Why Brazilians Should Demand the Renationalization of Petrobras?

It is imperative that the Brazilian government follow a major global trend and start renationalizing as soon as possible the Petróleo Brasileiro SA (Petrobras). Before I describe a plan of action for economic development of the Brazilian economy, I hope the reader understands one major trend that has been in place for a number of years.

Today one of the major sources of funds available for investment around the world is the money being accumulated by many countries in their Sovereign Wealth Funds. The International Monetary Fund (IMF) has estimated that these government funds control over US$ 3 trillion dollars in assets.

A report published by the International Monetary Fund (IMF) in September 2007 “The Rise of Sovereign Wealth Funds” said the following: “Sovereign wealth funds are a fairly new name for something that’s been around for quite a while: assets held by governments in another country’s currency. All countries have foreign exchange reserves (these days, they’re typically in dollars, euros, or yen). When a country, by running a current account surplus, accumulates more reserves than it feels it needs for immediate purposes, it can create a sovereign fund to manage those “extra” resources.

Sovereign funds have existed at least since the 1950s, but their total size worldwide has increased dramatically over the past 10-15 years. In 1990, sovereign funds probably held, at most, $500 billion dollars; the current total is estimated to be over $3 trillion dollars and, based on the likely trajectory of current accounts, could reach $10 trillion dollars by 2012.

Currently, more than 20 countries have these funds, and half a dozen more have expressed an interest in establishing one. Still, the holdings remain quite concentrated, with the top five funds accounting for about 70 percent of total assets. Over half of these assets are in the hands of countries that export significant amounts of oil and gas.”

On Wednesday, June 13, 2007 I spent the entire day attending a seminar in New York City regarding the current economic development that is under way in Saudi Arabia. At the Saudi government-organized seminar I learned that the Saudis were estimating that oil prices will have a floor price in the coming years around $50 dollars per barrel, and they expect to have a cash flow of at least $ 13 trillion dollars for the period 2007 to 2030. And the estimated cash flow from oil for all the Gulf States in the Middle East; it is estimated to be around $ 25 trillion dollars for the same time period.

In July 2008 the price of a barrel of oil has reached $ 146 dollars and some oil experts are estimating that oil prices will have a new floor price in the coming years in the range of $ 80 to $ 100 dollars per barrel. These estimates are not taking in consideration future declines in the value of the US dollar in world markets, and in that event the price of a barrel of oil would be adjusted accordingly; and in turn it would affect global oil demand and the possible feedback into the value of the US dollar.

Now if we adjust the present value of the cash flow from oil revenues estimated by Saudi Arabia about a year ago to a new average of $ 80 per barrel then the new figures that they would expect to have as cash flow would be at least $ 21 trillion dollars for the period 2007 to 2030. And the estimated cash flow from oil for all the Gulf States in the Middle East would be around $ 40 trillion dollars for the same time period.

This is the new game in town, and these massive amounts of revenues are the reason why countries such as Russia, Venezuela, Ecuador, Bolivia and others have renationalized their oil and gas industry in the last few years.

Petróleo Brasileiro SA – (Petrobras)

Today Petrobras is recognized as a leading global company in its field. Petrobras explores for and produces oil and natural gas. The company refines, markets, and supplies oil products. Petrobras operates oil tankers, distribution pipelines, marine, river and lake terminals, thermal power plants, fertilizer plants, and petrochemical units. The company operates in South America and elsewhere around the world. Petrobras is the world’s leader in development of advanced technology from deepwater and ultra-deep water oil production.

As of May 19, 2008, Petrobras became the 3rd largest company of the Americas, after Exxon Mobil and General Electric, and the 6th largest company in the world.

In the last year Petrobras found a lot of oil and gas in Brazil including an oil field named Tupi. Petrobras, Brazil’s state- controlled oil company, said in November that Tupi holds 5 billion to 8 billion barrels of recoverable crude equivalent, and a Brazilian regulator said last month that a neighboring field called Carioca may have 33 billion barrels. And the forecast right now is that Brazil has a lot more oil resources that will be found and explored in the coming years.

The Renationalization of Petrobras

A key issue in nationalization is payment of compensation to the former owners and in the case of Petrobras they should make a bid for the outstanding shares in the public’s hands (55.7% of Petrobras’ common shares with voting rights is owned by the Brazilian government; however, the privately held portions are traded on Bovespa, where it is part of the Ibovespa index, and some shares are also traded as ADR’s on the New York Stock Exchange) and this bid should take into consideration an average price for a barrel of oil of about US$ 70 dollars per barrel in the coming years.

If some shareholders don’t accept the up front cash offer from Petrobras then these shareholders might be able to negotiate a higher price for their shares to be paid over a period of 10 years and be adjusted accordingly to reflect the market price and actual development of this new oil found by Petrobras – in other words, these shareholders would share in the future risks involved in this deal and if the market for some reason manages to go down to the $ 50 dollars level for a barrel of oil, then the payments to these shareholders would be adjusted accordingly.

The nationalization of oil and gas supplies has been going on for many decades and includes countries such as Iran, Saudi Arabia, Ecuador, Venezuela, Russia, Mexico, and Bolivia.

It seems that if oil is so important and so rare, as they tell us, we should have a better control of our own national reserves when we take in consideration that oil is a strategic and economic asset.

One of the central benefits obtained through the nationalization of the oil companies will be the immediate redirection of all accumulated profits towards finding renewable sources of energy to replace oil, the construction of an affordable cross country mass transit system, a high-speed rail network, investment in nuclear energy, investing in high-speed broadband infrastructure, and also investing in some other key strategic infrastructures.

This would lay an infrastructure of transportation for the 21st century that would eventually replace our outmoded highly inefficient highway system that is geared more towards a resource-abundant past and not a resource-constrained future.

The New Economic Development Plan

Brazil would create a new Brazilian government agency to be in charge and to be accountable for the cash flow of money provided by Petrobras; money that would fund all of the suggested investments of the enclosed plan regarding the new economic development plan for Brazil. The new agency would operate with complete transparency to avoid scandals and misappropriations of funds related to all aspects of this new type of financing of very large projects.

