Largest corruption scheme in Brazil costs $2.1 billion

World’s seventh largest economy can be on the verge of default as state owned oil producer costs Brazil millions of dollars in ongoing money laundering scandal investigation

Updated Jul 28, 2015

State controlled oil producer announces results for the first time on Wednesday since outbreak of money laundering scandal, leading country to default. However, the company is not the only one in trouble as the government is also suffering in ongoing investigations.

Petrobras deals with the production, exploration, refining and selling of oil and gases and acts as a base for the Brazilian economy. Their close links with the government have strengthened their financial security in the eyes of investors. However, the company is now well known for their corruption scandal.

According to allegations, company executives have paid politicians for contracts, using money “obtained” from company profits.

Many senior politicians are under investigation including President Dilma Rousseff, who was previously the chief of Petrobras board of directors.

Police have arrested 13 senators, 22 congressmen, two governors and many cabinet officials.

The ever extending corruption scandal investigation is continuing to cause damage as the company neither accepts nor denies claims.

Petrobras, the biggest company in Brazil, ignites fury as they announce the highly anticipated fourth quarter financial results.

The company audited by PricewaterhouseCoopers (PwC) finally reported outcome on Wednesday. Auditors previously declined company certification, stating that scandal made it hard to value assets.

Now, after calculating the impact of corruption and additional costs such as missed production and the lower price of crude oil, they announced a loss of 21.6 billion reals ($7.2 billion) for 2014.

Upon publishing results, Aldemir Bendine, the firm's new chief executive stated that it "is a fundamental step toward fully salvaging the company's credibility.”
The world’s most in-debt listed oil company now needs to gain investor confidence and work towards entering international credit markets in order to develop large offshore oil fields.

In addition, a business plan for the next five years is also expected to be released within 30 days.

"Petrobras' problem isn't about oil or finance, it's about trust. The first thing the company needs to do is recover its credibility, because today the market doesn't believe it," said Daniel Marques, chief analyst at consulting firm Gradual Investimentos.

Since the outbreak, the company had pressure to shore up finances form 23 suppliers, including some of the country’s largest construction firms.

Many companies have also filed for bankruptcy protection since November, causing a delay in projects and stopping the construction of new production ships. Preparations for the 2016 Rio Olympics are also on a standstill.

Previously, Fitch credit rating agency downgraded Petrobras ratings to BBB- from BBB in the beginning of February. Further cuts are expected by Moody’s credit rating agency as they state the likenesses of the company making an early payment of $110 billion debt is low.

Moody’s last downgraded the company’s credit rating in February while signalling a further downgrade.

Although Brazil won’t be held accountable for Petrobras’ debt, the large role it plays in the country’s economy may drag it down to default.

TRTWorld and agencies