The corruption scandal involving Petrobras has triggered a loss in the company’s market value and has also ignited an enormous wave of dissatisfaction towards the government, which has, until this moment, failed to respond successfully.
It is still too early to identify all individuals and corporations behind the scheme or event to determine the consequences this crisis will inflict to Petrobras and the entire Brazilian political structure. The Prosecution Office, the Federal Police and the Attorney General are leading investigations in several spheres, and new people are required to give testimony as the operation moves forward.
For all of its consequences, Lava Jato has underscored that Brazil has a robust and independent group of federal police officers, judges and prosecutors, a rarity in nations plagued by corruption. Last month, for instance, the police searched the home of Fernando Collor, a former president and current senator, leaving with a Ferrari, a Lamborghini and a Porsche. Eduardo Cunha, president of Brazil’s lower house of parliament, was accused last week of accepting a $5 million bribe in return for helping a company win contracts to supply oil giant Petrobras with drill ships.
Petrobras has a new CEO, who took over in February, and many new faces in upper echelons, part of an attempt to prove that Petrobras understands the gravity of this crisis. Petrobras’ new head of compliance João Elek has said that, for years, nobody questioned top-tier managers, even if they approved transactions that seemed odd. A more robust whistle-blower program is also being established with an outside firm in order to ensure it never happens again.
New Investment Plans aims at deleveraging the company
In the end of June, Petrobras released its latest Investment Plan (2015-2019), which foresees USD 130.3 billion in investments. The company aims to deleverage and to generate increasing value for shareholders. Proved losses in connection with Operação Lava Jato investigations have reached BRL 6.2 billion in 2014. This is the company’s first capital loss since 1991.
Petrobras intends to divest by selling goods and assets that are no longer strategic for the company. The total amount to be divested in the period 2015-2016 accounts for USD 15.1 billion – 30 percent in exploration & production; 30 percent in supply; and 40 percent in gas & energy. In 2017-2018, divestments shall amount to USD 42.6 billion, including business restructuration, asset demobilization and additional divestment.
Petrobras has given few details about the assets included but the sale could include all or part of its holding in petrochemical giant Braskem, its fuel distribution business, gas pipeline operations, a network of power stations and its operation in Argentina. The company has also invited rivals to bid for stakes in some of its most promising offshore oil finds.
The company’s investments will be mostly made in exploration & production (USD 108.6 billion). Out of that amount, 86 percent will be invested in development of production, 11 percent in exploration and 3 percent in operational support. USD 64.4 billion shall be invested in new production systems – 91 percent in the pre-salt. In addition, USD 12.8 billion are to be invested in supply – 69 percent in maintenance and infrastructure; 11 percent in the Abreu e Lima refinery; and 10 percent in distribution, whereas the remaining 10 percent includes investment in the petrochemical complex Comperj for gas reception and treatment and maintenance of equipment. Investments in gas & energy account for USD 6.3 billion and include pipelines for pre-salt gas. The investment plan also foresees return of leverage to the following goals: net leverage below 40 percent by 2018 and to 35 percent by 2020, and net debt inferior to 3.0 times by 2018 and to 2.5 times by 2020.
The company updated its oil, LNG and natural gas production targets, reflecting postponement of projects of lesser maturity or delays in delivery of production units, mainly due to supplier constraints in Brazil. Petrobras hopes to achieve an overall oil and gas production (Brazil and international) of 3.7 million boed by 2020, the year in which it is estimated that the pre-salt will represent over 50 percent of total oil production.
Numbers in the investment plan were calculated using the projected Brent price of USD 60/bbl in 2015 and USD 70/bbl in 2016-2019. In addition, the projected exchange rates were BRL 3,10 in 2015, BRL 3,26 in 2016, BRL 3,29 in 2017-2019 and BRL 3,56 in 2020 (USD 1).
Speaking to potential buyers for fuel distribution unit
Petrobras announced earlier this month that it is studying an initial public offering of BR Distribuidora. The move is part of the firm’s effort to shed assets amid slumping oil prices. The company expects to have the company listed in the market by the end of this year, if market conditions allow it.
Petrobras is in talks with three potential buyers interested in purchasing a stake in its fuel distribution business before a planned initial public offering of that unit, possibly later this year, chief executive Aldemir Bendine said in an interview on August 11th.
He added that a final decision on selling a minority stake in Petrobras’ retail gasoline business, which operates under the brand name BR Distribuidora, was yet to be made. Last week Petrobras’s board gave the company the green light to seek regulatory approval for the BR Distribuidora IPO. According to reports published by newspapers, Petrobras has hired Citigroup Inc. to lead the IPO. The other five banks working on the deal are Banco do Brasil, Bradesco, Itau BBA, Santander and Bank of America.
Corruption scandal may involve nuclear power plant deal
Brazilian police arrested two executives involved in building a nuclear power plant for Eletrobras, Brazil’s largest electric utilities company, in the end of July, after allegations that the massive corruption scandal that has engulfed Petrobras had also pulled the state-run electricity company.
The operation was named Operação Radioatividade and focused on Eletrobras’ Eletronuclear division, which is building a third nuclear-power reactor at Angra dos Reis (circa 100Km west from Rio de Janeiro). The operation included 23 search and seizure warrants in Brazil’s largest cities.
Police arrested Othon Luiz Pinheiro da Silva, who is on leave as Eletronuclear’s chief executive officer. Silva is accused of having received USD 1.2 million in bribes from engineering firms Andrade Gutierrez and Engevix.
The federal police is investigating other members of a consortium hired by Eletronuclear in September to finish work on the reactor. The broadening investigation could worsen an economic slowdown if more infrastructure projects are put on hold.
Fall in commodities market leads impacts Brazil’s exports
In the first half of this year, Brazil’s two largest exporters, Vale and Petrobras, accounted for 11 percent of the country’s exports, the lowest share in ten years.
In Petrobras, the poor performance is the result both of a fall in production and the global fall in oil prices. But the highest losses have been in Vale. While production has increased, prices have fallen dramatically – the average price of the iron ore ton this year is USD 42,69, compared to USD 89,55 last year.