The investments would be done taking into consideration Brazil’s long-term strategic needs, and here are the main areas for investment in Brazil. I would suggest that the Brazilian government invest at least $ 300 billion dollars in four major areas in Brazil as follows:

1) Nuclear power plants – US$ 180 billion

2) Strategic infrastructure – US$ 50 billion

3) High-speed broadband infrastructure – US$ 30 billion

4) High-speed rail networks – Bullet Trains – US$ 40 billion

Major Investment Areas in Brazil Regarding This Plan

1) Nuclear Power Plants – US$ 180 Billion

I would suggest first, that Brazil invest US$ 180 billion dollars, and use the money to add at least 20 new 1,500-megawatt (MW) nuclear power plants over a 10-year period in strategic areas of Brazil (the cost of each nuclear reactor has increased in the last two years from an estimated cost of US$ 2 billion to US$ 3 billion dollars to the current price of about US$ 6 billion dollars each and the costs are still rising; as the cost of concrete, steel, and other materials are skyrocketing because of global demand), and also use part of the money to do some up-grading of its current uranium enrichment facilities.

Today, Brazil has one plant, located at Resende, less than fifty miles from Rio de Janeiro, and this plant was designed to initially enrich only 60 percent of the material needed to supply their original two reactor plants. Ultimately, Brazil aims for complete nuclear energy self-sufficiency.

Brazil is home to the world’s sixth-largest uranium reserves, and developing its uranium enrichment facilities makes economic sense since the global nuclear power plant business is making a comeback in many countries, and it is growing with potentially large commercial global markets as more countries build new nuclear power plants.

Besides the 20 new nuclear power plants, Brazil should invest part of the money in a state-of-the-art nuclear waste reprocessing plant instead of having to find a place to store the spent nuclear fuel. The French already have been using such reprocessing technologies for many years.

Used nuclear fuel (often called spent nuclear fuel) is nuclear fuel that has been irradiated in a nuclear reactor (usually at a nuclear power plant) to the point that it is no longer useful in sustaining a nuclear reaction. If not reprocessed to retrieve the remaining usable uranium and plutonium, it is a form of radioactive waste.

Nuclear reprocessing separates any usable elements (e.g., uranium and plutonium) from fission products and other materials in spent nuclear reactor fuels. Usually the goal is to recycle the reprocessed uranium. It is the process that partially closes the loop in the nuclear fuel cycle.

Use of breeder reactors combined with reprocessing could extend the usefulness of mined uranium by more than 60 times.

The technology for making reprocessed uranium fuel is well established, and there is no technical reason limiting its adoption. And nuclear reprocessing is a much better choice than the one the United States decided to adopt where used nuclear fuel is currently planned for disposal in deep geological formations, such as Yucca Mountain, where it has to be shielded and packaged to prevent its migration to mankind’s immediate environment for thousands if not millions of years.

2) Strategic Infrastructure – US$ 50 billion

Developing the proper infrastructure is an important part of an economic development plan and serves as a foundation for any developing country to be able to achieve its goals regarding industrialization, urban development, and speeding up the movement of goods not only for the domestic market but also for international trade.

One advantage of being an emerging country is that you can benefit from leapfrogging in all areas of your economic development when you try to implement the best models that were available around the world at the time – you learn from other people’s successes and mistakes.

Today certain types of infrastructure development are a requirement for a country that is trying to achieve economic growth and also is trying to survive in a very competitive global economic environment.

There are various definitions of what constitutes infrastructure, but generally infrastructure refers to the large-scale public systems, services, and facilities of a country or region that are necessary for economic activity to become reality. The economic infrastructure includes such systems as the transportation networks with its highways, bridges, tunnels, airports, and ports, the water and sewerage facilities, the various types of energy distribution (electric and gas), and the various telecommunication networks distributed via cable, fiber optics, or satellite.

These entire economic infrastructures play an important supporting role when a country is trying to secure its place in the global supply chain. It is important for the movement of goods inside the country – local goods or imported goods – as well as for the goods and commodities produced for distribution via international trade.

Let me give you just one example – today Brazil has 47 ports in the country – but the government needs to upgrade at least ten of them to international standards of technology and productivity – this modernization would be imperative to keep pace with Brazil’s export explosion in the coming decades. But the government probably will need to build a few more new ports in the future to accommodate the economic expansion that is under way and help to lower shipping costs for Brazilian exporters.

Construction costs for most of the infrastructure systems such as the energy, water and sewage, and transportation sectors are enormous and the construction period is also very long. Prediction of demand pattern and investment allocation, which are some of the key factors of infrastructure development planning, must be based on a long term economic development trend and land use planning, which also predict the country’s future demographics and possible economic structure.

3) High-speed Broadband Infrastructure – US$ 30 billion

The federal government in Brazil, in partnership with state and local governments, needs to create and promote the universal availability of high-speed broadband infrastructure throughout the country, connecting the major communities in Brazil with the rest of the world. Today universal access to broadband is in the interest of the majority of the population in Brazil, and it is becoming almost a requirement for a country to be connected with a state-of-the-art high-speed broadband infrastructure to be competitive in the new global economy.

The investment in high-speed broadband infrastructure should be viewed in the same way governments view federal investments in basic infrastructures in a country, such as the highway system, water system, airport system, bridges and tunnels and so on…

Brazil should adopt the leading edge in technology available at the time of its investment regarding high-speed broadband infrastructure, and the government should keep in mind the infrastructure such as the systems in operation in South Korea, Japan and China.

An article published on the San Francisco Chronicle said: “If you live in South Korea, it is an everyday reality to have always-on super fast Internet — broadband — both in your cell phone and in your home.

South Korea is the most wired country on the planet. Some South Koreans can get up to 20 megabits of data per second — breakneck speed by today’s standards. Americans are lucky if they get 4 Mbps.

While South Korea leads in the rollout of broadband, the United States — supposedly the world’s technology leader — comes in no better than No. 13, according to experts. About 76 percent of households have broadband in South Korea. The figure is 30 percent in the United States.

Broadband widens the digital data pipeline to allow complicated files, including pictures, graphics and video, to be downloaded at near-instant speed. Experts consider the development of broadband networks to be the single most important step for expanding digital technology and bringing cutting-edge computer applications directly into people’s lives.

“There is no point in Korea where you can stand without receiving a signal,” said Joy King, director of industry marketing at Hewlett-Packard. “In the U.S., we are still at the ‘can-you-hear-me-now’ level. When Europe and Asia are moving to multimedia text messaging, the U.S. has just started text messages. The U.S. is a Third World country in this aspect.”

