DIRECTORSHIPS AT PETROBRAS BECOMING INCREASINGLY

UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000559 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ENRG EPET EIND PGOV BR SUBJECT: DIRECTORSHIPS AT PETROBRAS BECOMING INCREASINGLY POLITICIZED ¶1. (U) Summary. A political battle erupted among the government and its allied parties last week over high-level positions within various government entities. Although the federal government has managed to alleviate many of the tensions arising from this struggle, it has so far not been able to calm down the harsh dispute for Director-level positions at Petrobras, Brazil's state-owned petroleum company. Involved in the Petrobras struggle are the ruling Workers Party (PT) and its allies, the PMDB and PP. According to specialists in the sector, increased political interference may compromise the quality of administration at Petrobras - a company that has historically been seen as independent of such political tension. End Summary. Political Struggles over Petrobras Directorships -------------- --- ¶2. (U) Amid the backdrop of the congressional vote on Brazil's CPMF financial transactions tax, parties allied to the ruling PT administration are voicing frustration that they are not getting their fair share of high-level positions at government entities. Rather, they are complaining that the PT is placing its own people in these key positions. ¶3. (U) At Petrobras, for example, Jose Eduardo Dutra (considered a personal nomination by President Lula) has been named as the new head of Petrobras Distribution Company and Maria das Gracas Foster (a close ally of Minister Dilma Rousseff) has been named the new Director for Oil & Gas. Though these names were largely expected, the PMDB threatened the outcome of the CPMF vote if it was not guaranteed its share of similar positions such as these. PMDB leader Henrique Eduardo Alves has described Petrobras as a "PT castle." ¶4. (U) Petrobras is managed by an Executive President and six directors for strategic areas. In addition to Dutra and Foster, further changes are expected in the company's administration. Three new directors may be named for the following areas: International Affairs, Supply, and Exploration & Production. Rumors suggest that President Lula decided to postpone these three nominations in order to avoid further problems with the CPMF vote in the Congress, which passed on Spetember 26 after time consuming delaying tactics by opposition parties. ¶5. (U) While the PT seems to have been planning to fill Petrobras' ranks with its own people, it appears that further nominations will be more prone to political pressure. Petrobras Special Assistant to the President Alan Kardec (a PMDB appointee) is now thought to be the frontrunner to replace Supply Director Paulo Roberto Costa (a PP appointee). Costa, in turn, is said to be in line to be the new Director for Exploration & Production. Joao Augusto Fernandes, former Director of Petrobras Distribution Company (a PMDB appointee),is rumored to be replacing Nestor Cervero as Director for International Affairs. ¶6. (U) The changes in the Petrobras Board of Directors show the government's increasing influence over Petrobras. Historically, only career employees were considered for directorships. Many analysts are expressing disappointment that the current administration is subjecting the company to such public political bartering, warning that this may ultimately harm the interest of Petrobras' private shareholders. Background on Distribution Director -------------- ¶7. (U) Petrobras contacts speak highly of Dutra's administration at Petrobras. Though Dutra's union roots and labor militancy background elicited some negative feedback, he is described as having done an overall good job as Petrobras President. A geologist and political figure, Dutra worked at a former Petrobras mining subsidiary, led a leftist labor union and served eight years as a Workers' Party (PT) senator from the state of Sergipe. Contacts characterize Dutra as intelligent, sincere and honest, with a high sense of integrity. Background on Oil & Gas Director -------------- ¶8. (U) Contacts also speak highly of Graca Foster's background. According to the Director of the Brazilian Center for Infrastructure (CBIE),Adriano Pires, the change in the Oil & Gas directorship will be a positive one for the sector. He said former Petrobras Oil & Gas Director Ildo Sauer created too many problems for the gas sector because of his strong convictions and longstanding disagreement with Minister Rousseff. Sauer's inconsistent attitude towards Rousseff and the gas distributing companies reached a limit, he said. Graca Foster's nomination, as a protegee of Rousseff, is seen as strengthening Rousseff's position as Head of the Administrative Council of Petrobras. RIO DE JAN 00000559 002 OF 002 ¶9. (U) This message was cleared/coordinated with Embassy Brasilia.