(Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva has pledged to steer the state-controlled oil giant Petrobras in a more populist direction and investors aren’t happy. 

Petroleo Brasileiro SA will shield consumers from sharp fuel price swings and increase investments in refining projects to curb fuel imports, according to initial comments from Lula and his economic team. Petrobras fell 11% in New York Tuesday as investors gauge just how much the policy shift will erode profits and dividends. 

One of Lula’s first executive decisions was to extend a fuel tax holiday, reversing a move by his finance minister to let the tax breaks expire. Petrobras’s incoming chief executive officer, Jean Paul Prates, said the tax break will give Petrobras enough time to review its own pricing policy.

Brazil Will Keep Down Fuel Costs for Now, New Petrobras CEO Says

The move raises the specter of a return to policies that previously drained the oil giant’s account balances. Petrobras spent an estimated $40 billion subsidizing motor fuels the last time Lula’s Workers’ Party was in power, causing it to become the world’s most indebted oil company. After the party was voted out, aggressive cost cuts and asset sales improved the company’s balance sheet. 

Prates supports having Brazil’s government set a national reference price for gasoline and other refined products, which would serve as a guideline for the prices Petrobras charges its customers. While Petrobras is likely to alter its internal formula for setting prices, investors shouldn’t be too frightened, he told reporters in Brasilia on Dec. 30 after his nomination.

Investors also fear Lula’s promise to revamp the refining sector — ostensibly to cut down on costly fuel imports — could further drain the company’s coffers, pointing to Mexico as a cautionary tale. Petroleos Mexicanos has gone billions of dollars over budget at a new facility that was supposed to improve the nation’s fuel making capacity. 

Petrobras would focus on expanding existing facilities, but investors say the money would be better spent on producing oil from giant deepwater fields. 

Read more: Petrobras’ Dividend Cushion Adds Protection Against Lula Stress

Prates will be appointed CEO and a member of the board, the Energy Ministry said in a statement late Tuesday. Itau expects Petrobras to finish electing a new board by the end of February. 

 

--With assistance from Daniel Carvalho and Mariana Durao.

(Updates with closing share price in second paragraph and energy ministry statement in last paragraph)

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