Brazil Senate Opens Inquiry into Petrobras Mismanagement

Source: Reuters 5/14/2014, Location: South America

Brazil's Senate opened an inquiry into alleged corruption and mismanagement at state-run oil company Petroleo Brasileiro SA, a probe that could complicate President Dilma Rousseff's bid for reelection in October.

A panel of senators will look into the costly purchase of a refinery in Pasadena, Texas, for which critics say Petrobras paid 20 times the market value.

The senators will also probe allegations that Petrobras officials took bribes in exchange for steering contracts to SBM Offshore NV, a Dutch oil-production ship leasing company, as well as investigating alleged overpricing in the building of refineries in Brazil.

The hearings will fan unwelcome controversy for Rousseff, who was chairwoman of the Petrobras board when the Pasadena refinery deal was signed in 2006. Her energy policies since taking office, including controls on gasoline prices in Brazil, have also eroded the company's profitability.

Fallout from the Petrobras scandal has helped bring down Rousseff's approval ratings as she gears up to seek a second term in a tighter-than-expected presidential race.

Opposition senators, however, boycotted the Senate inquiry because they are holding out for a joint-chamber congressional probe that would be harder for the government to control. The lower house of Congress could vote on Thursday for a bicameral inquiry, which in practice would supersede the Senate inquiry.

Rousseff said in March that the board she headed approved the $370 million purchase of a 50 percent stake in Pasadena Refining System Inc from Belgium's Astra Oil Trading NV. She said she was unaware of a put option that forced Petrobras to buy the remaining stake as part of a $820.5 million legal settlement.

The current chairman of the board, Finance Minister Guido Mantega, told a congressional hearing that he opposed the purchase of the remaining 50 percent of the refinery but the case went to arbitration and Petrobras lost.

The Petrobras scandal has provided opponents with ammunition to shoot down Rousseff's reputation as a good manager with no tolerance for corruption. The allegations have added to the criticism of the performance of Petrobras since Rousseff took office in 2010.

Petrobras has the highest debt levels and lowest profitability of any major oil company. Its market value has shrunk to about $100 billion from $226 billion in 2010 as the company failed to deliver on ambitious offshore expansion plans.

Profit fell 30 percent in the first quarter as refining and fuel losses rose as oil output fell.

Critics say the government, by controlling domestic fuel prices to keep inflation in check, is starving Petrobras of the cash it needs to finance its $221 billion five-year expansion plan.

Unable to meet demand for gasoline and diesel from its Brazilian refineries, it has had to import. The fuel-price policy forces it to sell the imports at a loss.

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