Eletrobras Strike Affecting Petrobras, Energy

Petroleo Brasileiro SA (PETR4) and Centrais Eletricas Brasileiras SA (ELET6), Brazil’s biggest state-run companies, are bracing for wage increases that exceed inflation amid coordinated walkouts affecting the entire federal government.

Workers at Eletrobras, as Latin America’s largest utility is known, went on strike July 16 to demand a 10 percent wage increase, double the inflation rate, leaving a skeleton crew on the job to avoid service disruptions. The Petrobras labor union won a 12 percent increase in the share of profits that goes to workers after threatening a walkout tomorrow, and the company still needs to negotiate a yearly pay raise in coming months.

The demands put pressure on Petrobras, which spends about 20 billion reais ($9.9 billion) a year on wages, as the Rio de Janeiro-based company tries to sell assets to raise cash and reduces production targets. Eletrobras said payroll costs grew 7.8 percent last year to 5.23 billion reais. A slowing economy and Petrobras’s declining income from operations may help persuade workers to accept lower wage increases than in the past decade.

“The reality is different now, the economy isn’t growing and Petrobras has cash flow problems,” said Adriano Pires, head of consulting firm Brazilian Center for Infrastructure. “Now we’re entering a reality phase.”

Before today, Petrobras, the world’s fifth-largest oil producer by market value, dropped 10 percent in Sao Paulo trading this year, more than the 3.8 percent decline in the benchmark Bovespa index. Rio de Janeiro-based Eletrobras has slumped 28 percent.

Past Strikes

In 2009, Petrobras faced three strikes, including a five- day stoppage of about 10,000 workers that halted two oil terminals and temporarily slowed production at refineries. The company said at the time the walkout didn’t curb average oil output. In Norway a 16-day strike that ended on July 10 cut as much as 250,000 barrels a day in production by Statoil ASA (STL)’s, the country’s largest producer.

“All these strikes have the potential to disrupt production,” Gianna Bern, president of Brookshire Advisory & Research Inc. in Chicago, said in a July 5 telephone interview.

Petrobras workers won a 10.7 percent increase last year, following a 9.4 percent raise in 2010, after threatening to walk out. The rising costs add to a $236.5 billion five-year spending plan to tap and process oil in deep waters of the Atlantic. The company plans to borrow $80 billion to finance the plan and service its debt.

Workers vote today on the oil producer’s profit sharing proposal after their union recommended they accept it late yesterday. Petrobras said in an e-mailed statement that the offer was final.

Indefinite Period

At Eletrobras, where workers won an increase of 1.5 percentage points above inflation last year, the walkout involving about 80 percent of its 27,000 staff is the first strike for an indefinite period in 22 years, union leader Emanuel Mendes said yesterday in a telephone interview. The utility plans to invest 13.3 billion reais this year.

An Eletrobras press official in Rio said the company won’t elaborate on its July 16 statement about the strike.

“Given the international scenario, with a strong impact on the country’s economy, the company considers its proposal to adjust salaries by the inflation rate to be fair and adequate and expects workers to understand the imposed limits and return to work immediately,” the utility said in the statement.

Public workers from regulatory agencies to hospitals and universities are pressing President Dilma Rousseff to win above- inflation increases for a tenth straight year even as Brazil is set to grow the least in three years. About 350,000 civil servants are on strike, said Sergio Ronaldo da Silva, a spokesman for the confederation of federal civil servants.

Budget Impact

Granting all the demands would cost about 92 billion reais to public coffers, said an official at the Planning Ministry who can’t be named because of internal policy. The ministry official said the government didn’t have an estimate for the amount of workers going on strike.

“With the pressure at this moment, in which there is a big concern about maintaining a fiscal surplus, I think it will be difficult for the government to attend to these demands,” Newton de Camargo Rosa, chief economist at SulAmerica Investimentos, said in a telephone interview yesterday.

Rousseff, 64, is trying to curb spending that her predecessor Luiz Inacio Lula da Silva inflated so that the central bank can continue the cycle of interest-rate cuts it began in August to shield Brazil from Europe’s debt crisis.

Lula’s Increases

Under Lula, civil servants won eight years of wage increases averaging 7 percentage points above inflation annually. Last year, Rousseff gave federal workers a pay raise that was 2 percentage points above the inflation rate.

Inflation will slow to 4.87 percent this year from a seven- year high of 6.6 percent in 2011, according to the median estimate in a central bank survey of economist published July 16. Economic growth will slow to 1.9 percent from 2.7 last year and 7.5 percent in 2010.

A 13 percent decline in oil prices this year amid a global economic slowdown also puts Petrobras in a harder position to offer wage increases than in past years, Bern said.

“How are they going to spread the wealth when their stock price is way down, they have a massive investment plan and crude prices are off their highs?”

To contact the reporters on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net; Juan Pablo Spinetto in Rio De Janeiro at jspinetto@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net; Jessica Brice at jbrice1@bloomberg.net

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