🏔️ Competition loses

Good morning! Today, we talk about new monopolistic moves by Petrobras, Brazil’s oil giant. A Supreme Court gambit on social media regulations? And what Brazil’s finance minister said about inflation in Congress.

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Petrobras slashes divestment plans

Cade, Brazil’s antitrust watchdog, on Wednesday announced a deal with state-controlled oil firm Petrobras, freeing the company from a previously signed commitment to sell off five refineries and its stake in the Brazil-Bolivia gas pipeline.

Context. Back in 2019, during the former Jair Bolsonaro administration, Cade ruled that Petrobras should sell eight of its 13 refineries to end an investigation into anticompetitive conduct in the refining business. Petrobras accounts for 84 percent of the country’s refining capacity. 

• Under this deal, the company sold refineries in Amazonas, Bahia, and Paraná, as well as its main fuel distribution networks.

• Yes, but … When the Luiz Inácio Lula da Silva administration took office in 2023, the government quickly turned its back on this divestment drive. It re-nationalized another refinery in Ceará and requested multiple extensions to Cade’s deadline to complete the assets’ sale.

New deal. The new Petrobras deal with Cade foresees the creation of mechanisms for regulators to check whether the oil giant’s prices are not harmful to the market.

• A majority of the seven Cade board members were appointed by the current administration.​​ After the deal was validated on Wednesday, Petrobras quickly removed the five remaining refineries from its divestment plan.

 Why it matters. The move is part of a broad strategy to increase the government’s control over key parts of the economy. As deputy editor Fabiane Ziolla Menezes wrote, the Lula administration has sought to increase its influence in major companies in which it owns a stake, even when that means going against governance rules.

Be smart. By keeping a tight grip on the oil refining industry, Petrobras will have more power to dictate prices. Senior government officials have been vocal about their plans to force down prices at the pump as a way to create a feeling of positivity around the economy. 

What next. The government is looking to resume plans to expand a refinery in the Northeast and finish the construction of a petrochemical complex in the state of Rio de Janeiro — both of which have been halted for years after being tainted by corruption scandals.

• This government believes that Petrobras must invest money in expanding its refining capacity; by Friday, it will have a new CEO who fully shares that belief.

Supreme heads up

During a seminar on artificial intelligence, democracy, and elections organized by the Superior Electoral Court, Supreme Court Justice Alexandre de Moraes (in his final days as Brazil’s chief electoral justice) once again urged Congress to adopt strong regulations on social media platforms. 

• But if Congress doesn’t step up to the plate, he warned the Justice system could settle the issue by itself.

State of play. By next month, the Supreme Court could start a trial on the constitutionality of Article 19 of Brazil’s civil rights framework for the internet. Like the U.S.’s Section 230, it grants platforms immunity for third-party content and says companies can only be liable for user content if they fail to comply with court orders to remove posts.

• Several justices have come out in favor of stricter regulations for social media platforms, even though their job descriptions dissuade them from doing so. 

• They are particularly ticked off by how disinformation and hate speech run amok on such platforms, without much effort from Big Tech to contain it. That happened in recent elections and justices worry it will happen again during municipal elections in October.

In their words. “It is fundamental that platforms be held legally accountable for their actions or for their omissions,” Gilmar Mendes, the longest-tenured justice, said last year. “Big tech companies are not mere canvases, they are for-profit corporations. There is nothing wrong with that, but they must be regulated,” Justice Moraes said on Wednesday. 

• “What cannot be done in the real world cannot be done in the virtual world, either,” he added.

 Why it matters. Platforms say regulations have the potential to change the very structure of the internet in Brazil — and could set an important precedent for other countries. 

Global stakes. A report by the NGO Freedom House calls countries such as Brazil, India, and Nigeria “swing states” on which internet freedom hinges due to their potential regional or global influence on the future of internet governance. 

Yes, but … Congress has on its docket the so-called “Fake News Bill,” which aims precisely to regulate how social media platforms must act regarding disinformation and hate speech. Last month, however, Speaker Arthur Lira sent the bill back to square one.

• Even so, if justices decide to take it upon themselves to draw up social media regulations, they could reignite a war of attrition with lawmakers — who have been wary of what they see as the Supreme Court usurping their jurisdiction. 

Thought bubble. If the Supreme Court considers that the current legal protection of digital platforms is unconstitutional and overturns it without establishing a new replacement rule, these companies will be subject to Brazill’s civil code. That, however, could be harsher for Big Tech firms than the regulations proposed by the Fake News Bill — which could lead platforms to become more receptive to the legislative proposal.

Haddad talks inflation in Congress

Finance Minister Fernando Haddad appeared before the House Finance and Taxation Committee to defend the government’s economic policies. Mr. Haddad said the economy is in much better shape than the government is getting credit for — and added that if the Central Bank’s monetary policy and the government’s fiscal policies are aligned, Brazil “will grow smoothly, without inflation.”

 Why it matters. Markets watched Mr. Haddad closely amid fears that the government will increase its control over the Central Bank next year, when it appoints three new members of the Monetary Policy Committee, including the bank’s next chair.

Harmony. Mr. Haddad referred to Brazil’s current 3 percent inflation target as “unimaginable” and “extremely demanding.” He called for reforms to Brazil’s fiscal structure — especially the fact that large chunks of federal revenue are constitutionally earmarked for spending on specific things, which reduces any government’s discretion over the budget.

• The finance minister also pointed out that the disinflationary effort of 2023 was greater than it seemed, given that the previous Jair Bolsonaro administration produced artificial inflation numbers in 2022 by temporarily lifting taxes on fuels and energy.

• “Core inflation indicators are below the target,” Mr. Haddad told lawmakers, suggesting that skeptical analysts may have a financial interest in fearmongering the market.

Right, but … Mr. Haddad is right in his assessment that the current government inherited a budgetary mess. But saying inflation is completely under control may be a stretch. Early in April, the median year-end inflation rate forecast among analysts surveyed weekly by the Central Bank stood at 3.7 percent. It is 3.8 percent now.

• The Central Bank’s Monetary Policy Committee recently pointed out that “various measures of underlying inflation are above the inflation target in recent releases.” 

Quick catch-up

Petrobras’s Personnel Committee approved the nomination of Magda Chambriard as the company’s new chief executive. A board vote on Friday could see her take charge of the firm immediately.

Agriculture Minister Carlos Fávaro said Brazil won’t pursue a Mercosur trade deal with the EU at all costs. He mentioned that some EU countries are trying to force ludicrous environmental and sanitary requirements on South American producers.

Vale has asked the Supreme Court to reverse a trial court ruling suspending its activities at a nickel mine in Pará. The state government alleges that the mining company and its subsidiary did not comply with actions to mitigate the mine’s environmental impacts.

A study suggests that Brazil should plant 10 billion trees across 12 million hectares (an area as big as England) in order to recover preservation areas and create climate resilience.

Rio’s state electoral court will today resume a trial on whether Governor Claudio Claudio, his lieutenant, and the State Congress’s speaker illegally used the state apparatus to boost their 2022 campaigns. The case (read more here) could ultimately unseat them.

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