Sources say Lula has made up his mind about Petrobras' profits and wants investments

BRASILIA (Reuters) – The decision by the board of Petrobras (PETR3;PETR4) not to pay extraordinary dividends came from President Luiz Inacio Lula da Silva himself, and the government wants the company to use the money that will be allocated for bonuses. Two government sources told Reuters on Friday that the company was planning additional investments for shareholders.

According to one source, the board's decision the day before was taken during a meeting this week with the company's president, Jean-Paul Prats, and Mines and Energy Minister Alexandre Silveira.

Sources interviewed by Reuters say there is a consensus within the government that resources are needed for long-term investments.

“It's not a question of hurting shareholders. Don't pay in the short term for an investment that will give a better return in the long term,” one of the sources said, on the condition of anonymity because of the sensitivity of the topic.

Petrobras shares, which had shown a rebound since their opening lows, fell again after the Reuters news. PN shares fell 10.25% to SAR 36.25, while ON shares fell 10.16% to SAR 37.07 before final adjustments.

The source added: “The government inherited the policy of scratching the surface to pay profits, not investment, to prepare for privatization,” recalling the intentions of Jair Bolsonaro’s government to privatize Petrobras.

According to another source, Lula met with Silveira and Pratis to hear the arguments. The Petrobras president advocated paying 50% of the potential value in extraordinary dividends, in a negotiated version, but the vote was rejected.

Petrobras reported the previous day that the board of directors proposed allocating 43.9 billion reais of remaining profits to a capital bonus reserve recently created by the company. Resources could have been allocated to distribute exceptional profits.

The Board of Directors only approved the regular bonus of 14.2 billion riyals for the fourth quarter, which adds to the total profit for the fiscal year 2023 of 72.4 billion riyals.

President Lula has criticized the dividend payment on several occasions, and has already announced that he intends to use part of the resources in investments.

“We will launch the largest infrastructure investment program this country has ever seen. Petrobras will stop sending all dividends to shareholders and will send a portion of the profits to be converted into investment to produce more gas, oil, pipelines and scientific and technological knowledge.”

In order for Petrobras to be able to use resources from the legal reserve, the government will try to change the rules related to the issue, according to the sources.

It was not immediately clear what changes were needed.

“There is a legal possibility, that is, a reserve that has the possibility of being integrated into capital. “For this to happen, you have to have certain triggers, which are very far from happening at Petrobras,” Sergio Caetano Leite, Petrobras’ chief financial officer, told reporters when asked about the matter in Rio de Janeiro.

Among the catalysts, the CFO pointed to a scenario in which Petrobras would make a loss for 24 months, which he said was unlikely, “not to mention impossible.”

“The possibility of merging these resources is provided for in the law, but it is not even part of any scenario we are working on. So the reserve is for dividend distribution. The money that has been put there is for dividend distribution,” he stressed.

But the two sources said that this is a government decision and the necessary measures will be taken.