Monday, September 03, 2007

Petrobras' Turnaround

Petrobras, the Brazilian national oil company, seems to be everywhere here. They have ads all over, they heavily sponsor the arts, and they of course all selling a lot of energy of various types. The WSJ last week praised the company for turning itself around in the 90's, largely due to the vision of President Cardoso.

Mr. Cardoso termed his policy for Petrobras "flexibilization." He wasn't willing to privatize it fully, but he used market forces, like a stock flotation and foreign competition, to make Petrobras behave more like a private company.

In 1999, the government started allowing foreign operators to bid against Petrobras for offshore blocs. To prepare the company for competition, Mr. Cardoso named an investment banker as its president. The new chief cracked down on dicey deals with suppliers, started an incentive-based bonus system for managers and cleaned up the books by acknowledging billions of dollars in pension and health liabilities.

The next year, the government sold a 16% stake in Petrobras for $4 billion on stock markets in New York and São Paulo. While Petrobras shares already traded locally, the Big Board listing "had a big impact on governance," says Mr. Gabrielli. "It forces transparency. It forces disclosure."

Even my university made it into the article as benefitting from Petrobras.
One cooperative venture funded by Petrobras royalties is a massive water tank at the Federal University of Rio de Janeiro. The tank, slightly bigger than a tennis court and 50 feet deep, simulates winds and waves encountered offshore, and ultimately helps design safer platforms.

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