Cablegate: Directorships at Petrobras Becoming Increasingly

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DE RUEHRI #0559/01 2701823
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R 271823Z SEP 07
FM AMCONSUL RIO DE JANEIRO
TO RUEHC/SECSTATE WASHDC 4190
INFO RUEHBR/AMEMBASSY BRASILIA 0566
RUEHSO/AMCONSUL SAO PAULO 5078
RUEHRG/AMCONSUL RECIFE 3366

UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000559

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET EIND PGOV BR
SUBJECT: DIRECTORSHIPS AT PETROBRAS BECOMING INCREASINGLY
POLITICIZED

1. (U) Summary. A political battle erupted among the government and
its allied parties last week over high-level positions within
various government entities. Although the federal government has
managed to alleviate many of the tensions arising from this
struggle, it has so far not been able to calm down the harsh dispute
for Director-level positions at Petrobras, Brazil's state-owned
petroleum company. Involved in the Petrobras struggle are the
ruling Workers Party (PT) and its allies, the PMDB and PP.
According to specialists in the sector, increased political
interference may compromise the quality of administration at
Petrobras - a company that has historically been seen as independent
of such political tension. End Summary.

Political Struggles over Petrobras Directorships
--------------------------------------------- ---

2. (U) Amid the backdrop of the congressional vote on Brazil's CPMF
financial transactions tax, parties allied to the ruling PT
administration are voicing frustration that they are not getting
their fair share of high-level positions at government entities.
Rather, they are complaining that the PT is placing its own people
in these key positions.

3. (U) At Petrobras, for example, Jose Eduardo Dutra (considered a
personal nomination by President Lula) has been named as the new
head of Petrobras Distribution Company and Maria das Gracas Foster
(a close ally of Minister Dilma Rousseff) has been named the new
Director for Oil & Gas. Though these names were largely expected,
the PMDB threatened the outcome of the CPMF vote if it was not
guaranteed its share of similar positions such as these. PMDB
leader Henrique Eduardo Alves has described Petrobras as a "PT
castle."

4. (U) Petrobras is managed by an Executive President and six
directors for strategic areas. In addition to Dutra and Foster,
further changes are expected in the company's administration. Three
new directors may be named for the following areas: International
Affairs, Supply, and Exploration & Production. Rumors suggest that
President Lula decided to postpone these three nominations in order
to avoid further problems with the CPMF vote in the Congress, which
passed on Spetember 26 after time consuming delaying tactics by
opposition parties.

5. (U) While the PT seems to have been planning to fill Petrobras'
ranks with its own people, it appears that further nominations will
be more prone to political pressure. Petrobras Special Assistant to
the President Alan Kardec (a PMDB appointee) is now thought to be
the frontrunner to replace Supply Director Paulo Roberto Costa (a PP
appointee). Costa, in turn, is said to be in line to be the new
Director for Exploration & Production. Joao Augusto Fernandes,
former Director of Petrobras Distribution Company (a PMDB
appointee), is rumored to be replacing Nestor Cervero as Director
for International Affairs.

6. (U) The changes in the Petrobras Board of Directors show the
government's increasing influence over Petrobras. Historically,
only career employees were considered for directorships. Many
analysts are expressing disappointment that the current
administration is subjecting the company to such public political
bartering, warning that this may ultimately harm the interest of
Petrobras' private shareholders.

Background on Distribution Director
-----------------------------------

7. (U) Petrobras contacts speak highly of Dutra's administration at
Petrobras. Though Dutra's union roots and labor militancy
background elicited some negative feedback, he is described as
having done an overall good job as Petrobras President. A geologist
and political figure, Dutra worked at a former Petrobras mining
subsidiary, led a leftist labor union and served eight years as a
Workers' Party (PT) senator from the state of Sergipe. Contacts
characterize Dutra as intelligent, sincere and honest, with a high
sense of integrity.

Background on Oil & Gas Director
--------------------------------

8. (U) Contacts also speak highly of Graca Foster's background.
According to the Director of the Brazilian Center for Infrastructure
(CBIE), Adriano Pires, the change in the Oil & Gas directorship will
be a positive one for the sector. He said former Petrobras Oil &
Gas Director Ildo Sauer created too many problems for the gas sector
because of his strong convictions and longstanding disagreement with
Minister Rousseff. Sauer's inconsistent attitude towards Rousseff
and the gas distributing companies reached a limit, he said. Graca
Foster's nomination, as a protegee of Rousseff, is seen as
strengthening Rousseff's position as Head of the Administrative
Council of Petrobras.

RIO DE JAN 00000559 002 OF 002

9. (U) This message was cleared/coordinated with Embassy Brasilia.

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