…Silicon Valley used to be hailed as the world’s high-tech capital. Now many consider South Korea the king…. U.S. technology leaders are sounding the alarm that the nation is falling dangerously behind in broad areas of digital innovation, including broadband.

…In South Korea the government spent billions of dollars building a fiber grid, reaching schools and government buildings, and offered another billion in financial incentives to phone companies that strung broadband links to homes. Tough competition drove prices down, demand surged and the country was on a roll.

…HP’s King cites several reasons for slow broadband development. “North America is lagging because first of all it didn’t have one underlying standard,” she said. “Secondly (it’s lagging) because the government has not really invested directly in infrastructure. “

The US is a generation behind Japan and Korea in high-speed broadband, according to Technology Futures, Inc. While the U.S. languishes at 1 to 6MB/s, Japan and Korea are already rolling out next generation 20MB per second speeds.

On September 7, 2006 Questex Media published an article saying: “Some 62 million Americans are still using their telephone lines to dial into the Internet, according to recent figures from the Pew Internet and American Life Project. Other figures from research firms like Forrester show that only about 40% of Americans have high-speed connections at home, 30% rely on dial-up and 25% don’t have any Internet connections at all!

This at a time when China is poised to overtake the US to become the world’s largest broadband market. New figures from Ovum show China will have 79 million broadband subscribers in 2008. And overall penetration is just above 3% in China, which means there’s plenty of room to grow. Ovum predicts 139 million subscribers by 2010, and a subscription growth rate of 75% annually.”

On June 26, 2007 DSL News published an article “US broadband speed lags behind” and the article said: “The availability of high-speed broadband in the US is significantly lower than in many other countries around the globe, according to a new report from Communications Workers of America (CWA).

According to the report, the median download speed in the US is 1.9 Mbps, compared to 61 Mbps in Japan and 45 Mbps in South Korea. France outstripped the US on broadband speeds as well, reporting an average 17 Mbps.

CWA President Larry Cohen said: “Speed defines what is possible on the Internet. Speed determines whether we will have the 21st century networks and communications necessary to grow our economy and jobs.”

Other nations around the world, especially “economic competitors”, have concretely decided to stress high-speed networks and by delaying, America is doing no less than “[putting its] economic growth at risk”.

The investment by the Brazilian government in a state-of-the-art high-speed broadband infrastructure around the country will play an important part in helping in the economic development of Brazil in the coming decades.

Private companies and local governments should connect to such infrastructure and supply services to the local populations, but competition between these service providers should help lower the cost of using the system to most customers as is the case in various countries where they have that type of set up.

That type of infrastructure set up is helping these countries not only to keep their high-speed broadband infrastructure at the leading edge of technological development, but at the same time they are able to provide all kinds of state-of-the-art services to customers at the lowest market price possible. Real competition at this level helps to lower the price to the end users.

4) High-speed Rail Networks – Bullet Trains – US$ 40 billion

One of the major infrastructure projects that should be developed in Brazil is the construction of a high-speed rail network in Brazil connecting vital areas of Brazil with a network of high-speed railway lines using the latest in technology regarding high speed bullet trains.

They can start with the construction of a 1,000-mile rail network system that should cost about US$ 40 billion and connect an important area between Sao Paulo, Rio de Janeiro and immediate areas.

Brazil should build a high-speed railway system similar to the one that they have in Japan. The Shinkansen is a network of high-speed railway lines in Japan operated by Japan Railways. These trains can be up to sixteen cars long. With each car measuring 25 m (82 ft) in length, the longest trains are 400 m (1/4 mile) from front to back. Stations are similarly long to accommodate these trains.

Before 1964 conventional trains had to spend more than 6 hours traveling between Tokyo and Osaka (322 miles (515km)). With the introduction of Tokaido Shinkansen, the traveling time has been reduced to 3 hours and 10 minutes. Now the fastest Shinkansen connects Tokyo to Osaka in just 2 hours and 30 minutes.

Even though the fare is much cheaper for a highway bus between Tokyo and Osaka, few passengers choose it, due to more than 8 hours of travel.

Due to the high-speed railway system in Japan, the trains run speeds have been 443 km/h (275 mph) for conventional rail, and up to 580 km/h (360 mph) for maglev trainsets.

I am not suggesting that Brazil should develop a maglev train system, because of radiation concerns. I am suggesting the construction of the fastest conventional bullet train system available today.

This new bullet train system would help move not only the Brazilian people around, but also would play an important role as Brazil develops further its international tourism industry.

Ethanol

On June 5, 2008 Ethanol Producer Magazine reported on some comments made by President Lula on June 3 at the U.N. Food and Agricultural Organization summit in Rome “Brazilian president slams U.S. corn ethanol.”

The article said: “Brazil’s President, Luiz Inácio Lula da Silva, had harsh comments for the United States’ corn ethanol program during his comments June 3 at the U.N. Food and Agricultural Organization summit in Rome. “I am not in favor of producing ethanol from corn or other food crops,” he said. “I doubt that anyone would go hungry, to fill up their car’s fuel tank. Meanwhile, corn ethanol can obviously only compete with sugarcane ethanol when it is shot up with subsidies and shielded behind tariff barriers.”

Later in his speech, Lula compared ethanol to cholesterol. “There is good ethanol and bad ethanol,” he said. “Good ethanol helps clean up the planet and is competitive. Bad ethanol comes with the fat of subsidies.””

I know that President Lula thinks that Brazil can be the new Saudi Arabia and feed the US energy market with ethanol made of sugar cane, but that concept is complete nonsense.

In my opinion, ethanol made from sugarcane is a good solution for Brazil regarding its energy needs, but it is not a good idea to export this solution to other countries around the world, since we will need all the available land to grow food not only for Brazil, but also to feed other countries around the world.

The world is moving very fast in the direction of future food shortages and there are many reasons for that and it would be criminal for a country such as Brazil that could help alleviate this growing food shortage and help to feed millions of mouths around the world, and instead Brazil uses its valuable agricultural resources to feed car engines of people who don’t have even a minimum of common sense since they are driving big gas guzzling SUV’s.

I wonder why Lula is even suggesting that Brazil should start exporting ethanol to the United States. The United States has made a long term commitment to supply its ethanol market with ethanol made from corn; besides in the last 6 years, the United States has invested over US$ 1 trillion dollars in Iraq in their pursuit of new sources of oil.

