Brazil Politics: Dilma's Image Is Tarnished By Questionable Petrobras Deals
Often held up by the ruling leftist Partido dos Trabalhadores (PT) as an icon of resource nationalism following the discovery of huge, "pre-salt" oil reserves in ultra deep waters in 2006-07, Petrobras recently has suffered a series of setbacks. Its finances have been weakened due to excessive state interventionism, its revenues have been curbed by the government's price-fixing policy and its debt indicators have deteriorated.
It was no surprise when the company's debt rating was downgraded by Standard & Poor's by one notch to BBB- (the lowest rung on the investment-grade ladder) in the wake of the agency's similar decision on the sovereign rating on March 24th.
In addition, a series of revelations reflecting badly on the past management of the company has raised the political temperature. Ms Rousseff has so far attempted to distance herself from any wrongdoing, and her political allies are acting to preserve her image as a good manager. But the opposition and some independent congressmen have attacked the successive PT governments' stewardship of Petrobras.
Some Petrobras deals backfire
One deal being scrutinized is Petrobras's purchase (at a cost that eventually amounted to US$1.2bn in total) of a refinery in Pasadena (US) in 2012. Petrobras was obliged by a US court order in 2008 to make the purchase, owing to contractual obligations entered into when the Brazilian company in 2006 purchased a 50% share of the refinery from Astra Oil, a Belgian company that had acquired the refinery in 2005 for only US$42.5m.
The 2006 contract with Astra Oil was approved while Ms Rousseff chaired the Petrobras's board, but she has stated that the report that was submitted to her was faulty and that the clauses in question were not included in the executive summary she received at the time. The report was submitted by a former director of international affairs of Petrobras, Nestor Ceveró, who was later appointed CFO of Petrobras Distribuidora, a subsidiary of the oil giant.
The second case does not involve Ms Rousseff directly, but rather involves the damage to Petrobras's business operations caused by the cozy diplomatic relationship between the former presidents of Brazil and Venezuela, Luiz Inácio Lula da Silva (Ms Rousseff's mentor) and Hugo Chávez. The two leaders agreed that a refinery in the north-east of Brazil (near Venezuela) would be built to refine Venezuela's heavy crude. The refinery was supposed to be co-financed by both countries (Brazil 60%, Venezuela 40%), but it never received any contributions from the Andean country.
Venezuela was not penalized because it had never presented any guarantee nor did it sign a formal agreement with Petrobras (a draft was only considered a provisional arrangement, but was never implemented). The cost of the Abreu e Lima refinery shot up from an estimated US$2.5bn to some US$18bn--an investment that has been entirely assumed by Petrobras.
Adding to the fall-out from these cases are suspicions of corruption by Petrobras staff following allegations that Dutch oil-platform construction company, SBM Offshore, was involved in kickbacks. A special commission of legislators will start investigating the allegations by traveling to The Netherlands during the week of March 31st, while the opposition is pushing for a Comissão Parlamentar de Inquérito (CPI, parliamentary investigation committee ) to be set up.
The president of Petrobras, Maria das Graças Foster, along with the minister of mines and energy, Edison Lobão, the finance minister, Guido Mantega (who is currently the president of board at Petrobras), and Mr Cerveró have all been summoned to appear before Congress during the week of March 31st for hearings on the recent difficulties engulfing Petrobras.
Opposition will use developments to attack Ms Rousseff
This succession of disclosures has prompted opposition leaders to denounce malpractice involving Petrobras and its political masters in government. It seems unlikely that the opposition will manage to set up a formal CPI, which could damage the standing of Ms Rousseff further, at this stage. Indeed, her government has been putting intense pressure on its own allies, some of whom have been in rebellious mood of late, not to join opposition forces in calling for a CPI. Still, the latest developments will provide ammunition for the opposition to use against the government during the electoral campaign. Nonetheless, The Economist Intelligence Unit expects Ms Rousseff to prevail and win a second four-year term in October.
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