Odebrecht Testimony in Brazil Points to Pemex Bribe in Mexico/WSJ

A former top official of Brazilian construction giant Odebrecht SA testified that he was asked in 2014 to bribe the then-head of Mexican state oil firm Petróleos Mexicanos, according to a document filed with Brazil’s Supreme Court as part of a broader corruption investigation.

In the document, a copy of which was reviewed by The Wall Street Journal, Brazilian prosecutors informed the court that Hilberto Mascarenhas, who was head of Odebrecht’s Structured Operations division, said he received a request to pay a bribe of $5 million to Emilio Lozoya, then-chief executive at Pemex, at a meeting also attended by another Odebrecht official.

The document was earlier reported by the nonprofit organization Mexicans Against Corruption and Brazilian news magazine Veja. It doesn’t say whether it was Mr. Lozoya himself who requested the bribe or whether the money was actually paid.

Odebrecht, Latin America’s largest construction firm, admitted in December it paid some $800 million in bribes to win contracts in 12 countries across four continents.

Mr. Lozoya, a former investment banker, has said since the testimony emerged in April that he never requested or received bribes from Odebrecht or any other company and that he always acted with honesty while the head of Pemex from December 2012 to February 2016.

Pemex’s former communications director said Mr. Lozoya was traveling and couldn’t immediately respond to a request to comment from the Journal. Mr. Mascarenhas couldn’t be reached to comment.

Mr. Lozoya has encouraged authorities to investigate and punish any corrupt practice inside the state-owned company, which had sales of $52 billion last year and provides around 16% of the Mexican government’s revenue.

Mexico’s Attorney General’s Office hasn’t filed charges against any former or current Pemex officials. An official of the office said Brazilian prosecutors had shared relevant aspects of their investigation with their Mexican counterparts, whose own investigation was continuing. Pemex has also opened an internal investigation of Odebrecht’s contracts but hasn’t announced any results.

During his time at Pemex’s helm, Mr. Lozoya became one of the main promoters of Mexico’s historic effort to open its oil industry to private investors for the first time in eight decades. Any evidence of impropriety on his part could undermine the credibility of the energy-sector overhaul, the flagship economic initiative of President Enrique Peña Nieto.

The government promised in 2013 when the overhaul was enacted that the oil opening would bring more transparency and less corruption inside the state oil firm.

“You add it to the other issues of corruption and lack of transparency the Peña Nieto’s government has had and it would be just one more chink in the armor and further erodes their credibility across the board,” said Jeremy Martin, director of the energy program at the Institute of the Americas, a think tank in San Diego.

Mr. Peña Nieto, his wife and a member of his cabinet were cleared in 2015 by Mexico’s federal comptroller after being investigated over conflict-of-interest allegations linked to their buying properties from a prominent government contractor.

ODEBRECHT’S PEMEX DEALS

  • 2005Upgrading Lazaro Cardenas refinery along with several partners: $317 million
  • 2010Gas-supply gas contract under which Pemex would supply natural gas to Odebrecht’s petrochemical plant in Mexico
  • February 2014Upgrading Tula refinery: $76 million. Amount of the contract was increased by $19 million in November of that year
  • JulyConstruction contract to build a major pipeline in northern Mexico: $1.2 billion
  • NovemberUpgrading Salamanca refinery: $85 million
  • November 2015Upgrading Tula refinery in Hidalgo state: $102 million

Mr. Lozoya’s dismissal from Pemex in February 2016 was related to the firm’s financial struggles after the fall in oil prices and his inability to fight deeply rooted corruption and runaway spending at Pemex, a government minister said in December. Mr. Lozoya has said he ran the company honestly.

As a part of the anticorruption settlement between Odebrecht and authorities from the U.S., Brazil and Switzerland, the Brazilian company admitted paying a total of $10.5 million in bribes to Mexican officials from 2010 to 2014.

Between December 2013 and late 2014, Odebrecht said, it paid bribes of $6 million to a top official at an unnamed Mexican state company to help secure projects. Pemex was the only Mexican federal entity that signed contracts with Odebrecht in that period, according to Mexican public records.

In 2014 and 2015, during Mr. Lozoya’s tenure as chief executive, Odebrecht won four engineering and construction contracts from Pemex totaling around $1.5 billion, including upgrading refineries and building a major gas pipeline in northern Mexico, according to public records.

All the contracts were awarded directly without a public bidding contest. Previously, the company had won only one construction contract from Pemex.

Odebrecht might have had further dealings with Pemex over that period. Subsidiaries of the construction company, under different names, won 11 additional contracts with the Mexican company, according to a top Pemex official with knowledge of the situation. When those are counted in, the total amount of contracts likely came to more than $2 billion.

The largest Pemex contract of the four Odebrecht won in that period was the engineering and construction of a major gas pipeline in northern Mexico to bring natural gas from the U.S.

In May 2013, Pemex sought international bids for building and operating the pipeline. A consortium formed by Spain’s Enagas SAand France’s GDF Suez, two global gas operators, offered Pemex to transport the gas for a fee that was 8% lower than what the Mexican regulator considered a fair price. The regulator approved the bid.

Months later, Pemex declared the tender void, alleging the offer had technical and economic flaws. Pemex decided to build and operate the pipeline through subsidiaries and it handed the construction contract of the northern part of the pipeline to Odebrecht.

Odebrecht Mexico didn’t respond to requests for comment. A Pemex spokesman declined to comment on the contract process.

Write to Juan Montes at juan.montes@wsj.com

Appeared in the May. 06, 2017, print edition as ‘Paper Points to Pemex Bribe.’

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