(Refiles to fix typo in fourth paragraph)
* Politics may decide fate of Agnelli, Gabrielli
* Agnelli seen leaving Vale after 10-year stint
* Investors fret over more state sway in Vale, Petrobras
By Brian Ellsworth and Guillermo Parra-Bernal
RIO DE JANEIRO, Jan 24 (Reuters) - Markets dictate that corporate managers who create the most value for shareholders keep their jobs. But for Brazil's two biggest companies, state-controlled oil firm Petrobras and mining giant Vale, the reality may shape up to be exactly the opposite.
Roger Agnelli, who over a decade helped transform Vale into the world's leading iron ore producer, is under fire for not creating enough jobs in Brazil and rumors are swirling that President Dilma Rousseff could lobby for his ouster.
In contrast, Jose Sergio Gabrielli may stay on as Petrobras CEO despite a $38 billion tumble in market value last year sparked by a plan that boosted government control over the company despite complaints from private shareholders.
Although Brazil is still a hot destination for emerging market investments, the apparently diverging fate of the two chief executives is a reminder that political interference is still a risk in Latin America's largest economy.
As Brazil flexes its economic muscles and boosts its global influence, investors fear its companies could be vulnerable to government pressure to lead economic development efforts at the expense of private shareholders.
Government policy toward the two companies this year will serve as a bellwether for political risk under Rousseff, a former Petrobras board member who pledged during last year's election campaign to boost the state's role in the economy.
Industry sources consulted by Reuters have consistently identified the fear of a government-backed drive to replace Agnelli as a key risk for Vale this year.
Though the government cannot fire him, it has considerable sway in Vale -- it owns most of controlling shareholder Valepar and can exert indirect pressure by withholding concessions or pushing for regulatory changes.
"The government wants companies to look at projects in terms of their political dividends and not in terms of their feasibility," said Adriano Pires, an oil expert with the Brazilian Center for Infrastructure. "The reality should be the opposite: Gabrielli should be under pressure and Agnelli should be asked to stay on."
Both executives have been crucial in turning their companies from former bloated state firms into global powerhouses, but have shown different priorities in meeting the needs of both private investors and government shareholders.
Maintaining that delicate balance is key in Brazil, where government leaders hope industrial policy can end centuries of boom-and-bust cycles that contributed to economic instability.
PRODIGY BANKER
Agnelli, 51, clinched Vale's top job after 19 years as an investment banker with Banco Bradesco, a Vale shareholder. Known for his discipline and hot temper, he instilled a culture of meritocracy that turned Vale into Brazil's No. 1 exporter and a Wall Street darling.
Former Vale executives say one key to his success was accurately predicting the rise of China as a major minerals consumer. Revenues have risen 13-fold since Agnelli became CEO, and Vale is slated to invest a record $24 billion this year.
Profit at Rio de Janeiro-based Vale, which under Agnelli diversified by expanding into nickel and fertilizers, jumped 250 percent in the third quarter of 2010.
"I get paid to produce results, and the results are there, aren't they?" Agnelli recently told Valor Economico newspaper.
But running Vale as a multinational miner has put him on a collision course with the government, which wants to shift from commodity to manufactured exports to create more jobs at home.
Politicians want Vale to invest more in steel mills, which could hamper relations with its biggest clients: steelmakers.
Former President Luiz Inacio Lula da Silva harshly criticized Agnelli for slashing investment and firing 2,000 workers after the 2008 financial crisis. Vale raised capital spending again following heavy government pressure.
Agnelli's raised eyebrows in October by accusing members of the ruling Workers' Party of trying to install loyalists in jobs at the firm and seeking a bigger say in its decisions.
His "authoritarian" style has upset clients in Europe and Japan, as well as regional governments and politicians that are crucial for a company that depends on concessions, according to former employees.
His possible departure involves more than just politics.
"This is a process of ten years of strain over a number of issues. You can't just say 'the problem is Dilma doesn't like Roger' -- that's oversimplifying it," one source said.
Vale has denied any plans or discussions to replace Agnelli, but the issue is a main topic of speculation in Brazilian business circles. At a dinner organized by a major U.S. firm at Sao Paulo's upscale Fasano Hotel in November, the local head of a foreign mining firm said Agnelli's comments about the Workers' Party "were stupid."
"He put himself on the tightrope unnecessarily. If I were a shareholder, I would be angry," said the source, who requested anonymity. Many suspect Agnelli won't make it past May, when his two-year tenure is up for renewal. It is usually a formality, but not this year.
Possible replacements include Sergio Rosa, former Vale chairman, Wilson Brumer, CEO of steelmaker Usiminas, and Fabio Barbosa, chairman of Santander Brasil, sources told Reuters.
COZY RELATIONSHIP
Gabrielli, 61, who became Petrobras CEO in July 2005 after two years as chief financial officer, won praise from Lula and Rousseff for leading massive discoveries of offshore oil in 2007 and a $70 billion share sale that ended in September.
For years, the former university professor was credited with pleasing both private shareholders and government officials who wanted Petrobras to help spur economic development. Reserves swelled too during Gabrielli's tenure.
But some investors lost faith in Gabrielli after the share offer plan, which analysts said mainly favored the government. As a consequence, Petrobras shares tumbled for most of 2010.
Non-voting shares of Petrobras have shed about 32 percent since the start of 2010, while Brazil's main stock index Bovespa is flat. In stark contrast, Vale's most widely traded shares are up some 20 percent.
"He (Gabrielli) had to support the plan or get forced out," said lower house lawmaker Eduardo Cunha, an oil expert.
Government officials do not necessarily see this as a problem, said Christopher Garman, an analyst with the Eurasia Group political risk consultancy. They want state companies to help spur growth, even if that reduces short-term gains.
"From the government's perspective, Petrobras is a success story," Garman said. "They don't want to inordinately benefit private shareholders because they see that as a transfer of wealth to the private sector."
The firm's clearest commitment to economic development is its pledge to build drilling rigs in local shipyards. That will boost costs but also channel oil wealth into the local economy, helping avoid the woes of oil exporters such as Venezuela.
Petrobras was partially privatized in 1997 but the government maintains a majority of the voting capital and has the power to designate the company's CEO.
Employees have found themselves under pressure to speed up projects on what appear to be politically-motivated orders from Brasilia, said a Petrobras source who asked not to be named.
"We had a joke that project managers are like drummers trying to get us to march to a beat that comes from Brasilia, even when we tell them the beat is too fast," said the source.
Gabrielli, a member of the Workers' Party, has rarely hidden his political affinities.
When Rousseff's campaign hit a rough patch before her eventual win, Gabrielli warned an opposition victory would lead Petrobras down the road to ruin. But he shuns the idea that politics has an undue sway at Petrobras.
"Oil companies all over the world have political issues to take into account. This is not more true at Petrobras than it is at other companies," he told Reuters in November.
Not all investors agree. Templeton Asset Management's Mark Mobius said the Gabrielli-led share sale "trampled on the rights of minority shareholders."
For investors now warming to Petrobras shares, which have had a modest rebound since last month, politics will be key.
"Political interference and efficient management don't mix," said David Zylbersztajn, a former energy regulator who now runs DZ Negocios, an energy consulting firm. "This is exactly what markets will have to figure out: to what point does political interference damage company performance." (Editing by Brian Winter, Todd Benson and Kieran Murray)