Brazil Probes Ex-Finance Minister Mantega

Brazil Probes Ex-Finance Minister Mantega

Finance Minister Guido Mantega allegedly misled investors by requiring state-run oil firm Petróleo Brasileiro SA to subsidize domestic fuel prices

A couple fish near a Petrobras facility in the state of Rio de Janeiro. PHOTO: EFE/ZUMA PRESS

By

PAUL KIERNAN/WSJ

May 5, 2015 10:12 p.m. ET

RIO DE JANEIRO—Brazil’s government is investigating former Finance Minister Guido Mantega for allegedly misleading investors by requiring state-run oil firm Petróleo Brasileiro SA to subsidize domestic fuel prices while he was the company’s chairman.

The securities regulator said it was looking into whether Mr. Mantega and seven other Petrobras board members were responsible for setting the prices of gasoline and diesel fuels at levels that made it unlikely to meet its debt targets.

The practice rankled investors and caused Petrobras to burn cash at a time when it was already struggling with a massive investment program. The fuel subsidies, which cost Petrobras about $20 billion between 2011 and 2014, were widely viewed as a measure to help the government meet its inflation targets despite heavy spending.

Mr. Mantega and six of the seven others have left Petrobras’s board, with only Luciano Coutinho, president of the Brazilian National Development Bank, remaining.

Both Mr. Coutinho and Petrobras declined to comment. Mr. Mantega couldn’t be reached through either President Rousseff’s press office or the ruling Workers’ Party. The government didn’t respond to a request for comment.

The probe is separate from an investigation into a massive alleged graft scheme surrounding Petrobras and its contractors. The board members haven’t been linked to that probe, which was the subject of a Congressional hearing on Tuesday, where a former senior Petrobras executive testified that the company and some of the country’s biggest construction firms skimmed millions of dollars from Petrobras while paying bribes to company officials and politicians.

Tuesday’s investigation isn’t of a criminal nature. The regulator, the CVM, has the authority to pursue civil and administrative violations of Brazilian securities law.

But the possibility of sanctions or fines would be a black mark for Mr. Mantega, who as finance minister oversaw Brazil’s heady, fast-growing days of 2006 before failing to stop a sharp deterioration in the economy by 2014. Any penalties for Mr. Mantega and his counterparts also could bring a measure of accountability to those believed responsible for a practice that Petrobras investors said destroyed value.

The probe focuses on a “pricing policy” for gasoline and diesel that Petrobras’ board approved in November 2013. Company disclosures said it aimed to “ensure that debt and leverage indicators return” to clearly established limits within two years. But instead, debt levels continued to rise over the subsequent year, as the company maintained the subsidies through most of 2014.

“The accusation is based on the false expectation that was created in the market as a function of the discrepancy between the company’s disclosures about the pricing policy and the way it was carried out by the board in practice,” the CVM said in a statement.

—Paulo Trevisani contributed to this article.

Write to Paul Kiernan at paul.kiernan@wsj.com