Petrobras’ listing in the U.S. could be a barrier to possible changes to the company’s rules in Brazil. According to analysts, when trading shares on the New York Stock Exchange, the company is subject to the laws of the US capital market, which is stricter than Brazilian law and does not comply with the company’s bylaws and does not admit possible interference. Pricing policy, as desired. President Jair Bolsonaro.
If Petrobras is a publicly traded company trading on the B3 and Nyse, holding prices in search of political consequences means making losses. This will lead to the opening of a process in the New York court, because it will cause losses for the company, problems with the distribution of dividends and losses for the shareholders”, says Professor Ari Osvaldo Matos Filho of FGV La São Paulo.
Searched for, Petrobras (BOV:PETR3)BOV:PETR4) does not appear. It is known that the financial rules of the company are monitored by the US Department of Justice and the SEC, the organization that regulates the financial market in the United States.
In Brazil, the company is obliged to follow the rules of the Securities and Exchange Commission (CVM) and, at least on paper, cannot have any influence on government policies. After Lava Jato, the company made changes in its rules to protect the rights of shareholders. Since then, cases of fraud and corruption have been dealt with through supervisory committees of directors and a new regulatory regime, as well as the opening of a whistleblower channel and a new bidding system.
“Petrobras is a mixed capital company with a major share of foreign and national investors. It must comply with the Companies Act (6,404) regarding the liability of managers towards shareholders,” explains the FGV professor, who also cites the State-Owned Companies Act (13, 303).
Rules in Brazil
Mattos Filho explains that Petrobras is subject to special rules because it is not an independent company. For example, the company’s fuel price policy is codified in the State-Owned Enterprises Law, approved and sanctioned in 2016 under Michel Temer’s government. The policy is passed on to consumers through the appreciation of the dollar and the international price of a barrel of oil.
“In Brazil, the company is governed by decrees approved by Congress or decided by the executive branch. All of these are subject to law,” he said.
Since the rules cannot be changed and the fuel price policy cannot be changed, the current government has created a new problem of constantly changing the company’s mandate. Four nominations have been filed so far. The most recent president of the oil company, Caio Paes de Andrade, was sworn in last Tuesday, June 28. The tenure is till April 13 next year. An executive with a degree in social communication has no experience in the oil and gas industry.
“There is a series of compliance tools and internal systems that Petrobras helps to manage. There is a provision called the Commodity Price Fixer Board. This is the legal framework in which Petrobras operates, which bothers the president,” says Matos Filho.
Executives cannot be members of the Legislature as per rules. With the rise in the price of oil and the dollar relative to the real price, the price of oil rose. As a result, Petrobras’ refined products or ready-made purchases abroad may increase in line with oil barrel restructuring or exchange rate fluctuations.
The FGV professor explains that there is a kind of unrest around the world against the excessive increase in fuel prices, a discontent, even, popular. To counter this, some countries such as the United States are producing more shale oil, while one of the biggest producers, Russia, is in ongoing talks with Saudi Arabia to increase production after being blocked by European countries after the Ukraine war. .
In Brazil, whose fiscal and financial situation is complicated by spending on the pandemic and the upcoming election, the coffers cannot handle the kind of financing that some European countries and the United States do. Therefore, to subsidize international expansion, the central government can take profits from oil in exploration stock and distributed dividends, in addition to gains from selling wells to oil drilling and exploration companies.
“The financial situation of the Treasury does not seem to allow this and the Minister of Economy said that he cannot keep the price, even the speech of the President. My feeling is that the new president of Petrobras will keep the price for another two or three months and after the second round of elections, he will change the fuel price”, Mattos Filho says.
Another analyst, who declined to be named, said long-term increases would not be a problem as Petrobras ramps up.
The fact that Petrobras is a mixed-capital company, with both public and private control, creates a “schizophrenic” nature, says lawyer Odavio Yasbek. According to him, any public company is bound to generate profit for its shareholders. However, it is also required for some general purpose.
“The general purpose of Petrobras is linked to oil production, but Brazilian governments are beginning to accept price controls. Petrobras is not an instrument to fight inflation, it cannot act as such,” he says.
Yazbek comments that in Brazil there is always the possibility of attacking a company’s management or controller for not complying with fiduciary duties or for abusing control power that diverts the company from its mission. According to him, this is a debate that will not go ahead due to the limitation of the country’s judiciary and the difficulty of organizing evidence.
According to the lawyer, when Petrobras is seen being used for a different purpose, there is a distortion of the corporate purpose and the intention to make profit for the company.
“On the risk factors of the company, the regulator of the Brazilian state is always expected to be able to determine the path of the company. But this is only a signal, not a license to act like this: ‘Look, I warned you about the risk, I can do anything’. There is a risk factor in the regulation and it is by the government. Being a regulated entity, it warns that it is subject to its discretion,” he commented.
According to Yasbek, Petrobras is an issuer of ATRs in the United States and has had to comply with the local system for years, but he opined that the SEC, the American CVM, does not have the same objective as the Brazilian regulator. Limit the application of corporate law. To verify the use of anonymous or control power.
“He looks at the market rules, and in this particular case, the rules for providing information to shareholders. Because Petrobras is subject to these rules, the company already discloses its information according to the standard established by the SEC,” he says. Because Petrobras has been operating under this regime for years and has specialized lawyers to stay out of trouble, “it’s hard for the company to fail to comply,” he said.
According to the lawyer, it is difficult to assume that Petrobras could have made a mistake based on the information provided to the market. As for abuse of control, he doesn’t see the issue being explored in the US either. Often, Yazbeck says, the ultimate attack is through a class action against executives for allowing the company to take actions harmful to shareholders.
A class action is a type of class action provided in US law that allows individuals who have suffered the same loss or are affected by the same fact and have a common interest to jointly seek compensation. .
“The big problem in this case of actions against the controller and executive is to prove that there was effective distortion. There is usually a lot of room for defense. However, in the American legal system it is subject to less dynamism than in the Brazilian system. Perhaps, if such an action appeared in the United States, the action would end in some agreement, Because everything that begins there ends in the covenant”, he says.
Last October, Petrobras announced that, starting in 2018, it had terminated its obligations under an agreement with the United States Department of Justice (DoJ) arising from irregularities investigated by Operation Lava Zato. In addition to the conduct that was the subject of the agreement, the agreement recognized that Petrobras was the victim of corruption schemes uncovered by the Brazilian judiciary, according to a company statement at the time.
Petrobras paid US$853.2 million: 10% in criminal fines to the DoJ, 10% in civil fines to the SEC and 80% to Brazilian authorities.
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