Petrobras CEO Says He Will Step Down as Brazil’s President Moves in on Oil Giant

His departure comes as Brazil’s right-wing president is pushing to install an army general at the helm of the oil producer after Mr. Castello Branco resisted the president’s calls to lower fuel prices. The row has raised fears among investors that Mr. Bolsonaro is seeking to force Petrobras to subsidize the country’s diesel and gasoline prices—a policy adopted under previous left-wing administrations that nearly bankrupted the company.

Mr. Castello Branco hit back at Mr. Bolsonaro Thursday, saying that fuel subsidies had been “disastrous” for the company in the past, costing it $40 billion. “If Brazil wants to be a free-market economy, you have to have a free market,” he said.

With elections looming next year, and calls growing in Congress for his impeachment over his handling of the pandemic, Mr. Bolsonaro has resorted ever more to populist moves to win over voters, political scientists said.

Lower fuel prices wouldn’t only please many ordinary Brazilians who have seen their incomes dwindle during the pandemic, but it would also appease angry truckers, who have threatened to repeat a nationwide strike that hobbled the economy in 2018.

Investors had widely expected Petrobras to renew Mr. Castello Branco’s term for another two years after he won the market’s respect for repairing most of the financial damage from fuel subsidies. The company’s net debt fell to $63.2 billion at the end of the fourth quarter last year, from $95.5 billion at the end of the first quarter of 2019, Mr. Castello Branco’s first three months in the job.

“We accomplished our mission, our mission to restructure Petrobras,” said Mr. Castello Branco in a conference call with investors Thursday following the release of the company’s fourth quarter results the previous night. “However, there’s so much more to be done…we won only some battles, but not the war,” he said.

The showdown began last Thursday, when the company announced a rise in the price of gasoline of almost 10% and an almost 15% increase in the price of diesel fuel. Mr. Bolsonaro criticized the increases as excessive and called for more transparency on price changes, saying that “something would have to change.”

In a shock announcement the next day, Mr. Bolsonaro announced over Facebook and Twitter that he planned to replace Mr. Castello Branco with Gen. Joaqium Silva e Luna, who has no experience in the oil-and-gas industry. A former defense minister, he served alongside the president in the army during Brazil’s 1964-85 dictatorship.

The move against Petrobras comes as Brazil’s government spending has increased sharply since the pandemic. For most of last year, Mr. Bolsonaro’s administration paid out as much as $10 billion a month to the poor, pushing public debt up to about 90% of GDP at the end of last year from 74% a year earlier.

The president has denied that he is intervening in the company. Meanwhile, Brazil’s Minister of Mines and Energy, Bento Albuquerque, an admiral in the Navy, said in an interview that the government was only seeking greater stability in fuel prices.

Petrobras said late Tuesday it would call an extraordinary shareholder meeting to assess Mr. Bolsonaro’s nomination for the CEO job. The intention of the meeting is to move forward with the general’s appointment, a person close to Petrobras said. However, doubts remain over whether his lack of industry experience disqualifies him from the job according to rules set in the company’s bylaws.

Mr. Castello Branco said Thursday that it was unfair of the president to accuse him of a lack of transparency. “No company in the world reveals its trade information” before it has to, he said.

There have been no demands that Petrobras directors leave and they intend to stay on, Mr. Castello Branco said, adding that he would work to make the transition as smooth as possible.

Since the president announced he planned to install a general at the oil giant, Petrobras has lost more than $15 billion in market value in recent days.

“The decision is a risky one, but the full impact will not be felt until we know how Silva e Luna decides to run the company—his lack of experience in the industry is in itself a source of concern because there is no previous track record to evaluate,” said Jimena Blanco, Head of Americas Research at global risk consulting firm Verisk Maplecroft.

With global oil prices expected to remain low, investors are less willing to tolerate such risks, she said. “Political moves that leave future returns exposed to the will of governments prone to sudden and unexpected moves is a major red flag.”

Mr. Bolsonaro appointed University of Chicago-trained Mr. Castello Branco as chief executive of Petrobras when he took office in January 2019. As part of his promise to embrace free-market policies capable of reviving Latin America’s biggest economy, Mr. Bolsonaro promised to give the company the freedom to set fuel prices in accordance with the international oil market.

Under Brazil’s leftist Workers’ Party, which held power from 2003 to 2016, Petrobras was forced for years to import fuel and sell at a loss in the domestic market as part of the government’s efforts to curb inflation. Despite sitting on one of the world’s largest offshore oil deposits off the coast of Rio de Janeiro, the company’s limited refinery capacity has often forced it to rely on imports to meet domestic demand.

—Luciana Magalhaes contributed to this article.

Write to Samantha Pearson at [email protected] and Jeffrey T. Lewis at [email protected]