RIO DE JANEIRO, May 23 (Reuters) - Interim President Michel Temer has given one of the biggest jobs of his administration to the youngest and least known of his cabinet members: Mines and Energy Minister Fernando Coelho Filho, 32.
Trouble in the oil, electricity and mining industries is responsible for nearly a third of last year’s 3.8 percent economic decline, deepening Brazil’s worst recession since the 1930s.
Sliding crude prices and a corruption scandal have rocked state-run oil company Petrobras, which may need government help to deal with its $130 billion of debt, the largest in the world oil industry. The scandal has also hit state-run utility Electrobras, which this month had its shares delisted on the New York Stock Exchange and also may need a bailout.
Coelho, the baby-faced son of a powerful political family, was handed one of the government’s biggest portfolios on May 12. Hoping to pay the debt without huge bailouts, the Temer government wants him to speed the sale of Petrobras and Eletrobras assets and open the oil sector to more foreign investment.
These moves will likely offend the deep nationalist feelings of many Brazilians, including suspended President Dilma Rousseff, who is still respected by many for expanding social programs that lifted millions from poverty.
Leftist and union groups are fighting her impeachment and impending Senate Trial. Believing the state must direct all energy development, they have also promised to fight Temer’s more free-market oil, electricity and economic policies.
“The previous government ... killed the goose that lays the golden eggs,” said Edmilson dos Santos, an energy policy professor at the University of Sao Paulo. “Rousseff was warned her policies would end in disaster, but she refused to listen.”
Ceolho’s experience in the energy sector is slim, beyond bills to cut taxes on hybrid and electric cars and to support farmers making ethanol from manioc, a staple root vegetable.
He does, though, have 10 years under his belt in Brazil’s rough and tumble Congress. When elected at 22, he was then the youngest person ever seated in the lower house.
“He has more political than technical experience,” said Helder Queiroz, former head of Brazil’s petroleum regulator ANP. “But the ministry requires more technical knowledge. The companies he’ll be dealing with demand much of a minister in a strategic job.”
Coelho did not return calls seeking an interview for this story.
Ready or not, Coelho is now in charge of promoting, regulating and in some cases running a huge portion of Brazil’s economy.
The oil industry alone is responsible for 13 percent of gross domestic product. Add mining and electricity and that rises to nearly 20 percent. The electricity industry is bigger than Britain’s and Italy’s combined, and Petrobras operates more ships than the U.S. Navy.
“His success will depend on who is picked for the second-level jobs,” José Marcio Camargo, an economics professor at Rio de Janeiro’s Pontifical Catholic University and an advisor to Temer’s Brazilian Democratic Movement Party.
Some of those people were picked last week.
Paulo Pedrosa, executive secretary, or No. 2 at the Energy Ministry, knows electricity. A former director of Brazil’s electricity regulator, he recently ran Brazil’s association of major power consumers.
Former Bunge Ltd executive Pedro Parente was named Chief Executive officer of Petrobras. A former Petrobras board member, he is expected to speed stalled asset sales and get the company out of ancillary businesses like shipping and pipelines.
Eletrobras may be the most urgent problem. The NYSE suspended its shares after the price-fixing, bribery and political kick-back scandal expanded from Petrobras, preventing the utility from delivering accounts to U.S. regulators.
Eletrobras needs an 8 billion real ($2.27 billion) bailout, said Luis Pinguelli Rosa, professor of energy planning at the Federal University of Rio de Janeiro.
The problems stem from Rousseff’s decision in 2012 to slash power rates in exchange for early renewal of hydroelectric power concessions.
“Eletrobras’ return on the renewed hydro dams dropped to almost zero overnight,” said Pinguelli, who was CEO of Eletrobras in 2003 and 2004 when Rousseff was Brazil’s Energy Minister. “Eletrobras’ ability to generate cash and invest dried up.”
Petrobras may also need government cash, Pinguelli said, though Dos Santos and Camargo say the amounts contemplated - as much as 150 billion reais ($43 billion) - would strain the government’s finances and undermine its credit rating.
The only alternative is for Coelho to push the faster sale of Petrobras assets, Dos Santos said. This would raise cash and get the company out of businesses, such as refining, that prevent it from focusing on exploration and development in giant offshore fields, he added.
$1 = 3.5253 Brazilian reais Additional reporting by Marta Nogueira in Rio de Janeiro and Luciano Costa in Sao Paulo; Editing by David Gregorio