https://www.miningweekly.com

Corruption scandal keeps growing for Brazilian oil giant Petrobras

Corruption scandal keeps growing for Brazilian oil giant Petrobras

Photo by Reuters

1st April 2015

By: Simon Rees

Creamer Media Correspondent

  

Font size: - +

TORONTO (miningweekly.com) – Putting the ‘B’ in BRICS, the group of five major emerging national economies of Brazil, Russia, India, China and South Africa, it seemed as if Brazil was finally fulfilling its destiny to become South America’s global powerhouse in the latter half of the 2000s. As an added fillip, vast offshore ‘pre-salt’ oil fields were struck in Brazilian waters in late 2007. State-controlled Petroleo Brasileiro (Petrobras) was granted sole operating rights and a slew of other advantages by the government, led by the Workers’ Party (PT).

In September 2010, the company raised $70-billion in what was then the world’s largest public offering to date.

With oil prices climbing and a bonanza of reserves to tap, it should have been a halcyon period for Petrobras. Instead, the company was burdened by an array of government constraints, including the capping of prices at the pumps and having to ensure the majority of its procurement was made through domestic companies.

Efforts to expand output and meet rising demand were not as successful as hoped. Indeed, to fulfil its remit, Petrobras imported and sold petrol and diesel at a loss to cover Brazil’s supply-demand gap. From 2011 to 2013, imports cost the company an estimated 48-billion reais ($15.3-billion), according to the Economist. 

Debts have mounted; in a nonindependently audited third-quarter financial report dated January 27, Petrobras reported having just over $106.6-billion net debt effective September 30 compared with almost $94.6-billion effective December 31, 2013.

AT THE CAR WASH
But as if this was not enough, a vast corruption scandal had been uncovered by federal police of Brazil investigators in their Caso Lava Jato, or 'Operation Car Wash'. The scale was such that many currently believe it would be the largest corruption scandal in modern global history.

Former head of Petrobras’ refinery arm and ex-director Paulo Roberto Costa blew the lid off the corruption scandal with his testimony in September 2014. Arrested in March 2014, he claimed that a spate of contracts had been inflated by an additional 3%,  this extra money then skimmed off by executives.

It was alleged that politicians then received money in the form of kickbacks and bribes to turn a blind eye and give voting support when needed. Costa claimed this system had been in place during his tenure at Petrobras between 2004 and 2012. The public prosecutor identified at least 2.1-billion reais of suspicious payments in the wake of Costa’s revelations.

Costa’s testimony was part of a plea bargain that also involved his handing over $28.5-million squirrelled away in Swiss banks in his name and in the name of relatives. As part of another plea bargain, Alberto Youssef explained how he helped launder much of the money abroad.

In November 2014, offices of Petrobras and some of the named contractors were raided, while Petrobras also revealed it had received a subpoena for documents from the US Securities and Exchange Commission (SEC) as part of an investigation that remained ongoing.

In December, a class-action lawsuit was launched against Petrobras and codefendant banks in New York by investors. Judge Jed Rakoff would preside over a trial scheduled to start early this month.

Back in Brazil, just over 100 persons had now been formally implicated, including more than 40 sitting politicians and numerous executives from some of Brazil’s largest engineering companies. Dozens had been charged, including PT party treasurer Joao Vaccari on March 17. Some were now in custody, pending judicial process.

On March 18, the Swiss authorities revealed that they had found more than 300 accounts linked to the scandal, with around $400-million frozen as a result. Switzerland had already started repatriating around $120-million to Brazil as separate Swiss investigations continued.

Many of the contractors and construction companies implicated had found themselves frozen from accessing credit markets and precluded from making bids on any further Petrobras contracts until formal investigations were completed.

This had proven extremely problematic for some. For example, Galvão Engenharia, one of the engineering and construction companies being investigated, announced on March 25 that it was seeking judicial recovery, whereby the company had 60 days to present a recovery plan for judicial approval. The judge could convert recovery into liquidation if a company proved unable to meet the objectives of its plan.

Parent company Grupo Galvão had denied any involvement in the scandal.

On March 27, Reuters reported the arrest of Grupo Galvão CEO Dario Galvão in connection with the Petrobras corruption probe.

COMPUTATION COMPLICATIONS
Petrobras had struggled to assess the impact of the corruption and the effect this would have on a write-down of assets tied to tainted contracts. On January 27, then-CEO Maria das Graças Foster noted that the assets affected, in terms of fair value, would now be worth $88.6-billion less than their current book value.

However, Foster also noted that the company would be seeking a more nuanced methodology for its official write-down assessment, one that took into account further information from Operation Car Wash testimony and also met the requirements of the SEC of Brazil and the US SEC.

The company’s independent auditor, PwC, was waiting for Petrobras’ final third-quarter computation before it signed-off the results.

On February 24, Moody’s downgraded its ratings for Petrobras to Ba2, down from Baa3. “Petrobras’ ratings remain on review for downgrade, reflecting continued concern about potential liquidity pressures that could arise as a consequence of not providing timely financial statements,” it noted.

Foster and five other senior executives resigned on February 4. Former Banco do Brasil CEO Aldemir Bendine replaced her.

Petrobras’ share price had been poll-axed, with the scandal coming on the back of losses that reflected the slump in oil prices and its current fiscal position. At the time of writing, Petrobras was trading at $5.93 a share on Nasdaq compared with a 52-week high of $20.94 a share.

Some have asked for President Dilma Rousseff to further clarify her position – she had been Petrobras’ chairperson between 2003 and 2010, the years in which much of the corruption scandal took place. There had been no accusations that she was involved and the president had strenuously denied any wrong-doing.

SOMETHING POSITIVE
There was one silver lining that might have a profound effect; away from the scandal, new anticorruption legislation had been introduced in Brazil that companies were likely to implement in earnest in light of events at Petrobras.

This could permanently change the face of doing business in Brazil for the better. “This law clearly encourages companies and politicians to be more transparent,” TozziniFreire Advogados partner in the mining practice group Luiz Visconti told Mining Weekly Online.

Fines under the law could total 20% of gross revenue or, if this was impractical, up to 60-million reais. If a company was convicted it could be prohibited from contracts with the government and be subjected to compulsory dissolution.

The legislation also encouraged compliance programmes and best practises in due diligence, anticorruption precautions and formal channels for employees to report corruption, Visconti added.

In the meantime, Operation Car Wash would continue and was likely to claim more scalps as the weeks and months progressed. The investigative team had received public backing from President Rousseff. “Whoever is responsible will pay for what was done,” she said on March 16.

Edited by Henry Lazenby
Creamer Media Deputy Editor: North America

Comments

Showroom

Booyco Electronics
Booyco Electronics

Booyco Electronics, South African pioneer of Proximity Detection Systems, offers safety solutions for underground and surface mining, quarrying,...

VISIT SHOWROOM 
Goodwin Submersible Pumps Africa (Pty) Ltd
Goodwin Submersible Pumps Africa (Pty) Ltd

Goodwin Submersible Pumps Africa is sole distributors for Goodwin electrically driven, submersible, abrasion resistance slurry pumps.

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Hyphen, Eva mine, ferrochrome price make headlines
Hyphen, Eva mine, ferrochrome price make headlines
27th March 2024
Resources Watch
Resources Watch
27th March 2024

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.688 0.722s - 90pq - 2rq
Subscribe Now