Brazil, one of Latin America’s leading energy sector players, is caught in the midst of what may be the country’s largest corruption scandal to date. At the center of the maelstrom is Petrobras, the international oil and gas company, famed for one of the biggest shale shares in history at US$70 billion in 2010.
The scandal has taken various twists and turns, most recently leading to the arrest of two high-powered businessmen this month. Marcelo Odebrecht, head of Latin America’s biggest construction company Odebrecht, and Otávio Azevedo, president of multinational holding company Andrade Gutierrez, were detained for their involvement in the Petrobras case, as more accused parties keep appearing out of the woodwork.
Odebrecht and Azevedo are just two of a number of company directors accused of accepting bribes and funding ruling coalition political parties.
“This [scandal] may change the country forever,” President Dilma Rousseff commented during the G20 summit in 2014.
In an investigation that has spanned six Brazilian states, with more arrests announced on an almost weekly basis, “Operation Car Wash,” as the probe is called, has unearthed evidence of widespread bribes and cartels accused of upping prices for company infrastructure projects.
Staggering totals have already come to light. Brazilian Federal Police announced that the group under investigation moved more than US$3.9 billion in “atypical” financial transactions. Courts have blocked close to $270 million in assets belonging to various suspects, with federal agents revealing suspicious contracts worth $22 billion.
Former Petrobras director Paulo Roberto Costa, who worked at the company from 2004 to 2012, told investigators that politicians received a 3 percent commission on all contracts signed during the eight-year period.
The plot continues to thicken, as current president Dilma Rousseff, who chaired the Petrobras board of directors from 2003 to 2010, has denied knowledge of any untoward activities.
However, the corruption scheme has been in operation in the company for the past 15 years, according to public prosecutors, amid new revelations damning new business relations and internal economic growth.
“This is the most important company in the country and at times when we are struggling to recover growth, such a huge bribery scandal will not give a positive message to potential investors,” said economist Silvio Campos Neto, of the consultancy firm Tendencias.
Furthermore, as Petrobras announced losses of $17 billion last year, the company is now looking to China to help cover some of its huge debts. The company obtained a $3.5 billion financing contract with China Development Bank to be disbursed during 2015 and 2016.
Petrobras could face an uncertain future. Certainly, new CEO Aldemir Bendine, will now have to decide how best to alleviate problems for the Rio de Janeiro based firm. However, the company’s high debt levels will pose problems for its attempts to maintain market leverage, and it simply cannot afford to further increase its debt levels.
But as the company’s risk ratings look set to go from bad to worse, and pressure mounts on Rousseff to maintain public faith in the country’s political situation, it will be interesting to see if Brazil continues to attract investment in its hydrocarbons market.
One thing is for sure: there are still more cars that need washing.