Dutch Shell Says it May Withdraw From Brazil

Oil giant Royal Dutch Shell Group Thursday threatened to pull out of Brazil if a controversial proposal putting distribution of petroleum products solely in the hands of government companies becomes law.

This is the second contentious economic issue this month pitting government interests against those of multinationals, and even the domestic business community finds itself on the side of the big foreign companies.

Autolatina, a holding company of Ford Motor Co. and West Germany’s Volkswagen in Brazil and Argentina, is in the courts challenging the Brazilian government’s system of price controls.

Both cases highlight the sensitive issue of foreign investment in Brazil, which badly needs foreign capital to shore up a damaged economy suffering from an annual inflation rate of over 300% and a $113 billion foreign debt.

Shell Rejects Proposal

A key committee currently rewriting Brazil’s constitution Tuesday approved the proposal that puts distribution of petroleum products such as gasoline into the sole hands of state companies. The move would leave foreign oil companies with no choice but to hold a minority stake in the state companies, a move Shell rejects out of hand.

“Under no circumstances will Shell agree to become a minority stake holder in a state enterprise,” said Shell Brasil vice president Robert Broughton.

Other foreign oil companies, mostly U.S. based, were more cautious in their statements, although none supports the proposal.

Criticism of the constitutional proposal came from both business and even government officials, who fear the plan would scare off needed foreign capital.

Finance Minister Luiz Carlos Bresser Pereira said the move would not help Brazil solve its $113 billion debt problem.

“The signal this will give to the foreign investor is extremely negative. I do hope the Constituent Assembly does not approve the measure,” he commented on hearing of the proposal.

The business community agreed. “If we want foreign capital to continue collaborating in the development of this country, we just cannot afford to make this type of discrimination,” said Mario Amato, president of the influential Sao Paulo Federation of Industry, FIESP.

Ozires Silva, president of Petrobras, the state-controlled oil concern which stands to benefit most from the withdrawal of the multinationals, also condemned the vote.

Energy Minister Aureliano Chaves declined comment, saying he needed more time to study the proposal.

Pulling out all stops, Shell Brasil’s Broughton, who will become president shortly, said Shell would also study withdrawing from mining and petrochemicals where it operates as Billiton Metals and Shell Quimica.

Shell has been in Brazil for 74 years and has invested more than $1 billion in various sectors of the economy, Broughton added.

“We are not questioning the authority of the Constituent Assembly,” Broughton said. “But we will use everything we can to persuade its members to leave the distribution system exactly as it is,” he told reporters.

Shell Brasil, part of the Anglo-Dutch Royal Dutch Shell Group, enjoys a 24% share of the petroleum market. Esso, a subsidiary of the world’s biggest oil company, Exxon Corp., has 30% of the domestic market.

Atlantic, a subsidiary of Los Angeles-based Atlantic Richfield Co., has 12% and New York-based Texaco Inc. has 11%.

Confident of Proposal’S Defeat

The remaining quarter of the market is in the hands of Brazilian companies.

Texaco Brazil president Ralph Martin said he was confident the proposal would not make it to the final constitution.

Esso external affairs director Adhemar Berlfein said the company was not considering pulling out of Brazil.

Conservative politicians also came out against the proposed measure.

Sen. Roberto Campos of the right-wing Social Democratic Party said the measure would be a disaster because “instead of opening up to more capital we would be expelling what already exists.”