Value In Brazil's State Oil Company Drops

Dec 6, 2013
Originally published on December 6, 2013 10:49 am
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And Brazil's state oil company, Petrobras, lost 15 percent of its market value this week - that's some $10 billion. NPR's Lourdes Garcia-Navarro reports from Sao Paulo on why oil analysts predict more trouble ahead for the oil giant.

LOURDES GARCIA-NAVARRO, BYLINE: These should have been golden days for Petrobras. In the last five years off the coast of Brazil, they've discovered massive underwater oil fields. But the finds are buried under two miles of rock and salt, making it expensive and time-consuming to get there, which means they need money - lots of it.

One of the ways to get the money is through raising prices at the pump in Brazil. And Petrobras announced it is doing just that to the tune of 4 percent for gasoline. But that was well below market expectations, causing the value of the company to tumble.

Adriano Pires is a professor at Rio Federal University. He says Brazil's government is worried about controlling inflation ahead of next year's presidential elections and not doing what's best for the company.

ADRIANO PIRES: (Foreign language spoken)

GARCIA-NAVARRO: He says the government's policy for pricing gasoline and diesel is still focused on inflation control and that is part of a political agenda to help Dilma Rousseff's reelection next year.

Violent protests broke out last summer over an increase in public transport fares - sticker shock at the pump, it is feared, could lead to another wave of demonstrations.

PIRES: (Foreign language spoken)

GARCIA-NAVARRO: Pires says Petrobras also has a mountain of debt to the tune of $81 billion. So Petrobras is in a very hard situation, he says, because it has no cash and they can't borrow anymore either.

Lourdes Garcia-Navarro, NPR News, Sao Paulo. Transcript provided by NPR, Copyright NPR.