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Brazilian builder Galvão Engenharia has filed for bankruptcy protection, becoming the first large construction company to crumple under the strain of the biggest corruption scandal in the country’s history.
The privately-held company blamed its deteriorating finances on the fallout from police investigations into an alleged bribery and kickback scheme at state-controlled oil company Petrobras, a probe dubbed Operation Car Wash.
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Accused of involvement in the scandal itself, Galvão Engenharia said it has faced delays in payments and difficulty gaining access to new capital.
“From the end of 2013 there were repeated delays in payments owed by Petrobras for several contracts. This was combined with curbed access to credit markets for the construction sector, strongly impacted by Operation Car Wash,” said Grupo Galvão, Galvão Engenharia’s parent company, on Wednesday.
Prosecutors allege that Galvão Engenharia and other top Brazilian construction groups conspired with Petrobras executives and politicians over much of the past decade to cream billions of dollars off the oil company’s contracts.
Erton Medeiros Fonseca, a director at Galvão Engenharia, remains in police custody after being arrested over the scandal last November. The company has denied any involvement and is co-operating with authorities.
Galvão Engenharia is not alone in facing funding problems. OAS, another major Petrobras contractor, is negotiating with creditors after missing debt payments while smaller company Alumini Engenharia has already sought bankruptcy protection.
Adding to pressure on the sector, public prosecutors in February filed a R$4.47bn lawsuit against OAS, Galvão Engenharia and four of the country’s other largest builders: Camargo Corrêa, Sanko, Mendes Júnior, and Engevix.
In December, Petrobras also dropped 23 suppliers, including Galvão Engenharia, over the scandal, banning them from bidding for further contracts. However, the state oil company told Reuters on Wednesday that it was up to date with its contractual obligations.
The problems in the construction industry have not only raised concerns about building work for the Olympics in Rio de Janeiro next year but also over the country’s efforts to revamp its creaking infrastructure. Just last year Galvão Engenharia won the rights to operate for 30 years a stretch of highway in two of Brazil’s farming states.
The corruption scandal emerged in March last year when the former head of Petrobras’s refining unit, Paulo Roberto Costa, struck a plea bargain deal following his arrest on money laundering charges.
The investigation has snowballed as more witnesses have come forward, threatening to engulf the oil and construction sectors as well as President Dilma Rousseff’s government.