.com; +55-21-2223-7143; Reuters 
Messaging: jeb.blount.thomsonreuters.com@reuters.net)) 
 
Keywords: BRAZIL ENERGY/MINISTER