Dilma and Petrobras: Hard hat required

March 23:



GOVERNMENT critics in Brazil’s press have had a field day—indeed, a field week—courtesy of the state-owned oil giant, Petrobras. On March 17th public prosecutors in Rio de Janeiro opened a criminal investigation into alleged backhanders paid to the firm’s employees by a Dutch company in exchange for oil-platform and drilling contracts. The next day it emerged that in 2006 President Dilma Rousseff, then home secretary in the government of her predecessor, Luiz Inácio Lula da Silva, and the chair of Petrobras’s administrative council, approved a botched acquisition of an oil refinery in the United States. To top it off, on March 20th the federal police arrested a former executive in a money-laundering probe.
Only the refinery deal touches Ms Rousseff directly. An investigation by Estado de São Paulo, a newspaper, revealed that she voted in favour of a contract to purchase 50% of a refinery in Pasadena, Texas, for $190m (plus $170m for its oil stocks) from a Belgian firm that had paid $43m for the whole thing a year earlier. In fact, the deal ended up costing Petrobras $1.2 billion. Its terms included a commitment by Petrobras to buy the remaining stake if the Belgians ever offered to sell it, which they did in 2007. Petrobras rejected the offer, was sued in a US court and lost. In 2012 it had to cough up $820m for the remaining stake, including interest and court fees.
In a note to Estado Ms Rousseff said she was kept in the dark about the provision (as well as another one, which promised the Belgian firm a guaranteed 6.9% return a year regardless of market conditions). It was not, she wrote, mentioned in the “flawed” and “incomplete” two-and-a-half-page executive summary of the deal on which she and other council members based their decision. (That summary happens to have been co-authored by the former Petrobras executive, Paulo Roberto Costa, who was arrested in an unrelated probe into an alleged scam involving the sale of glycerine to the oil giant.)
Estado’s revelations and Ms Rousseff’s response nonetheless damage her claim to be an able manager. So does Petrobras’s financial performance. The company’s market value has shrivelled from more than $300 billion in 2008 to $76 billion today, in part because the government has made it sell petrol to Brazilian motorists at a loss in an attempt to curb high inflation. The market is so tired of government meddling in the firm that, the string of bad news notwithstanding, Petrobras shares rallied last week amid rumours that Ms Rousseff’s poll lead over her putative rivals in the presidential election this autumn was shrinking. In the event, IBOPE, a pollster, revealed on March 20th that she remains comfortably ahead for now, with 47% against 22% for her two closest challengers put together. But the Petrobras story—the promise of great riches clouded by mismanagement and government interference—is a narrative that uncomfortably resembles the trajectory of Brazil itself.

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