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Brazil’s State Oil Company Takes Massive Loss From Corruption

FILE - An employee works on the final stage of construction of the new P-56 semi-submersible production platform for oil company Petrobras at the Brasfels shipyard in Angra dos Reis, 185 kilometers (115 miles) west of Rio de Janeiro, February 24, 2011.
FILE - An employee works on the final stage of construction of the new P-56 semi-submersible production platform for oil company Petrobras at the Brasfels shipyard in Angra dos Reis, 185 kilometers (115 miles) west of Rio de Janeiro, February 24, 2011.

Brazil’s state-owned oil company, Brasileiro SA, has reported a huge loss for 2014, driven in part by a massive charge against earnings due to corruption.

And the Petrobras scandal has reverberated beyond the oil company to Brazil’s top political tiers.

Earnings released this month show a staggering net loss of 21.6 billion Brazilian reals - $7.2 billion - with $2.1 billion directly related to corruption.

Multiple sources report that this scandal involves alleged overcharges to Petrobras by suppliers with part of the money funneled to former company officials and Brazilian political figures.

The Petrobras corruption investigation, which has been underway for some time, has roused some Brazilians to protest.


In March, hundreds of thousands of people took to the streets against President Dilma Rousseff, who was Petrobras’ chairperson over much of the period during which the reported corrupt acts took place.

Rousseff has denied any involvement in corrupt activities at the state oil concern and has been cleared by Brazil’s attorney general.

The corruption investigation has resulted, so far, in the indictment of 97 people on charges of corruption, forming cartels and money laundering. Included are high-level people from a number of Brazil’s major construction and engineering entities who were allegedly involved in the inflated-contract-kickback Petrobras scheme.

Also caught by the probe are some 50 Brazilian political figures, nearly all of them part of Rousseff’s Worker Party-led governing coalition. One of the top figures nabbed is Joao Vaccari, the Worker’s Party treasurer.

Paulo Roberto Costa, the former company director of refining and supply, was convicted this month on money laundering and racketeering charges related to the company’s corruption scandal. He was sentenced to seven and a half years in prison but will serve one year under house arrest because of time served and his cooperation with authorities.

Costa has provided to investigators the names of a number of Petrobras officials and others.

His arrest in March 2014, and that of alleged money launderer Alberto Youssef, were the sparks that launched the probe into the oil company. Youssef’s gift of a Land Rover vehicle to Costa prompted authorities to take action.

The Petrobras investigation was called “Lava jato operation” by authorities, which means “Operation car wash” in Portuguese.

The release of Petrobras’ 2014 results was delayed some five and a half months because, according to the news portal, “auditors refused to sign off on [approve] Petrobras’ financial statements.”

The company’s third-quarter results, released on January 28, were also delayed, and, according to Reuters, “did not include what investors most want to know: a rough estimate of how badly corruption over-valued the company’s assets.”

Then-company Chief Executive Officer Maria das Gracas Foster, who was forced to resign along with five directors, claimed it was not possible to include the corruption-related and other write-downs in the third quarter’s financial results.

Foster told shareholders in a letter: “We concluded that it was impractical to quantify these values with precision, given that the payments were made by outside suppliers and cannot be traced to the company’s accounting books.”

'Trying to avoid the inevitable'

The delay drew criticism including from Reginaldo Goncalves, a Faculdade Santa Marcelina University accounting professor

“There is no reason for the company not to have estimated, even in a provisional way, the write downs related to corruption,” Goncalves said. “I have the strong impression that this is the government trying to avoid the inevitable.”

The net loss for 2014, according to Reuters, “exceeds the company’s total accumulated profit for nearly four years.”

In reaction to the news of the loss Petrobras’ stock fell sharply when the markets opened the next morning.

The company’s current Chief Executive Officer, Aldemir Benedine, the former head of state-owned Banco de Brasil, is trying to calm investors and restore respectability.

“From here on in, Petrobras guarantees a return to normality in its relationship with investor, shareholders, and creditors in Brazil and abroad,” he said In releasing the 2014 results.

Still, Brazil’s state oil company is swamped with debt.

The Wall Street Journal reports that its obligations come to 350.8 billion reals - $116.6 billion.

To address the situation, the company said it is not going to pay out stock dividends for now, cut capital spending, and try to sell some $13.7 billion in assets over the next two years. It has also put together financing through a $3 billion assist from Standard Chartered Bank and another $3.5 billion from the China Development Bank.

Looking at the challenges to Petrobras’ recovery, an article in The Economist points to President Rousseff and her Worker’s Party.

“The company’s future does not lie just with its management,” the report said. “Politicians must not only stop stealing: they must cease interfering, too.”

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    Jeffrey Young

    Jeffrey Young is a Senior Analyst in VOA’s Global English TV.  He has spent years covering global strategic issues, corruption, the Middle East, and Africa. During most of 2013, he was on special assignment in Baghdad and elsewhere with the Special Inspector General for Iraq Reconstruction (SIGIR).  Previous VOA activities include video journalism and the “Focus” news analysis unit. He also does journalist training overseas for VOA.