What’s the deal with Petrobras?

While Brazil’s obsession with the growing Petrobras scandal has existed for almost a year, the international community is just now starting to ramp up media coverage. To understand the implications of this scandal, it is important to know the history of Petrobras in Brazil and its essential role in Brazil’s economic growth. The scandal symbolizes Brazil’s current sluggish economy and the people’s growing anger at corporate/business cabals.

Petrobras, founded over 60 years ago in 1953, was a state-backed company that held a monopoly on Brazil’s oil production and exploration until 1997 when the government allowed competition (both to international and Brazilian companies). Despite the new competition, Petrobras had a strong starting position and continued to grow. It is currently the sixth largest energy company by assets in the world.[1] Much of this growth came from its exploration of deep-water oil reserves in the Santos Basin. Although Petrobras is not the only oil company, it still is a large employer of Brazilian citizens and a major component of the economy.

The Petrobras scandal, named “Operation Car Wash,” has embroiled top executives at nine Brazilian construction companies, engineering firms, and even international shipbuilders, not to mention Petrobras leaders and Brazilian politicians as high up as President Dilma Rousseff. Petrobras executives are alleged to have bribed politicians using company profits, Additionally, construction, engineering, and shipbuilding companies are alleged to have paid Petrobras executives bribes for contracts. Over 40 politicians received a 3% commission on Petrobras contracts signed between 2004 and 2012 according to chief police witness and ex-Petrobras director Paulo Roberto Costa.

Brazilian Federal Police have indicted 35 people with charges such as corruption, money laundering, organized crime, bribery, and establishing a cabal. The sheer size of the Petrobras corruption allegations is staggering; Federal police estimate as much as $3.9 billion in “atypical financial transactions” were made between 2004-2012.[2] Morgan Stanley estimates the scandal could cut the value of Petrobras by $8.1 billion.[3] Rousseff, former chair of the board of directors during most of the alleged corruption, is caught up in the blowback as well. Despite no official allegations of knowledge or wrongdoing, President Rousseff’s approval ratings hover at 23%, the worst of her career, because of her connection to Petrobras according to a Datafolha poll conducted last week.[4] 77% of voters believe she knew about the corruption when she chaired Petrobras’s Board of Directors, and 60% believe she lied during her presidential campaign about her knowledge of the scandal.[5]

Petrobras’s rise to one of the world’s top companies coincided with Brazil’s growth from a struggling third-world economy to one of the world’s most powerful emerging democracies. These deep roots only make the current scandal more detestable for the Brazilian people – they are not just disgusted by corporate and political greed, they feel personally betrayed by a Brazilian institution. With the variety of challenges facing the Brazilian people (the water crisis in Sao Paulo, stagnating economic growth, and continuing concerns about police violence), the Petrobras scandal symbolizes the leadership’s inability to represent the people effectively.

Lauren Burdette
MPP ’15

[1] Barnato, Katy. “Why the Petrobras scandal is shaking Brazil.” CNBC 24 Nov. 2014 http://www.cnbc.com/id/102212048#.

[2] Costas, Ruth. “Petrobras scandal: Brazil’s energy giant under pressure.” BBC News 20 November 2014 http://www.bbc.com/news/business-30129184.

[3] Ibid.

[4] Levin, Jonathan. “Petrobras Scandal Drags Rousseff Approval to Record Low.” Bloomberg Business News. 8 February 2015 http://www.bloomberg.com/news/articles/2015-02-08/petrobras-scandal-drags-rousseff-approval-to-record-low.

[5] Ibid.

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