The Coming Renationalization of Petrobras.

Discussion in 'Economics' started by SouthAmerica, Jul 8, 2008.

  1. .
    July 8, 2008

    SouthAmerica: I sent the enclosed article for publication today and the editor of Brazzil magazine published it immediately as soon as he received the article.

    Some people on this forum might be surprised by my suggestions regarding this economic development plan for Brazil.

    I hope you will enjoy reading it.


    Why Brazilians Should Demand the Renationalization of Petrobras
    Written by Ricardo C. Amaral
    Brazzil Magazine
    Tuesday, 08 July 2008

    It is imperative that the Brazilian government follows 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.

    You can read the entire article at:

  3. just because you want it to happen doesn't make it so, Ricardo.
  4. 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. One of the major reasons for dropping worldwide production is the existence of the companies. If you want things to work, toss El Presidente's in laws out and put some good ole boys in charge. The profit motive tends to work well too.
  5. Brandonf

    Brandonf ET Sponsor

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

  6. Cesko


    You are right about the trend. When times are good they nationalize. Time will come they will be inviting back expertise, know-how and technology only oil companies can provide.
    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. They need 1 trillion USD(!!) if they just want to keep production on today's level.

    Please go back to Brazil you hate this country anyway and there are more than enough lefty wackos like yourself here.Economist my ass.
  7. .
    July 8, 2008

    SouthAmerica: Reply to nazzdack

    Here is a summary of the article for you to read it – this summary includes only half of the information on the published article.


    Why Brazilians Should Demand the Renationalization of Petrobras
    Written by Ricardo C. Amaral
    Brazzil Magazine
    Tuesday, 08 July 2008

    It is imperative that the Brazilian government follows 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.

    To be continued on Part 2.

  8. .

    Summary of article Part 2

    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….



    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 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.

    Ricardo C. Amaral is a writer and economist. He can be reached at

  9. .

    Thermactor: just because you want it to happen doesn't make it so, Ricardo.


    July 8, 2008

    SouthAmerica: Reply to thermactor

    I posted the following comment following my article because a friend of mine who reads the magazine on a regular basis had asked me a few questions that I had told him that he would find the answer on my latest article. Here is what I said to my friend:

    Here is the article that I had mentioned to you.

    If you noticed I made some improvements on the economic development plan for Brazil and I had to adjust some figures because of what has been happening since September of last year when Brazzil magazine published my article about China investing $200 billion dollars in Brazil.

    Petrobras it will be a better source of funding for my economic development plan for Brazil, and now there is no excuse for the Brazilian government to not implement the above plan.

    This plan puts in place the foundations necessary for all the other pieces to fall into place - a new education system designed for the 21st Century, bring the jobs to where people live today, as job opportunities develops then the crime rate it will go down as people will be able to find new job opportunities.

    I am getting in contact with all the members of my family who are involved in politics in Brazil for them to help me to push forward the enclosed economic development plan.

    I am also contacting former President Jose Sarney for him to help me contact the right people inside the Brazilian government who can help me move this plan forward.

    Let's put to the test if the “Andrada Dynasty” still alive and well in Brazil and if our family still have the influence and the power that we had in the past 200 years.

    It is time to stop talking and instead it is time to start acting and implementing these ideas.

    It is show time.

  10. Enough of the quasi academic chat, l challenge you folks to create a viable macro trade based on your views on this thread, using an exchange traded instrument with central clearing (besides EWZ)... :D

    P.S. Can't wait for the lynching to start
    #10     Jul 8, 2008