Senator Joao Pedro Goncalves, has announced that a Brazilian Senate enquiry on the tax and spending policies of Petroleo Brasileiro SA (Petrobras) will commence on August. 6. This state-controlled company is responsible for about 10% of Brazil’s economic output and the main developer of the biggest new oilfield discovered this century, in a deeper part of the Atlantic Ocean. The affair has already caused the resignation of the head of Brazil's national tax authority.
The investigation will look into allegations that Petrobras overpaid for services, used improper accounting practices to reduce tax payments and showed political favouritism in sponsorship funding. Petrobras has already submitted reams of rebuttal documentation on the allegation that it overpaid for work on a new refinery. Petrobras’s large charitable budget - the company helps to save turtles and subsidises films - is less haphazard than in the past, but has frequently given rise to accusations of political favouritism. The scandal kicked up in the press will likely lead to 'no smoke without fire' claims, even if it ends with nothing proven.
Chief Financial Officer Almir Barbassa has raised fears that a USD174.4bn five-year investment plan could be delayed while managers are 'distracted' by the investigation. In addition to developing new fields, Petrobras plans to build five new refineries, to generate more electricity and to build a network of gas pipelines in Brazil. The company is exploring 270 blocks in the Gulf of Mexico and over 200 more onshore in Brazil.
Petrobras' wings may be further clipped following an upcoming government report on a new regulatory framework governing the next round of exploration concessions for offshore 'sub-salt' oil. Unassigned rights in the lucrative sub-salt area, 62% of the total, are expected to be granted to a new, 100% state holding company which would partner Petrobras or any other company that acquires exploration rights. Early this year Petrobras signed a contract for USD10bn with the Chinese to guarantee a supply of up to 200,000 barrels of oil a day for ten years.
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