The United States has placed their big bets on ethanol made from corn and in Iraq as a new source of oil, and it will be very hard to turn the tide around on all the vested interests involved in these bets.

The United States should keep the 54 cents per gallon tariff on ethanol from Brazil, or even increase the tariff to US$ 1.00 per gallon, since ethanol imported from Brazil would compete with the ethanol made from corn in the United States and the new ethanol imported from Brazil would help very little and it is not a viable solution to meet the US energy needs.

Brazil should not export ethanol to any other country, and Brazil should use ethanol only for its domestic needs. Today Brazil has its act together and the last thing Brazil needs is for the US market to start sucking the ethanol from the needs inside Brazil and creating further inflation in Brazil.

What the Brazilian government needs to do immediately is to pass a federal tax on ethanol exported to other countries to discourage the exporting of ethanol from the Brazilian local economy.

They are in the process of building another 50 ethanol refineries in Brazil to meet the local ethanol demand in the coming years. Brazil needs all the ethanol that it will produce in the coming years and Brazil can’t afford to sell the ethanol to the highest bids from around the world.

The Brazilian ethanol export tax should go up according to the price of oil on the international markets and always be a little higher to discourage people from other countries from buying ethanol from Brazil.

Brazil should use its growing agricultural power to grow food, and Brazil can make agriculture in Brazil a more profitable business by moving up on the food chain. Instead of selling the raw materials Brazil can start manufacturing the foods that people want around the world since manufactured products usually have a higher profit margin than raw materials with few exceptions, and oil comes to mind.

Brazil should prepare itself to help feed the growing middle classes in countries such as China, India, and the oil producing countries of the Middle East, since that is where demand for food is going to be coming from, and Brazil can provide food for these markets.

Conclusion

It is imperative that the Brazilian government renationalize Petrobras immediately and use this amazing source of funding to fund the enclosed economic development plan to plant the seeds for Brazil to be able to develop the new economy of the future and to help it to blossom and create millions of new jobs for the Brazilian population.

When the Brazilian government takes action to make official the renationalization of Petrobras, they should also tie it together with the implementation of the enclosed economic development plan; otherwise many people would start wasting away the new money resources on their pet projects and corruption could get completely out of control in Brazil.

This economic plan would place Brazil on a path of economic diversification and the economy of the future. If there is one thing that I don’t want to happen in Brazil, it is for the Brazilian economy to start getting dependent only on oil exports as its major source of income at the expense of developing a new economy for the 21st century.

The enclosed plan is a solid plan in every sense, and there is a strong connection binding all the parts of this economic plan together. Some people might question why I included in this plan USUS$ 30 billion for high-speed broadband infrastructure. But that is a major part of the plan because it would help connect Brazil with that type of technology and in turn people and businesses would be able to flourish in communities from around the country and people would be able to find jobs in the areas where they currently live. The high-speed broadband infrastructure would also serve as the foundation and would play a major part in helping in the development of the new educational system of the future that will bring good education to communities around the country through the Internet.

The high-speed broadband infrastructure would also help to speed up economic development around the country, and local communities would be able to develop local businesses that would be able to sell their goods through the Internet, and people could stay where they live in Brazil today instead of having to go to the big cities to be able to find a job or locate a new business venture.

I used to think that the free market would help solve many of the problems of society including education, infrastructure, and so on…But today I know better and I know that running a country based only on free market principles and the profit motive can take your country in the wrong path and you don’t have to look further than the United States to see all kinds of problems getting completely out of control because at the end of the day a system based on greed and wishful thinking can’t deliver the best services required by its citizens.

The US economy is in complete disarray today and it does not matter where you look at the system; it is in a massive mess and Americans can’t figure out how to fix any problems related to its energy area, healthcare system, educational system, crumbling and obsolete infrastructure, its collapsing financial system, its under funded pension system, and so on…

The free market capitalist system makes the wrong decisions all the time that cost people trillions of US dollars with terrible future consequences for the population, and the sub-prime mess represents only the latest chapter of a massive misallocation of resources.

Here is what I wrote a few years ago on that subject. Quoting from my article published in September 2002 – I said the following: “Countdown to Armageddon”.

“…Until recently, I used to believe in a completely free market economy. Today I know there is a place for government regulations and government protection of its industrial base against foreign competition. Deregulation has been a disaster in the U.S. to the airline, the energy, and the telecommunications industries. For example; many airlines are on the brink of bankruptcy in the United States.

Business Week magazine of August 5, 2002 reported that since the Telecommunications Act was passed in 1996 to deregulate the telephone industry, investors have lost over US$ 2 trillion as the stock prices tumbled 95 percent or more from their highs. The crisis could relegate the U.S. to second-class status in the communications industry in the future.

I used to think that governments at all levels usually wasted lots of money, and that they were a very poor allocator of resources. I used to think that the free open market system was the best allocator of resources. Today I have my doubts about unregulated and a savage and destructive type of capitalism I have seen in operation since the mid-80’s. It started with the savings & loan scandals and debacle of that industry in the 1980’s and culminated with the latest string of company scandals on Wall Street. I believe that the government has a role in stabilizing the economy.

For years, an overvalued financial market built on misleading and false information sent highly misleading signals to investors who eventually lost trillions of valuable national savings, which were misallocated to unneeded and wasteful investments. Investors lost over US$ 2 trillion in the telecommunications industry and over US$ 1 trillion in the dot.com fiasco. These investments are gone and will have an impact on many people’s retirement plans in the future, since a lot of their pension money was invested in these promising areas.”

I wrote the above before the latest fiasco of the sub-prime mess and now you can add to the list another major financial scandal that has been cooked up as a new financial innovation, but at the end of the day after the dust settles it looks more like a massive financial scam than anything else.

In my opinion government has the responsibility to invest in some key infrastructure to make sure that the infrastructure is available to help in the economic development of the country. There are many reasons why the private sector would not make these important investments on a timely basis and the state has to fill that void.

Brazil has a very short window of opportunity to implement the renationalization of Petrobras and also implement the enclosed economic development plan since competition from other countries it would make impossible for Brazil to find the necessary technical people and the materials available to build the nuclear reactors and the other parts of this plan.

