The Coming Renationalization of Petrobras.

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AAAinthebeltway: I thought the Brazilian government controlled it already. What would you do with the existing stockholders? Just steal it from them Hugo Chavez style?

Name one national oil company that is not a cesspool of corruption, inefficiency, misinvestment and incompetency.


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July 8, 2008


SouthAmerica: You did not read my article otherwise you would not be asking me: “What would you do with the existing stockholders?”

The article answer that question.

You asked me: “Name one national oil company that is not a cesspool of corruption, inefficiency, misinvestment and incompetency.”

I don’t know if you and some other people on this forum ever heard of Aramco from Saudi Arabia. They have been doing very well since they became nationalized.

That’s a company that comes to mind.

Besides today Petrobras is one of the state-of-the-art technology companies in that industry and Brazilians are too smart to not keep up with the latest technologies available anywhere.


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Cesco: Let's see Iranians can't even refine their own oil, they have to import it idiots.

Mexican oil production in disarray. But nationalism trumps the reason and common sense. Few Mexicans I've known were extremely dumb so no surprise here either. Don't even let me start about Venezuela and Russia. Russian production already declining.


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SouthAmerica: None of your examples apply to Brazil.

The Iranians have been surviving anyway they can since the Shah of Iran was deposed almost 30 years ago. They have to deal with all kinds of embargo and so forth related to US interference on Iranian domestic affairs since 1952.

Iran has the US army fighting wars on two borders of their country creating a major problem for them for a long time.

You can’t blame the Iranians for trying to develop nuclear weapons to try to defend their natural resources from foreign pillage - and they have an actual example to keep in mind right nest door in Iraq.

The Mexicans have asked Petrobras to help them sort out some the problems that they have in that industry.

The Russians are in a period of transition from the collapse of the Soviet Union, and the following pillage of state assets by a bunch of wise guys. Eventually they will fix their problems.

I don’t care what Hugo Chavez does in Venezuela – it is his business and the Venezuelan people.

If you analyze each country that has nationalized their oil industry you will find out that most of them had many economic and political problems and it does not apply to the current case involving Brazil and Petrobras since Brazil is emerging as one of the superpowers of the future – and Brazil has been putting its act together.

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SothAmerica: By the way before I forget - Today's Financial Times (UK) had an entire section about the Brazilian economy.

The articles reflect what is happening in Brazil today - and the articles are very interesting and put the spotlight on this emerging superpower.

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Brandonf: Another good article Ricardo. Keep them coming, regardless of what others here may think or say I find you to be a good source of information and have made a lot of money by taking something you presenting and then connecting my own dots with it.


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SouthAmerica: Thank you Brandon I appreciate your comments. I am glad that you were able to make some money with the info that you learned by reading some of my postings on this forum.

That is the difference between the smart people who are able to grasp the information and use it to make some money.

And the whining people, who can’t grasp the information that I have been providing on this forum and they usually start a confrontation with me about any subject. I would not be surprised to find out that most of these guys are probably always in the losing side of any deals.

By the way, check once in a while the comments being posted after my article since there are some well-informed members in that forum who also provide some good information about various subjects that are being discussed after the articles published by Brazzil magazine.

For example: my article about China investing $ 200 billion dollars in Brazil ended up generating a total of over 800 comments regarding that article, and at least 7,000 people took the time to read that article.

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Good article, thank you!

Being latam my view is that nationalization processes invariably fail and do not achieve the expected outcome for whatever reasons. Petrobras "is a leading global company in its field" just because it is in private hands. Governments do not care about reinvesting profitably in their acquired businesses and may not even know how to (the original argentine YPF may have been an exception). In some cases, the reasons for re-nationalization of profitable enterprises has less to do with trying to allocate capital surpluses more efficiently but more with corruption/fees/financing-of-authoritarian regimes like in the case of Chavez. So you can't ponder these examples as the ones to follow. There is another trend similar and perhaps more powerful than the one of SWF and that is the same Central Banks allocating capital in foreign markets, according to Morgan Stanley. So the question is, why nationalize if governments can still move around their reserves?

If your article might be a representation of what is to come I will definitely explore shorting EWZ... with all due respect.
 
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Rros: If your article might be a representation of what is to come I will definitely explore shorting EWZ... with all due respect.


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SouthAmerica: Why you guys always mention the countries that are the bad examples of the oil industry such as Venezuela, Mexico, Nigeria, the United States and so on….

Look at Saudi Arabia, and the economic development that is going on in that country.

Saudi Arabia has a first rate oil industry and they have nationalized that industry decades ago.

You said: “I will definitely explore shorting EWZ... with all due respect.”

That will be great because it would help reduce the market price that Petrobras has to pay to the shareholders of the shares that are traded on various stock exchanges.

I hope there are many people in the same wavelength that you are. The more people there are shorting Petrobras stock then the Brazilian government can make a lower offer to buy the outstanding shares.

You said: Petrobras "is a leading global company in its field" just because it is in private hands."

For your information: The Brazilian government still controls about 56 percent of Petrobras outstanding shares. Petrobras is not on private hands - the public traded shares still are just minority shareholders.

You are implying on your posting that private companies do a wonderful job - Just like the job being done by the American oil companies?

If they are doing such a wonderful and efficient job then why gasoline prices have skyrocketed in the US in the last few years?

