The Limits of Competence

Genserico Encarnação Jr.

In the recent Brazilian Congress of Energy, held in Rio de Janeiro, the panel entitled "Oil Sector: Monopoly Abolition, Regulation and Private Capital" was characterized by considerable indifference of the public for the issue, as noted at the start of the session by the coordinator, Prof. Luiz Pinguelli Rosa. At the panel, a Petrobras representative, Engineer Jose Fantine, presented a comprehensive picture of the company’s initiative to face the new times, caused by rendering "flexible" the oil industry, which is a state monopoly, as a consequence of the constitutional amendment approved by the Brazilian Congress and which is now being regulated.

The plans of action for the end of the century were shown, and the highlights were the increase of oil and gas production, in this case it stands out the second phase of capacitating program of production in deep waters in the Campos basin; the creation of Excellency Centers to increase the efficiency in several activity sectors of the enterprise; the construction of the Gas Pipeline of Bolivia; other projects in the transportation area; the installation of the gas-chemical center in Rio de Janeiro; the projects in the refining and distribution sectors; the large increase in technological research, etc.

All this, with significant partnership with the private sector, exceeding two hundred work fronts, comprising only in the refining, petrochemicals, tanks, utilities and transportation, investments of more than US$ 10 billions in the next four years. According to one line of thought, Petrobras had its actions limited by the fact that it is state-owned and the sole executor of the Federal monopoly. It can be inferred that in the new times the enterprise is more free to confirm its competence in its concerned field and that it is adequately preparing itself.

The previously mentioned declaration, even though partially true (see "Public Deficit" in this Letter), when used outside of a precise context, can originate arguments favoring the enterprise to became a private one as well as the constitutional revision aiming at rendering "flexible" the oil state monopoly in Brazil. It is not e&e’s opinion neither that of the lecturer, who did not judge the government’s policy for the oil sector.

Petrobras’ new strategy has a strong opposition from the Engineer’s Association (AEPET), as has manifested its president, who participated in the panel. Not only about the enterprise’s partnership policy since, as a principle, he does not accept that monopoly should be flexible but also he vehemently criticizes projects such as the construction of the Gas Pipeline of Bolovia, specially because it will be exclusively financed by Petrobras. Concurrently, AEPET works actively for a decent regulation concerning the opening of the sector to international private capital.

This situation, the transition from one model to another, is extremely delicate and subtle. Petrobras’ Board of Directors is experimenting a difficult phase concerning the decisions and actions regarding this transition. Where this neo-liberal wave will lead us is a question not yet solved.

Before we reach a conclusion about the current situation and its setting in a changing structural frame, we will consider some arguments provided by business man, politicians, technicians and the press.

In an article about the construction of the Brazil-Bolivia gas pipeline (Veja n.1468 of October 30, 1996) characterized by a strong "paulista" ( from the state of São Paulo) bias, it is written that Petrobras would not have sufficient resources to invest US$60 billions in the next ten years. First of all, this amount is disputable, among other things because there is no need to be self sufficient in oil production. As to the consumption of petroleum products, besides the fact that it should grow at lower rates than it did in the past, due to the energy conservation policy and even for environmental questions, our refining installations, with the programmed expansions, will adequately satisfy the market up to the beginning of the next century. The construction of new refineries can wait for a while. The rationale that should guide this consideration is that of the strategist and not only of the enterprise, as has been emphasized by the magazine.

As it has occurred in the electric and oil sectors, by simply correcting the tariffs and prices ( in the latter, guided by the international prices, not those of the United States; paradoxically, in that country they are subsidized in some way) the enterprises will become financially healthy. For example, according to information obtained at the Energy Congress, due to the recent tariff corrections, the electric utility LIGTH had surpluses in the last month before its privatization, but this information was not released by the media.

The "paulista"-enterpriser bias of the above mentioned magazine is explicitly demonstrated when it suggests that the Bolivian gas should reach only São Paulo, which would favor the gas pipeline viability - which at the moment is the only one capable of doing it - with solely ideological arguments, that is, because it is a government-owned company. Nevertheless, one concludes from the article that it is a company with technical, financial and entrepreneurial capacity.

After these considerations, the following questions should be made:

Is Petrobras’ entrepreneurial strategy correct at this moment of transition?

Which should be the advisable point of balance for Petrobras’ development in this new strategic-entrepreneurial path?

Up to what point the new strategy corresponds to the national interests and up to what point it will serve private interests, specially the foreign ones, which are not necessarily compatible with those of the nation?


Without considering specific projects, like that of the gas from Bolivia, which deserves exhaustive discussion and fine analysis, our conclusions, which were drawn under the current political environment, are presented for discussion:

Petrobras’ strategy is correct for the present moment


An interesting exercise would be to put oneself at the place of the present company’s Board of Directors and speculate about the orientation to be followed, their worry about the best implementation of the government policy and, naturally, about the conservation of their respective jobs during the present administration, without complaisance.

The limiting point of this strategy is the conciliation of the national interests with those of the enterprise and of the private partners.


The implementation of this strategy should consider how fragile are the limits of Petrobras’ entrepreneurial competence. It can be really preparing the way for future privatization or to subservience to private interests which through it would benefit from the power and favors of the state. The establishment of this limit is not an easy and exact task. Just see what happened to the petrochemical industry.

For this purpose, AEPET’s agenda should include a close watch over this strategy- and not necessarily oppose it systematically- so that the referred imprecise limits should not be surpassed.


If it remains restricted only to the current agenda, admittedly correct, of opposition to rendering "flexible" the Union’s monopoly over the petroleum sector and to its participation in the discussion over the law’s regulation, AEPET takes the risk of seeing it obsolete when this law should be approved (without considering the merits of how the regulation will be carried out). Besides these points, the discussions should be concentrated on the analysis of the government policies, which are a background for Petrobras’ enterprise strategies. If not, it may origin unnecessary discussions and clashes with the Board of Directors and divide the opinion of the technical staff. This preoccupation with preserving the enterprise is also that of not raising any damage to AEPET’s image, which should go on playing its important role, serving the superior interests of the national oil sector.

Alternatively, in Petrobras’ agenda in the new phase it should be considered the renewal and capacitation of its managerial, technical and administrative personnel, who will be responsible for most of the success of the enterprise’s new strategy, taking into account that the enterprise’s reform process, a large part of the most experienced staff, responsible for the success in the past and also for the present changes, has been or is being dismissed by retirement.

As a last remark, as we are talking about competence, it should be registered the national oil production of 900000 barrels per day.


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