February 2022 – @alvaroriosroca – In the past decade, we have seen PETROPERU perform with little or no corruption, maintaining qualified, experienced and meritocratic middle and managerial management. We have seen it compete in the Peruvian downstream market, gain market share (without advantages), generate profits and without being able to access upstream activities and many more tax brakes.
The above, in spite of the bureaucracy imposed by the State as a public company, and presidents with political appointments, but we would say acceptable, for their technical and economic performance. This is not a common situation in many of its Latin American peers, where these virtues are basically absent.
More recently, with the arrival of the new government, we can notice the dismantling of several experienced and meritocratic cadres, who are being replaced by political cronies and cronies. Also in these few months, two clear cases of corruption have come to public light, even splashing the president. We are also beginning to see political propaganda about the company’s actions.
A new minister has taken charge of the Energy portfolio and I would like to dedicate the following paragraphs to her, especially now that she is to be given new activities in the upstream, to compete in the natural gas chain for massification and other activities. If it does so, it will be able to take PETROPERU to what ECOPETROL is, otherwise it will be on its way to what PDVSA is.
A large number of governments have used these state-owned companies to: 1) provide employment for political cronies and relatives; 2) make them subsidize and win votes through populism; 3) force them to invest in projects that are little or not at all profitable and visible for electoral purposes; 4) corruption and a source of revenue to maintain the political machinery of the governments in power; 5) etc., etc., etc.
The above makes them uncompetitive, leaving them without corporate governance, without management, without technology and with poor results. The State coffers must then come to their rescue and/or they must be privatized, most of the time at the price of a dead hen. Institutionalizing them and shielding them from political power is the path to follow.
Shielding them and allowing them to act in a corporate, competitive and independent manner brings a high value for the countries. 1) They can compete and break price and market control agreements that are sometimes agreed upon by the private sector. 2) They can support very fragile Ministries of Energy in their decisions, 3) They can participate (alone or associated) in strategic and profitable projects where the private sector does not wish to participate, 4) They can generate profits that stay in the countries, 5) They can associate, diversify and internationalize, and much more.
How can they be shielded? The boards of directors should be composed of state and independent members. Better results are observed when independents are in the majority on the board of directors. This board should choose the president of the company from a shortlist suggested by a human resources company with clearly established requirements. This gives it a corporate governance that does not necessarily respond to the designs and whims of the political power of the day.
They should not have social characteristics (make them subsidize) and their contribution to the State should be through the payment of dividends and taxes. They should not ask permission from the governments in power to buy, sell, associate and/or invest in businesses they consider profitable. Listing on the stock exchanges is a shield. These are tasks of the president, his board of directors and management team and not of the political power of the day.
As far as possible, they should be freed from the State in terms of contracting and procurement processes, mergers or associations so that they become competitive and dynamic. They should be allowed to remunerate the salaries of their executive, managerial and professional staff according to their objectives (meritocracy).
Only time will tell where PETROPERU will end up.
*Current Managing Partner of Gas Energy Latin America and former Minister of Hydrocarbons of Bolivia.