Please explain to me this wonderful job that the private oil companies are doing because I can't see it.

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SA ...

I have only read the short version of what you are saying and so you may have already addressed my question.

Why would the gov. want to mop-up the remaining 44% of the shares and be saddled with the management when they already have rententions at the pump domestically and at the border internationally.

I do not disagree with your concept but it seems to me that in order to mop-up the balance of potential earnings gov. is required to absorb the entire responsibility and we know from history that very very few govs. can achieve this with any degree of efficiency. The reasons for this inefficiency being of far less an importance than the outcome.

It is just the nature of the beast with large gov.
Brazil has the joy or deciding to export oil and/or ethanol and can change this ratio at anytime.
There is a difference between these two fuels and that difference being that oil can remain underground for the next generation but a harvest of ethanol with held is a harvest lost. (fossil versus living)

Just interested in your thoughts SA

regards
f9
 
Excellent Commentary, As Usual
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http://www.bloomberg.com/apps/news?pid=20601109&sid=ao.cTD1eAdzU&refer=home

The Brazilian president is already moving in this direction....

You are right as usual....
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My quandry is related to Nationalism vs Capitalism....

The value of assets tend to approach their highest values as shares on an electronic stock exchange.

Shares on an electronic stock exchange are a very important step in financial efficiency because they can represent nonobligatory non interest debt.....although the efficiency of the stock exchange in the US is being threatened by excessive regulation and the incestual financial control by the crossing over of SEC and corporate employees. When an electronic stock exchange is structured properly, employees can be given shares or ownership, and thus have the incentive to be productive.....

When the government owns the shares the individual does not have a chance to own shares individually. The worker is just put on a Gscale and that's it....and incentives to produce are reduced...

Furthermore when one reviews valuations, nationalized valuations are paultry or simply inaccessible to individuals. Thus the wealth is there to be had....but yet not available. Why would a government not want to reward devotion and hard work by ownership? And thus a hardworking devoted person will have something to pass on to their children.

Although the capitalism in the US is now infected with a disease called a definite lack of financial distribution in that 1% of the population now controls over 80% of he wealth....due largely to incestual legal largesse between companies and the SEC....and the US Government....

Want an example....just review what happened yesterday. The US Fed is now Capitalizing Wall Streets Gains, and is Socializing Wall Street's Losses. Not one word was mentioned about the recapture of the famously high bonuses created by third tier accounting (lying).....

However when regulated properly.....an electronic capitalistic stock exchange is an effective way to distribute wealth to those that work hard and want to get ahead.

But on the other hand, Denmark is the happiest country in the world in terms of its population.....

What are your thoughts relating to this issue ?
 
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Fearless9: Brazil has the joy or deciding to export oil and/or ethanol and can change this ratio at anytime. There is a difference between these two fuels and that difference being that oil can remain underground for the next generation but a harvest of ethanol with held is a harvest lost.


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SouthAmerica: In the summary version I have not posted the part of my article that I mentioned ethanol. I am going to post below the Ethanol portion of the article.

You said: “I do not disagree with your concept but it seems to me that in order to mop-up the balance of potential earnings gov. is required to absorb the entire responsibility and we know from history that very very few govs. can achieve this with any degree of efficiency.”

Again the model that I am using is Saudi Arabia and Aramco.

Aramco is a first rate oil company and the government of Saudi Arabia is doing a magnificent job in creating the 7 new cities of the future in Saudi Arabia.

In my opinion, Saudi Arabia is doing the right thing with their oil revenues and they are investing in the future of Saudi Arabia.


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Here is what I wrote on my article regarding ethanol:


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.

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July 9, 2008

SouthAmerica: Reply to Libertad

I designed this economic development plan for Brazil then my problem was to find a source of funding to be able to implement such a plan.

First I came up with the idea and try to justify with my last article why China should invest $ 200 billion dollars in Brazil according to my plan.

Then sometime in January 2008 I realized that my new source of funding was going to be Petrobras and I started writing this new economic development plan that was published yesterday.

In my opinion Petrobras is a better source of capital to implement my economic development plan than any foreign government or international institution such as the World Bank and so forth. The renationalization of Petrobras it makes sense to me for this particular purpose.

When Petrobras is completely renationalized the Brazilian government will control 100 percent of its outstanding shares – in essence the Brazilian people would be the new owners of Petrobras.

When the funds provided by Petrobras are invested according to my economic development plan the Brazilian population will benefit 1,000 times over when the job opportunities and educational opportunities materialize in Brazil – the sky will be the limit.

The Brazilian people will have plenty of electric energy scattered around the country generated by nuclear power plants. They are going to have new and state of the art infrastructure to facilitate the movement of goods inside Brazil and for the export market.

Brazilians would have a country wired with high-speed broadband fiber optics communication system and they would be able to do all kinds of things with this technology and they also would be able to integrate with the global community and operate at the highest level.

A state of the art high-speed leading edge transportation system also will be in place to help people and goods move in a very efficient way.

After all these investments have materialized Brazil will skyrocket into the economy of the future and the Brazilian economy will grow by leaps and bounds into a very prosperous future.

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Excellent Commentary....As Usual............

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Thank you for your reply....

Do you see properly regulated electronic stock exchanges playing an important role in the development of Brazil ?
 
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