Rio de Janeiro, March 26, 2015 – Petróleo Brasileiro S.A. – Petrobras complies with OFFICIAL LETTER/CVM/SEP/GEA-1/No. 91/2015, which requests the following information:
OFFICIAL LETTER /CVM/SEP/GEA-1/No. 91/2015
“In reference to news released today by Agência Estado – Broadcast at 7:09:57 p.m. entitled “Sources: Petrobras to record overstatements from corruption as losses”, containing the following statements:
“Brasília, 03/25/2015 – The model chosen by the new Petrobras management to record losses from corruption in the balance sheet will take into account the overstatement of projects listed as part of the investigations into Operation Lava Jato. Therefore, according to the Broadcast, the initial cost of each project and the add-ons over the course of the project were recorded. After weighing the reasons, the final cost indicates the possible overstatement.
Generally, this impairment calculation – asset value correction, excluding overstatement – provides an overview of the loss suffered by the company. That is, how much projects would have been worth had costs not been inflated in shady deals. In addition, Petrobras’s chief financial director, Ivan Monteiro, has already presented the methodology to directors.
For instance, the Abreu e Lima refinery, in Pernambuco, had an initial cost of US$ 2.3 billion. After numerous amendments to the original contract, the project ended up costing US$ 20 billion. Former Downstream Director, Paulo Roberto Costa – an important person of the corruption scandal and the investigation’s main informer – was in charge of administering refining projects and had powers to authorize cost increases. Mr. Costa has testified that kickbacks to approve contracts ranged from 1% to 3% of the total project cost.
The part of the bribe uncovered by Lava Jato Operation, and estimated to be between R$ 3 billion and R$ 4 billion, may be used by the General Counsel for the Federal Government when negotiating the leniency agreements with contractors. It could serve as a way to refund the money used as “commission” to Petrobras’s executives in exchange for the approval of contracts.
The loss calculation model has already been submitted for review by the regulators in Brazil and the United States – Brazilian Securities Commission (CVM) and the Securities and Exchange Commission (SEC) –, which have allegedly approved the method, as released yesterday in the Broadcast.
The Board of Directors will meet tomorrow to ratify the calculation and confirm the losses to be entered in the balance sheets for the third and fourth quarters of last year. According to the Broadcast, the entry tends to nullify the company’s profit, and may lead to the non-distribution of dividends in 2014. Considering that the company has recently posted profits higher than R$ 20 billion, losses may fall within this range.
According to sources close to the negotiations, Petrobras’s chief financial director, Ivan Monteiro, held an informal meeting with some of the directors last week to show them the solution. “The aim was to introduce the solution and clear any concerns. The meeting was highly informative”, stated a source close to the talks. “The company is engaged in closing the balance sheet.”
The idea was to garner unanimity among directors regarding the way in which to enter the losses from Lava Jato.
The amount of the losses initially released of some R$ 61 billion (the product of subtracting R$ 88.6 billion in overstated assets and R$ 29 billion in understated ones) will be discarded. This method, which was used by the hired consultancies Deloitte and BNP, was deemed inappropriate. The calculation considered the so-called fair value of assets appraised independently. As if a selling price had been set for each one of the projects without considering the synergies involved.
This vision prevails even among the independent directors, who, along with former CEO Graça Foster, insisted on releasing the figure at the time. The publication of the calculation led to Graça’s downfall.
These directors have proposed adjustments, such as the appraisal of assets based on the criteria that the company remains active and benefits from an integrated operation.
After this accounting adjustment, Petrobras could continue to follow the investigations into Lava Jato and seek indemnification based on the leniency agreements to be entered with contractors, as assessed by a professional directly involved.
The independent directors are expected to carefully analyze the terms and demand the appropriate opinions to ratify the figures.
The Board will meet tomorrow at 10 a.m. in Rio de Janeiro. Petrobras’s CEO, Aldemir Bendine, is scheduled to attend. Directors based in São Paulo will travel to Rio instead of participating via videoconference.”
We request Petrobras’s response by March 26, 2015 at 9 a.m. regarding the veracity of said statements, and if confirmed, explain why the matter was not handled as a Material Fact, as provided for in CVM Instruction no. 358/2002. Furthermore, we reiterate that Petrobras must leave no doubt that it did not seek advice from CVM or that the entity expressed its opinion regarding the matters mentioned in the news.”
As announced on numerous occasions, Petrobras restates that it is assessing the most adequate accounting treatment for the improper payments identified in the investigations into Lava Jato Operation.
Petrobras clarifies that the Brazilian Securities Commission (CVM) has neither been consulted about the most adequate accounting treatment for the improper payments nor has it expressed its opinion regarding the matter.
Petrobras remains committed to releasing its revised financial statements for the third quarter of 2014 as well as its audited annual statements at the earliest possible time. However, no date has yet been set for their release.
Relevant facts concerning this matter will be promptly disclosed to the market.