Petrobras chief quits amid Brazilian corruption scandal

Maria das Graças Foster and other top officials at state oil company resign

Prosecutors say scheme linked to ruling party involved $800m in kickbacks

The Guardian, Agencies in Rio de Janeiro, Wednesday 4 February 2015

The president of Brazil’s state oil giant Petrobras, Maria das Graças Foster,
‘was not the biggest problem at the company, but it’s a message,’ said one
analyst. Photograph: Vanderlei Almeida/AFP/Getty Images

The chief executive and other senior management at Brazil’s state-run oil company Petrobras have resigned amid a festering corruption scandal which has also touched the country’s ruling Workers’ Party.

The firm’s board of directors will meet on Friday to elect a new management team to replace the CEO, Maria das Graças Foster, and five other senior executives, the company said in a securities filing.

Petrobras, one of the globe’s leading offshore companies, has been mired for months in a corruption case involving former company executives as well as the heads of many of Brazil’s main construction companies.

Brazilian prosecutors have said the kickback scheme involved at least $800m in bribes and other illegal funds. They expect that figure to grow as they keep investigating. Some of the money was funneled back to the ruling Workers’ Party and its allies’ campaign coffers, often in the form of legal corporate donations.

Federal prosecutors said they have recovered about $170m involved in the scheme, that over 230 businesses of all sizes are being investigated and that 86 people are facing charges so far, including several top executives from Brazil’s main construction and engineering firms who have already been jailed.

Additionally, federal prosecutors are expected to announce charges this month against dozens of politicians, mostly congressmen, in connection with the case.

Petrobras shares rose more than 6% in early trading in São Paulo on the news before paring gains to trade about 1% higher near midday. The stock rose more than 15% on Tuesday – its biggest one-day gain in 16 years – helped by reports that President Dilma Rousseff had decided to dismiss Foster by the end of the month.

The timing of the resignations came as a surprise to the Rousseff administration, which was hoping for more time to find potential replacements, a government source told Reuters on condition of anonymity.

Rousseff had already asked the finance minister, Joaquim Levy, a University of Chicago-trained economist, to help sound out potential candidates for a new Petrobras leadership team, another government source told Reuters on Tuesday.

Investors have been betting that new leadership will help restore credibility to the scandal-tainted firm, ramp up production and boost profit.

“Graças [Foster] was not the biggest problem at the company, but it’s a message,” said João Pedro Brugger, an equities analyst at Leme Investimentos in Florianópolis, Brazil. “The company is trying to tell the market that its management will become more professional.

Pressure has been mounting on Rousseff to clean up Petrobras, whose reputation suffered with the arrest and subsequent testimony of three former senior executives and three dozen others, including executives of major suppliers.

Rousseff’s political opponents, who saw Foster as the president’s last line of defence, have sped up efforts to launch congressional investigations into the Petrobras kickback scheme, seeking to hold her government responsible for the corruption.

The scandal will move closer to Rousseff later this month when prosecutors plan to name politicians of her ruling Workers’ Party and coalition allies who allegedly received graft proceeds as campaign contributions.

The illegal activity, authorities allege, diverted at least $3.7bn, and perhaps more than $28bn, from Petrobras coffers.

Petroleo Brasileiro SA, as Petrobras is formally known, said last week that the corruption was one of several factors that helped wipe out a net 61.4bn reais ($22.7bn) from the value of its assets, such as refineries and oil platforms, but it refused to take a charge against earnings.