Today there is major economic development of all kinds of infrastructure that is going on in many countries around the world as never seen before in countries such as Saudi Arabia, China, India, and so on, and there is not enough know how and materials to go around to meet the needs of all these economic development projects. It takes years to build all these new infrastructures around the world, and the countries with the smartest people and with the deepest pockets are the ones that are going to be able to implement their plans on a timely basis.

I hope that we have enough people in the Brazilian government with vision of the future and they have the foresight to see what is ahead of us in the coming years. Otherwise if Brazil is too slow to act then Brazil will continue to be just the country of the future – and that future will never materialize. Brazil has to start moving at the speed of light almost immediately to be able to stay ahead of the pack and achieve these economic development goals.


Originally published by Brazzil Magazine and reproduced here with the author’s permission.

30 Responses to "Why Brazilians Should Demand the Renationalization of Petrobras?"

  1. Anonymous   July 10, 2008 at 7:42 am

    stupid and underdeveloped ideais

  2. Anonymous   July 10, 2008 at 10:13 am

    Totally agree with the above.

  3. Anonymous   July 10, 2008 at 3:57 pm

    The logical conclusion to the stated argument is the opposite: privatize Petrobras today and use the proceeds to invest in the desired projects.

  4. Guest   July 10, 2008 at 8:06 pm

    The wrong ideas in the wrong time.

  5. rainman   July 10, 2008 at 10:18 pm

    " The nationalization of oil and gas supplies has been going on for many decades and includes countries such as Iran, Saudi Arabia, Ecuador, Venezuela, Russia, Mexico, and Bolivia. " This very list sums up the rationale for NOT nationalizing the oil industry.Ironically Mexico is starting to move away from that.

  6. Geraldo Lino   July 11, 2008 at 9:40 am

    Absolutely on the mark! Reality is trampling over ideology and the sooner people (specially policimakers) perceive it the better. After the burial of the collectivist daydream under the ruins of the Berlin Wall, the era of the "survival-of-the-smartest" unbridled capitalism is over. So, natural nonrenewable resources should benefit primarily the Common Good, and not a mere collection of private interests. These are welcome as long as they are in tune with the former but not as ends in themselves.

  7. Billy   July 11, 2008 at 10:22 am

    Privitization can be a good thing if done properly. Letting ill equiped state agencies manage natural resources is often not the answer. Private companies are the ones who come up with solutions to many of our problems. For instance this hilarious take on Bio Fuel…(http://tiny.cc/Fw8Kk)

  8. Anonymous   July 11, 2008 at 2:55 pm

    Capitalism versus socialism is at issue with regards to nationalization.The right form of capitalism, a social capitalism would be the right form of government which could be more like Denmark than US capitalism or communist style states such as Venezuela.This would give true incentive for productivity while garnering tax revenues for the social good.Taxation of capitalism, and not nationalism would provide even more incentive to find even more resources. Nationalism simply does not provide the incentive to produce.Denmark has been mentioned as having the happiest society which is a goal that everyone seeks.

  9. Ricardo C. Amaral   July 11, 2008 at 4:25 pm

    I would like to suggest that the readers of this article also go to Brazzil Magazine to read the comments and feedback posted by many Brazilians who participates on the discussions about Brazil on that important Brazilian website. I usually answer the questions related to my articles that the readers ask me on the comments section of that magazine, and I have answered many of the questions that they raised so far about the above article. Here is the link to the comments at Brazzil magazine regarding this article:http://www.brazzil.com/articles/194-july-2008/10079-why-brazilians-should-demand-the-renationalization-of-petrobras.html#comments.

  10. Anonymous   July 12, 2008 at 1:05 pm

    Hi Ricardo,The site http://www.brazzil.com is off the air!JDS

  11. Ricardo C. Amaral   July 12, 2008 at 3:39 pm

    Regarding Brazzil magazinePublished in hard copy from 1984 to 2006 with a circulation of 80,000 copies per month.Published Online since Feb 29, 1996Since March 2006 Brazzil magazine has been published only online.Brazzil.com has a traffic rank on the internet that ranges from 102,141 to 134,233Brazzil.com users come from these countries:United States 28 %China 27 %Brazil 19 %India 4 %Germany 4 %Japan 3 %Other 15 %********Brazzil magazine has the largest number of readers of any Brazilian publications outside of Brazil. Only the major magazines in Brazil such as Veja magazine have larger number of readers than Brazzil magazine.In the last 2 months the editor of Brazzil magazine started having a lot of problems with the magazine since he upgraded to the latest version of the software, but a few weeks ago he hired a software expert to fix these bugs. And in the meantime the magazine goes down for one reason or another sometimes for an hour and sometimes for an entire day, but they are always working on the problems and the magazine always comes back just keep trying. .

  12. Guest   July 12, 2008 at 7:10 pm

    Mr.Amaral"And in the meantime the magazine goes down for one reason or another sometimes for an hour and sometimes for an entire day, but they are always working on the problems and the magazine always comes back just keep trying"You are a very patient person and I admire it!!I am very keen to read the opinion of other readers of your article in that site.In this site, Billy expressed my line of thoughts about privatization. If it is done tight, it is beneficial. But not the way, the Brazilian Telecommunication industry was done.

  13. Ricardo C. Amaral   July 12, 2008 at 9:51 pm

    Reply to RainmanHere is another reason why the United States is in complete Panic mode. Countries that hold the largest supplies of oil around the world such as Aramco in Saudi Arabia consider the information about the size of their oil reserves as state secrets. If Brazil also renationalize the 44 % of Petrobras that are in public hands I am sure that the Brazilian government will also treat all the information about oil and gas reserves underground as state secrets. These state secrets gives these nations a huge leverage and power over the countries that depend on these resources such as the United States.The nationalization of oil occurs as countries begin to deprivatize oil production and withhold exports. Kate Dourian, Platts’ Middle East editor, points out that while estimates of oil reserves may vary, politics have now entered the equation of oil supply. "Some countries are becoming off limits. Major oil companies operating in Venezuela find themselves in a difficult position because of the growing nationalization of that resource. These countries are now reluctant to share their reserves."Kate Dorian of Platts has noted that "some oil-rich countries are restricting oil sales outside of their country. These countries are now reluctant to share their reserves." According to consulting firm PFC Energy, only 7% of the world’s estimated oil and gas reserves are in countries that allow companies like ExxonMobil free rein. Fully 65% are in the hands of state-owned companies such as Saudi Aramco, with the rest in countries such as Russia, Venezuela, and Iran where access by Western companies is difficult. The PFC study implies political factors are limiting capacity increases in Mexico, Venezuela, Iran, Iraq, Kuwait and Russia. Saudi Arabia is also limiting capacity expansion, but because of a self-imposed cap, unlike the other countries. As a result of not having access to countries amenable to oil exploration, ExxonMobil is not making nearly the investment in finding new oil that it did in 1981..

