Liability Issues for Public Corporations: Petrobras in Brazil
Liability Issues for Public Corporations: Petrobras in Brazil
  • Song Kyung-ho, Research Analyst at Korea Institute
  • 승인 2011.08.17 17:41
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Song Kyung-ho, Research Analyst at Korea Institute of Public Finance

Petrobras is a public corporation (The Brazilian government holds a 64 percent stake in it) founded in 1953 and the leader of the oil, gas and energy industry in Brazil with more than 78,000 employees. It is the biggest company in Brazil and also the world's third biggest energy company in the market capitalization, according to a PFC Energy ranking. It operates in an integrated manner in exploration, production, refining, trade, transportation, petrochemicals, derivatives distribution, natural gas, electric energy and bio-fuels. Petrobras' oil production reaches 2.5 million barrels a day, which is about fourteen times bigger than that of the Korea National Oil Corporation.

 

Negative perspective

Recently there has been general concern about an intensive investment and a financial support of the Brazilian government into energy corporations. Due to the spread of energy resource nationalism over some Latin American countries such as Venezuela and Bolivia, and the recent discovery of oil fields in Brazil, the Brazilian government has been enthusiastic about energy development. According to 'Spending review of Government investment on public corporations' by Department of Coordination and Governance of State Owned Enterprises (2nd Feb, 2011), 78.2 billion Real (93.0%) of government investment flew into energy corporation, in other words, Petrobras. Moreover, Brazilian development bank (BNDES) grants a privileged loan to Petrobras. As energy development projects such as exploration, unlike other industries, have high risk that may cause consequential losses, the public interest in the solvency and business performance of Petrobras is naturally growing. Since 2006, both the total liability of Petrobras and its ratio to GDP have been sharply increasing. Table-1 shows that the total liability of Petrobras in 2010 recorded 216.2 billion Real, an increase of 89 percents over the last 5 years. The ratio to GDP increased by 1.06 percent during the same periods.

 

<Table-1> the recent 5-year liability figure of Petrobras.

(Billion Real, %)

 

 

2006

2007

2008

2009

2010

(a) Total liability of Petrobras

114.2

138.2

151.2

184.5

216.2

(b) Brazil GDP

2,368.5

2,661.3

3,031.9

3,185.1

3,675.0

The ratio of total liability of Petrobras to GDP (a)/(b)

4.82

5.19

4.99

5.79

5.88

[resource: Brazil central bank, Petrobras Annual Reports]

Positive perspective

In spite of negative publicity, Petrobras rather makes an aggressive investment on the authority of an improving financial soundness and a growing operation profit. Figure-1 shows that the ratio of total liability to equity (hereafter the debt-ratio) has been decreasing, while total liability has been rising over the last decade. Petrobras explains that the debt-ratio has been falling as the rate of increase in equity dominates that of the liability. In detail, a successive business investment results in a rise of operation profit which can be seen in table-2. On September 2010, Petrobras raised $70 billion in world's largest initial public offering (IPO) to fund its oil exploration plan which at $224 billion for the five years. The case of Petrobras provides significant implications on the energy policy of government and role of public corporation for those countries think of the nationalization of energy companies.

 

<Table 2> The financial statements of Petrobras.

(Billion US $, %)

 

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Net Profit

3.49

2.31

7.26

6.19

10.34

12.83

13.14

18.88

15.5

19.53

Total Asset

36.86

32.02

53.61

63.08

78.63

98.86

129.72

125.7

200.27

308.68

(1)Total liability

23.62

22.72

36.46

40.58

45.71

54.38

64.54

63.79

106.21

127.19

(2)Total equity

13.22

9.3

17.15

22.5

32.92

44.48

65.18

61.91

94.06

181.49

Debt-ratio

(1)/(2)

178.7

244.3

212.6

180.4

138.9

122.3

99.0

103.0

112.9

70.1

[resource: Petrobras balance sheet, income statement]

 


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