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Pressure is mounting on Brazil’s ruling coalition to answer corruption allegations against Petrobras, the country’s largest company, after federal police seized documents from the state-controlled oil operator.
Maria das Gracas Foster, Petrobras president, met federal police officers at her headquarters in Rio de Janeiro to hand over the files as, separately, Brazil’s Congress moved closer to mounting a formal investigation into the oil producer.
“Petrobras received . . . and complied immediately with a court order to hand over documents in reference to a specific contract,” the company said over the weekend, without providing details on the files or contract.
Brazil’s ruling coalition, led by President Dilma Rousseff’s Workers’ party, is fighting opposition attempts to widen police and regulatory investigations into allegations of corruption at Petrobras into a full-blown congressional inquiry.
Ms Rousseff, who will seek re-election in October, has been slipping in opinion polls amid increasing public concern over rising inflation. While she is still well ahead of her opponents, any revelations of corruption at Petrobras could harm her reputation as a clean and competent manager – she was chairman of Petrobras under her predecessor, former president Luiz Inácio Lula da Silva
“Dilma is identified with the energy sector. This is her baby,” said João Augusto de Castro Neves, analyst at Eurasia Group.
Opposition members of Congress want to investigate the company over allegations that Petrobras officials accepted bribes from SBM Offshore, a Netherlands-based supplier of offshore oil vessels.
They also want to investigate claims the company overpaid for a refinery it bought in Pasadena in the US, and that it inflated the costs of a refinery it was building in Recife, in the northeast of Brazil.
“A congressional inquiry will throw a public light on all this and will be an excellent way of driving forward investigations currently under way by the police and the public prosecutors,” said senator Aloysio Nunes of the opposition PSDB.
This is a case study that should be looked at carefully by the outside world as an example of how not to do public projects
- Aloysio Nunes, PSDB
The senate’s justice commission authorised an inquiry into Petrobras last week.
So far the case that has attracted the most attention is Petrobras’s acquisition of the Pasadena refinery. It paid a company called Astra Oil Trading a sum 28 times greater than the price the Belgian group had originally paid for it.
But critics say potentially more embarrassing for the government is Petrobras’s colossally expensive Recife refinery project, known as Abreu e Lima.
The estimated cost of this refinery has ballooned by about seven times from $2bn-$3bn seven years ago to about $20bn today.
Mr Nunes said: “This is a case study that should be looked at carefully by the outside world as an example of how not to do public projects.”
With a proposed capacity of 230,000 barrels a day, most of it diesel, the plant will supply Brazil’s northeast – the country’s poorest but fastest-growing region.
Credit Suisse, the bank, has estimated the construction cost of the project to be about $87,000 a barrel a day of refining capacity, which compares with the international average for such refineries of between $13,000 and $39,000.
Analysts say the unexpected cost inflation stemmed from the government’s decision to build the plant in the northeast, where there is scant infrastructure. This meant Petrobras has had to construct everything, from ports to roads, from scratch. Design glitches also contributed to the cost, such as the need to make the concrete base extra thick.
For critics of the company, investing huge amounts in refining capacity will only worsen the overall performance of Petrobras because the government is forcing it to sell petrol at below international prices to try to control inflation.
Antares Capital, a minority investor in Petrobras, estimates that Abreu e Lima and Comperj, another refinery in Rio de Janeiro, which it estimates is being constructed at a cost of $81,800 a barrel a day of processing capacity, are costing company shareholders $20bn in destroyed value.
Fabio Fuzetti, Antares’s founding partner, said: “Constructed at triple the cost . . . and in triple the usual time period, they are emblematic of an incompetent administration.”
Petrobras has countered that the initial estimates for the project were preliminary and based on a smaller refinery. The projected cost grew after managers expanded its expected capacity. Changes in external factors, such as equipment costs and exchange rates, also inflated costs.
While Ms Rousseff has denied responsibility for the Pasadena purchase, she has yet to comment on Abreu e Lima. But during a visit to the plant late last year, she told workers that the refinery was the next step towards transforming Brazil into a leading oil producer. “Today is a day of celebration and I have come here to celebrate with you,” she said amid cheers from the crowd.
The challenge for her government, however, will be to convince voters that such projects are really worth celebrating when they come at such a high costs.
From revolutionary roots to colossal expense
José Inácio de Abreu e Lima was once best known as a Brazilian freedom fighter who helped General Simón Bolívar fight for independence in Venezuela and other Spanish American countries in the 19th century, writes Joe Leahy .
If he were alive today, he might be surprised to discover that his name in Brazil is now associated with what analysts estimate will be among the worlds most colossally expensive oil refineries – the Abreu e Lima project in Recife, in the northeast of the country.
Conceived by Luiz Inácio Lula da Silva, the former Brazilian president, and Hugo Chávez, the late Venezuelan president, as a potential cross-border joint venture, the estimated cost of the refinery is about seven times greater than the $2bn-$3bn estimated six years ago, when the pair were pictured together shaking hands at the project site.
“The effect of this permeates throughout Petrobras’s deteriorating performance and that of Brazil as a whole,” says Fabio Fuzetti, founding partner of Antare Capital, a minority investor in Petrobras, of the Abreu e Lima case.
Analysts say that Mr Lula da Silva’s eagerness to bring Venezuela into the deal added to the expense to the project. To handle Venezuela’s heavier crude, the refinery had to incorporate a second processing “train”, increasing the cost, they say.
PDVSA, Venezuela’s oil company, then last year backed away from the project. Neither company has elaborated on the reasons for the split. But in the past, they have disagreed over demands by PDVSA to sell its crude to Petrobras at its own rather than the international price.
This attempt to extend the Bolivaran revolution, as Venezuela’s brand of socialism is known, to the pricing of crude was too much for Petrobras, even if analysts noted that it has often itself sold petrol at below international rates.