  14. Ricardo C. Amaral   July 12, 2008 at 10:03 pm

    For the people who are waiting for Brazzil magazine to be back online it is worth to keep trying to reach the magazine since as of last night they already had about 50 comments following the article. And I am waiting for them to be back online before I send an email to my personal mailing list of thousands of readers that read my articles on a regular basis.I had posted the following information yesterday on the comments section of Brazzil magazine in case the readers wanted to learn a little more about the members of the board of directors of Petrobras and also if they wanted to learn which companies are the major shareholders of Petrobras stock.As of July 11, 2008Petrobras – PETROLEO BRASILEIRO – (NYSE: PBR)Current price: US$ 61Market Cap: US$ 270 billionYou can see the list of major shareholders of Petrobras stock at:http://finance.yahoo.com/q/mh?s=PBRThe Brazilian government owns 55.7% of Petrobras’ common shares.The Brazilian government owns US$ 150 billion dollars at current price of Petrobras stock. And US$ 120 billion is in public’s hands.Board of Directors:http://www.reuters.com/finance/stocks/companyOfficers?symbol=PBR.NActual website: Petrobrashttp://www.petrobras.com/ptcm/appmanager/ptcm/dptcm?_nfpb=true&_pageLabel=petr_com_pag_inicial.

  15. Ricardo C. Amaral   July 12, 2008 at 10:29 pm

    In a related item about the oil industry in Brazil I posted the following information on the Elite Trader Forum:May 6, 2008I know Francisco Gros since the time when he was with Morgan Stanley in New York about ten years ago. The last time I got in contact with him it was about 3 years ago when he was the CEO of Fosfertil. But here is a summary of his background:Francisco Roberto André Gros has been the Chief Executive Officer of Fosfertil-Untrafertil since May 2003. Mr. Gros served as Chief Executive Officer of Fertilizantes Fosfatados SA. Mr. Gros served as Chief Executive Officer of Petrobrás since January 2002. In February 2000, Mr. Gros served as President of BNDES while serving as a Director of Petrobrás. And from 1991 to 1992 and also in 1981, Mr. Gros served as the President of the Central Bank of Brazil. By the way, I am not involved in any way with this new company. I just know Mr. Francisco Gros and I know he is a reputable person besides having the knowledge of high finances which is necessary for anyone to be able to run such a company. *****“OGX Petroleo June IPO to Raise at Least $1.5 Billion, Gros Says”By Adriana BrasileiroBloomberg News – April 7, 2008April 7 (Bloomberg) — OGX Petroleo e Gas Participacoes SA, the oil company owned by billionaire Eike Batista, plans to raise at least $1.5 billion in an initial public offering in June to fund exploration projects. “The final amount will depend on investors’ appetite, on how the market evolves until then, but I’d say that $1.5 billion is the minimum,” Francisco Gros, vice president of the board and former chief executive, told Bloomberg in an interview in Rio de Janeiro. He said the IPO also aims to give clearer valuation to the company, which Batista estimates at about $15 billion.Source: http://www.elitetrader.com/vb/showthread.php?s=&postid=1910891&highlight=Francisco+Gros#post1910891****June 13, 2008This particular company will be managed by a very competent and capable group of people including people of the caliber of Francisco Gros.Note: Let me clarify one thing: I just know Francisco Gros from years ago when he was working in New York, other than that I have absolutely no association to this company, and I have nothing to gain if this stock goes up or down. And I have not talked with Francisco Gros about this new company and this new IPO.***"OGX Gains as Much as 19% on 1st Trading Day After IPO" By Jeb Blount and Paulo WintersteinBloomberg News – June 13, 2008June 13 (Bloomberg) — OGX Petroleo e Gas Participacoes SA, the oil company controlled by billionaire Eike Batista, rose as much as 19 percent in its first day of trading on speculation the startup will match Petroleo Brasileiro SA’s success in finding oil…..

  16. Ricardo C. Amaral   July 13, 2008 at 1:55 am

    One of the above people said: "You are a very patient person and I admire it!!I am very keen to read the opinion of other readers of your article in that site."The Brazzil magazine website is up once again, at about 2:30 AM the site came back online. But I will not be surprised if they go down again, they are having a lot of trouble fixing the bugs. If the site is down just keep trying until they are back online.It is a great magazine about Brazil..

  17. ewulf   July 13, 2008 at 6:44 pm

    Although it is up to Brazilians to decide the issue,nationalizations of key companies requires management capabilities, which the State usually lacks of because the State and its resources, are managed mainly by political criteria.Let take for instance ,Venezuela and Bolivia,which have had some difficulties to manage their new oil state owned companies, due to such managemnet shortages .Besides additional resources for the necessary investments, compete with social needs, which imply that it is hard for the state to keep the pace of such investment as the private sector can do so.-Chilean experience of copper mines nationalization in the seventies ,has been sucessful because it was applied a management model alike to the one any private firm would implement.Thus ,they have worked out a value driven management model,supported by EDI (exchange Data information) flows to the chain values which allows to get the best supplier available when it come to get inputs.So, nationalization is mostly a backward exercise.

  18. Juan   July 13, 2008 at 9:38 pm

    Ricardo,I’ve two questions:- Without going into the details, James Petras has written that privatization of Petrobrás was of ‘dubious legality’. Would you have some ideas why this may have been the case?- Did the Saudi’s $50/bl price floor assumption take the possibility of globally synchronized recession and, not necessarily related, ending of the current financial markets centered oil price regime into account?

