By Will Connors
RIO DE JANEIRO--Brazil's newest refinery was supposed to reduce
the nation's dependence on imported gasoline and signal a new era
in Latin American energy independence.
Instead, the refinery, the first built in Brazil in nearly 40
years, has come to symbolize big troubles at state-run oil company
Petroleo Brasileiro SA.
Three years behind schedule and nearly $20 billion over budget,
the Abreu e Lima refinery, which opened Saturday, is at the center
of a deepening corruption scandal plaguing Petrobras and newly
re-elected President Dilma Rousseff.
Earlier this year, federal police uncovered what they say was a
scheme hatched by contractors and Petrobras executives to pay
bribes to get contracts at the refinery and other projects, using
some of the extra money to pay off local politicians and pocketing
the rest.
Last month, federal police in Brazil arrested 23 people,
including a second former Petrobras executive and executives from
more than 16 contractors, for their alleged roles in the kickback
scheme.
President Rousseff has acknowledged there was wrongdoing, and
says the arrest show an era of "impunity" is over in Brazil. But
the scandal tarnished what should have been a triumph for
Petrobras. There was no ribbon-cutting ceremony or visit by state
leaders when the refinery opened.
"What we want as a state is for it to work, to create jobs and
to generate tax revenue, whether there's a party or not," said
Márcio Stefanni, secretary of economic development for Pernambuco
state, where the refinery is located. He declined to comment on the
troubles facing the project, which is largely supported by local
politicians.
Brazil's leaders were jubilant about the project in 2005. That
year, Brazil's then-president Luiz Inácio Lula da Silva stood
beaming alongside the late Venezuelan president, Hugo Chávez, at a
cornerstone-laying ceremony for the refinery. Ms. Rousseff, then
chairwoman of Petrobras, also was there.
The refinery was named after a Brazilian freedom fighter that
Mr. Chávez admired and would symbolize both a new partnership
between Brazil and Venezuela and the start of a push toward Latin
America energy independence.
Venezuela, whose state-run oil company PDVSA had agreed to kick
in 40% of the project funds in exchange for refining its oil at the
facility, would be able to stop refining all of its oil in the U.S.
Brazil would get a guaranteed customer for its flagship
refinery.
At the event, Mr. Chávez said the refinery would help South
America overcome the "imperialism of the North." Many in the crowd,
according to media reports at the time, wore T-shirts that read:
"The refinery is ours."
From the start, the project was beset by problems. The site of
the refinery, in northeastern Brazil, is hundreds of miles away
from most of the country's oil-industry infrastructure, and was
criticized as a political choice.
The refinery was dogged by delays, caused by everything from
workers striking for better pay to heavy rains.
Venezuela never contributed money to the project. Costs started
to pile up, and were soon well past the original $2.5 billion
estimate. Petrobras's most recent estimate of the total cost is
$18.5 billion.
Petrobras declined to comment for this article. In previous
statements about Abreu e Lima, the company has attributed the cost
overruns to premature cost assessments and "exchange rate
adjustments."
Earlier this year, federal police uncovered what they say was a
cartel of construction company officials involved in overbilling
for work at the refinery and other projects. Two former Petrobras
executives in the company's refining and engineering units were
arrested on money-laundering and fraud charges.
Last month, more than 20 people allegedly involved in the case
were arrested, including some of Brazil's wealthiest construction
executives.
"I believe that the criminal scheme had to do with the change in
value [for contracts], which was far above what was reasonable,"
said Carlos Fernando dos Santos Lima, one of the eight federal
prosecutors working on the case.
In a separate investigation, Brazil's auditing body, known as
the TCU, says there were "serious irregularities" at the refinery.
The TCU estimates that the alleged overpayment for work at the
refinery totals more than $145 million--including $27 million in
overpayment for earth-moving services alone.
Shares of Petrobras have taken a hit as the corruption
investigation has gained steam, and losses have continued as the
price of oil has plummeted. Petrobras shares hit a 10-year low
Friday, closing at $8.82, and are down 54% over the past three
months.
Despite the project's problems, Petrobras had little choice but
to push forward. Brazil's dependence on imports has more than
doubled since 2007. The company's refining unit has lost $24
billion in the past four years, mostly because the company is
forced to pay for a government-imposed fuel subsidy.
"Abreu e Lima coming online, despite all the problems, is good
news for the company," said Joao Augusto de Castro Neves, an
analyst with the Eurasia Group. "But I think the government doesn't
want to draw attention to Petrobras, even if it's good news."
Today Petrobras has 12 refineries, which have a capacity of 2.1
million barrels per day. The company wants to boost that figure to
3.3 million barrels per day by 2020.
The Abreu e Lima refinery will first start with a capacity of
115,000 barrels a day and eventually ramp up to 230,00 barrels a
day next year, 70% of which will be diesel. Petrobras officials say
the startup of the refinery will cut total fuel imports to Brazil
by one third.
Even when Abreu e Lima is up and running, Petrobras' refining
division troubles won't be over. A separate refinery under
construction in Rio de Janeiro, the Comperj facility, is expected
to cost roughly $21 billion before completion in 2016, more than $7
billion above Petrobras' own estimate, according to the TCU.
Paul Kiernan contributed to this article.
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