Petrobras scandal adds to brewing storm for Dilma Rousseff

http://www.ft.com/cms/s/0/074fd19c-ad57-11e4-97c1-00144feab7de.html#ixzz3RAZ7XfPC
GLOBAL INSIGHT

February 5, 2015 6:17 pm

Petrobras scandal adds to brewing storm for Dilma Rousseff

Joe Leahy in São Paulo

President’s future in doubt as she tussles with the two faces of national oil champion

©EPA

When Petrobras chief executive officer, Maria das Graças Foster, was meeting Brazilian President Dilma Rousseff this week to discuss her resignation from the state-controlled oil group, it was boasting about its technical prowess.

The company that is at the centre of the biggest corruption scandal in Brazil’s history said it had won a coveted award for deepwater exploration.

For Ms Rousseff, the award might serve as a reminder of the two faces of Petrobras. At the technical level, it is a national champion and a symbol of Brazilian excellence in oil exploration and production. But at the corporate level, it is a national catastrophe, a company so mismanaged and, allegedly, corrupted by politicians that it is on the verge of implosion.

So acute is the crisis in Petrobras created by Ms Rousseff’s Workers Party (PT), and its allies that she will need to bring it quickly under control or risk seeing her own government implode. But solving company problems is much easier said than done.

The oil company is suffering from two distinct ailments — mismanagement and corruption. Throughout Ms Rousseff’s first four-year term which ended last year, her government forced the company to subsidise petrol prices to help control inflation. This was done at the expense of minority shareholders — Petrobras is a publicly listed company in São Paulo and New York — and it cost them billions of dollars and destroyed the company share price.

Worse is the corruption. Federal police and prosecutors allege the PT and its allies collaborated with crooked executives of Petrobras and a cartel of construction companies to cream billions of dollars in bribes and kickbacks out from the company’s projects over much of the past decade.

Ms Rousseff, who was chairman of the company before becoming Brazilian president in 2010, and Ms Graças Foster, who was a senior director before becoming chief executive in 2012, insist they knew nothing of this.

But to many Brazilians, these claims ring hollow. As far back as 2009, many of the same allegations were already the subject of a congressional inquiry. If Congress was already on to the scandal five years ago, then what were Ms Rousseff, her predecessor as president Luiz Inácio Lula da Silva and Ms Graças Foster and other Petrobras directors doing?

And on Thursday police summoned for questioning the PT treasurer João Vaccari Neto in connection with the scam, the first time a senior party figure has been directly embroiled.

The greater problem for Ms Rousseff, however, is that the scandal adds to a perfect storm that is building in the first year of her second term. Petrobras has lost access to credit markets until it can release audited results for last year — a tough call given that no one in the government or the company can agree on how much was stolen.

This in turn is creating a liquidity crunch in the oil and construction industries in a year in which the economy is already threatened with recession.

After years of fiscal largesse, in which the government focused on stimulating consumption instead of increasing investment, it is now trying to launch an austerity programme to rebalance its books.

The belt-tightening includes cuts to employment and pension benefits. But austerity will not go down well with a public that is receiving daily updates on the incomprehensible amounts that politicians in Brasília and Petrobras executives allegedly stole from the company. One lower tier executive has offered to give back $100m he said he pilfered during his tenure at the company.

Two months into her second term, Ms Rousseff is also weaker politically. She won last year’s election with one of the narrowest margins in recent history and lost control of the lower house of Congress. She still enjoys the support of her mentor, Lula da Silva, who remains Brazil’s most influential politician. But she will have to tread carefully even within her own party to avoid exacerbating resistance to her austerity programme.

Although few in Congress are muttering the “impeachment” word yet, if any evidence emerges connecting her directly to the Petrobras scandal, her luck may run out.

Ms Rousseff’s priority is to find a successor to Ms Graças Foster capable of setting Petrobras back on course, so that it can keep winning awards for its technical brilliance — and cease setting new records for sleaze.

  • Copyright The Financial Times Limited 2015.

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