  19. Ricardo C. Amaral   July 14, 2008 at 9:03 pm

    Reply to JuanI don’t know the answer to your first question.The Saudi’s price floor took in consideration global demand for oil, including a possible global recession. If I remember correctly at the time when I attended that seminar in May 2007 oil was trading in the range $ 60 to $ 65 per barrel and I don’t remember what was the exact exchange rate between the US dollar and the euro at that time.I am sure that the Saudi’s came up with this floor estimated of $ 50 per barrel taking in consideration the value of the US dollar against the other major currencies.Keep in mind the US dollar is in a declining trend and there is the possibility that we will have a major international monetary crisis in the near future as never seen before. Finally the massive US government deficit spending that they have been running in Washington for many years will catch up with the reality of the US economy. And the constant bailouts of major financial companies on Wall Street and the nationalization of Freddie and Fannie by the US government is not going to help the US dollar to rebound. I have been writing about the US dollar for many years in relation to the euro and I will be glad to give you the links to some of my articles about the US dollar if you want read it..

  20. LLChazz   July 16, 2008 at 9:05 am

    Privatization of the energy companies hasn’t helped Ecuador or Bolivia. They have the two worst economies in South America. Brazil would be foolish to follow suit.

  21. Ricardo C. Amaral   July 17, 2008 at 2:51 am

    With all due respect you can’t compare the economies of Ecuador or Bolivia with Brazil. These countries are not even in the same league as Brazil..

  22. Ricardo C. Amaral   July 17, 2008 at 2:56 am

    By the way, you are trying to say the nationalization instead of privatization in Ecuador or Bolivia.

  23. João da Silva   July 17, 2008 at 4:47 pm

    Hi Ricardo,I suggest you go to Brazzil.com and read the article about the yanks wanting our oil. There are some interesting comments on your article.

  24. Alejandro Hope   July 24, 2008 at 8:17 pm

    This is a truly bizarre piece. If the issue is appropriating a larger share of oil-derived rents, why not opt for imposing higher royalty payments? It seems to me a far easier route than a nationalization that would: a)entangle the Brazilian government in endless litigation with private investors (both domestic and foreign); b) tarnish the image of Brazil as an investment-friendly country; c)soften the budget constraint at Petrobras; d)reduce financial transparency at Petrobras; e) subject Petrobras to far more restrictive administrative constraints; and f) empower the union. In brief, you would turn Petrobras into a clone of Mexico’s PEMEX (and, big irony, just when PEMEX wants to become like Petrobras). Why on Earth would Brazilians want to go down that route? Again, if the issue is creating a SWF for infrastructure investment purposes, you can do it regardless of who owns Petrobras equity: just raise royalties and taxes to the rent-maximizing level (whatever that might be) and stash the cash away from the politicians. That’s what the governments of Norway or Alberta do, by the way.

  25. Ricardo C. Amaral   July 24, 2008 at 10:36 pm

    Reply to Alejandro HopeIf you go to Brazzil magazine and read some of the comments following the article then you might be able to get some answers to your questions at:http://www.brazzil.com/articles/194-july-2008/10079-why-brazilians-should-demand-the-renationalization-of-petrobras.html#commentsBy the way, what is the difference between the hostile take over of Anheuser-Busch Budweiser by InBev and Petrobras buying out the minority shareholders?Besides Petrobras would not have to worry about minority shareholders lawsuits and so on….

  26. earl thompson   July 26, 2008 at 4:19 am

    How can it be that the price of Petrobras common stock on the NYSE hasn’t taken off? It is at around the same price as it was 5 years ago, when the price of crude oil was about half the level it is under the proposed nationalization plan, which is in in turn about 50% of the current average futures price of crude oil? A gigantic oil discovery, plus the unexpected price increase, should have combined to make Petrobras worth many times more than it was 5 years ago. Perhaps: (1) there has long been a secure plan to nationalize the company, and at a price that is much lower than is proposed in this paper; (2) the reserves are expected to cost exorbitant amounts to exploit, in which case the author may well be correct in his inference that private costs in Brazil — comprised largely of corruptions costs — are unreasonably high; or (3) the extent of the discovery, under the lowest feasible extraction costs, is way overblown. The fact that the world price of crude has dramatically risen after the recent Brazilian discoveries indicates that the third option is the most likely.

  27. Ricardo C. Amaral   July 26, 2008 at 5:02 am

    Reply to Earl ThompsonWhat many people have not realized is that the world has changed in a drastic way in a very short period of time and today oil resources has to be considered a matter of national security by any country.Just look how vulnerable the US economy is today regarding oil and energy. And the impact that imported oil is having all around including a massive transfer wealth from the US economy to the oil producing countries around the world.Many countries have nationalized their oil and gas resources such as Russia, Venezuela, Bolivia, and so on… It is just a matter of time for the Brazilians to wake up and realize that they also need to renationalize the piece of Petrobras that is on foreign hands – about 30 percent of the common shares.I am sending a copy of the above economic development plan to Brazil to all senators, congressmen, and also to many government officials of the Lula administration.You can bet a lot of people are taking a good look right now and in the coming months regarding this strategy.Besides, Brazil it will look stupid to the rest of the world if they don’t renationalize the 30 percent of Petrobras that is being held in foreign hands.This is the 21st Century and the ball game has changed at the speed of light.And you can bet the renationalization of Petrobras is in the cards..

  28. Tom Lloyds   August 2, 2008 at 4:11 pm

    I have posted some comments about this article on the Brazil magazine. Please have a look if you are interested.http://www.brazzil.com/articles/194-july-2008/10079-why-brazilians-should-demand-the-renationalization-of-petrobras.html#commentsTom Lloyds

