Brazilian President Dilma Rousseff is putting her faith in state bank executive Aldemir Bendine to restore the fortunes of Brazil’s national oil company, which is struggling with low profitability at a time of a weak oil price, a heavily geared balance sheet and a major corruption scandal. The former Banco do Brasil Chief Executive Officer has replaced Maria das Gracas Foester, who resigned after failing to establish consensus for the level of write-downs necessary in the wake of the scandal.
Recent investigations by the Brazilian Federal police, dubbed Operation Car Wash, has found that Petrobas took bribes from construction companies and funnelled the funds to parties of the ruling coalition. These construction companies allegedly paid bribes to secure $23 billion in contracts with Petrobras in recent years.
The new management team must gain approval from the board and independent auditors for writedowns of the kickback contractor scheme, as a lack of consensus has shut out Petrobas from international bond markets. The potential writedowns are expected to be lower than the previous estimate of $31 billion made in the unaudited third-quarter results released in January. Petrobas must provide the market with fourth quarter audited results by the end of June or else face default on $50 billion worth of bonds.
A Chance for Greater Autonomy in Petrobras
Criticised for his ties with the Workers’ Party, Bendine has assured the markets that he will demonstrate full autonomy to dictate his own pricing policy and cash programme. A sound management of cash flow and indebtedness are priorities for the new CEO, who will needs to raise capital for Petrobas as soon as possible. Selling some of its positions in Brazil’s deep-sea oil and gas fields off the coasts of Rio and São Paulo states is one option and is currently under consideration. The Workers Party (PT) on the other hand wants the new CEO to maintain policies designed to boost employment, such as buying goods and services from local suppliers, and keep Petrobas in operational control of Brazil’s oil regions. The markets will be watching closely in the coming weeks to determine Bendine’s independence.
A symbol of Brazil’s long economic boom last decade, Petrobras is moving into troubled waters. Long referred to as a piggy bank of the Workers’ Party, the restructuring of the company’s management will provide an opportunity for a more autonomous and prosperous oil giant.