  29. Tom Lloyds   August 4, 2008 at 8:33 pm

    I hereby posted my plan. Please have a look and compare.————————————–Ricardo:I think that I have made my point clear enough and do not need to further illustrate. I would like to write down my plan here. I wish everyone to have a look and compare it with your.If I were the president of Brazil, I would do the followings:1. I would not use my funding to buy the 30% foreign share of PBR. The oil field requires a lot to capital to develop. PBR starts to borrow. If I buy that 30% extract shares, it will increase my debt. I do not like to do so.2. It is well known that in the coming years, Brazil needs a lot of petroleum, ship building, and mechanical engineers as well as technicians. I would put my available funding to fund the education in these key areas first. Without qualified people, we cannot pump the oil out of the ocean. It is the most important. Ricardo’s plan told me to spend my funding on nuclear reactor, high speed Internet and high-speed train. He did not tell me to put money on the education on these key areas. If I followed him, then I could not get the money out of the oil as there would not be enough qualified people. I would be broke. 3. The Canadian has already built the power grid for us. Even the communist China continues to sell the shares of their power plants, railways, highways, and Telephone companies in the Hong Kong stock exchange. If I did not invite foreigner to fund the investment on infrastructure, everyone would think that I was a fool. I could not use the world “nationalization” anymore as even the communists in China did not use it anymore nowadays because it would scare off investor. Therefore, I would continue to invite more foreign capital to help us to develop Brazil. With the new oil field, I was sure that more investment would come.4. I would encourage PBR to continue use its good name to attract the required capital. It does not matter whether it comes from Brazil or from foreigners. Money is money. RIO has already sold additional share in the international market to fund their expansion. PBR should use the capital to strengthen itself and to acquire the necessary asset such that PBR can be developed to be the biggest petroleum products manufacturer. By doing so, it will create a lot of new jobs for the Brazilian. Then I will get more income tax.5. I would tax the oil coming out from the oil field in Brazil, as it is the oil of Brazilian.6. I would keep the competition intact. PBR is not the only company qualified to drill in Brazil. PBR must compete with other oil companies such that the oil can be pumped out in the timely fashion. It will ensure my tax revenue income.7. As the foreigner has already invested in Brazilian infrastructure, I would use the oil money and increase in income tax to invest in the following areas, which the foreigner would not invest. They are education, health care, scientific research and technology development and social welfare. These are the most important areas, which will drive Brazil into the 21st century.8. In the area of education, I would strengthen our education system from the top to the bottom. I would use my funding to improve our school equipment. I would provide higher salary for the teachers such that the schools can attract some of the best Brazilian to be the teacher. I would provide scholarship to our bright kids who could not afford their education. For the universities, I would provide more research funding to our best professors. I would endorse some important chairs to attract the best scholars in the world to teach in our best universities. I would provide good fellowship to the best young researcher to come to Brazil. Since English is now the international language, I would use my funding to hire the best native speaking teachers to come to Brazil to educate our young generation.9. In the area of scientific and technology research, I would provide excellent funding to our key research institutes. I would like to see our research institutes become world-class institutes. I would target some important key areas such as petroleum engineering, material science, and agriculture technology. I would identify some secondary key areas with my science advisors. Now, everything seems possible with the new oil money.10. I would set up some seed venture capital to fund some start-up on new technology which might be the fruit coming out from the research institutes in Brazil. It will provide more jobs to our Brazilian. It is so important that I should use the oil money to develop Brazil out of the commodity economics. High technology should be the best solution in the long run. If I did not do so, everyone would think that I would be a fool. I hope that in one day, the label of “Made in Brazil” means excellence.11. I would provide good funding to improve our health system. Without health, anything is impossible.12. I would provide good welfare to our Brazilian to help them out of poverty. 13. As the time goes on, our society becomes more internationalized. Our citizen can speak very good English and our society is an open society. Our commodity economics is blooming and our high technology companies are one of the best in the world. Almost every bright young scholars wish to come to Brazil to do their research. At that time, I should push Brazil as the financial center in the Latin America. 14. By doing so, I did not need to worry to pay back the 30-year bond to the shareholder of PBR. I did not need to run our nuclear reactor, high-speed Internet and high-speed train. I had already had enough to do. The foreign investors had helped us to build the nuclear reactor, high-speed train and high-speed Internet. Thank you so much. I was almost debt free! However, our PBR and high technology companies are one of the best in the world. Almost every Brazilian has jobs! They enjoy good health care and good education system. Now, they start to learn how to earn money from trading stocks, as Brazil is now the financial center in the Latin America. This society would be at least 20 to 30 years advanced than the society proposed by Ricardo. The important was that I would be debt free!I leave my suggestions to every Brazilian. They are smart people and they know their best choice. As I said before, I had Brazilian friends, and I wished Brazil best. Tom

  30. Ricardo C. Amaral   July 20, 2009 at 10:39 am

    When my article about the renationalization of Petrobras was published on Brazzil magazine and at RGE Monitor – I also sent the information about that article to many Chinese government investment decision makers.I also sent the information to all senators, (including my friend former president Jose Sarney) and to all deputado federais (congressmen) in Brazil. I also sent the information to a number of members of president Lula’s cabinet.It was no accident the direct deal that took place between Petrobras and the Chinese government. The Chinese did the smart thing, and I am sure they have been paying attention to these articles and the following discussions on the comments section.*****Brazzil Magazine – July 2008“Why Brazilians Should Demand the Renationalization of Petrobras”Written by Ricardo C. Amaralhttp://www.brazzil.com/articles/194-july-2008/10079-why-brazilians-should-demand-the-renationalization-of-petrobras.htmlHits: 7457Comments: 346As of July 20, 2009*****RGE Monitor – July 2008“Why Brazilians Should Demand the Renationalization of Petrobras”Written by Ricardo C. Amaralhttp://www.rgemonitor.com/latam-monitor/252960/why_brazilians_should_demand_the_renationalization_of_petrobras*****“Petrobras Gets $10 Billion China Loan, Sinopec Deal”By Iuri Dantas and Jeb BlountBloomberg News – February 19, 2009Feb. 19 (Bloomberg) – Petroleo Brasileiro SA, (Petrobras) Brazil’s state-controlled oil company, agreed to a $10 billion loan from the China Development Bank, and to supply oil to the Asian nation.“There are two important commercial agreements and a finance accord that demonstrates new possibilities for raising money,” Chief Executive Officer Jose Sergio Gabrielli told reporters after a signing ceremony in Brasilia today.Petrobras, as the Rio de Janeiro-based firm is known, also agreed to sell as much as 100,000 barrels of oil this year to China Petroleum & Chemical Corp.’s Sinopec unit, Gabrielli said.The loan will be used for general corporate purposes and to help Petrobras pay for a $174.4 billion, five-year investment plan, Gabrielli said, without giving details of the loan’s cost. The final terms of the loan will be worked out between now and May, when Brazilian President Luiz Inacio Lula da Silva travels to China on a state visit, a spokeswoman for Gabrielli said. The spokeswoman asked not to be named, citing company rules.Petrobras has been talking with China about the loan since last year. The company has been seeking alternatives to international bank lending and bonds to finance its spending plan in the face of an international credit crunch..