New Petrobras CEO must walk political, accounting mine field

February 10
5:23 AM 2015

By picking a banker instead of an oil executive to run Petrobras, Brazilian President Dilma Rousseff appears to have recognized that the state-run company's biggest priority is to clean up its books and acknowledge how many billions of dollars it lost to a corruption scheme in recent years.

Yet her choice on Friday of confidant Aldemir Bendine also signals that Rousseff wants to maintain tight control over the company, which investors fear could prevent it from releasing a fully realistic estimate of graft-related losses.

With the economy sputtering, inflation above 7 percent and Brazilians preparing for increasingly likely electricity and water rationing this year, Rousseff's approval rating is already the lowest of her presidency.

Having Petrobras (PETR4.SA) recognize as much as $22 billion in losses stemming from the price-fixing, bribery and political kickback scandal, the extent of which prosecutors began to reveal last year, is likely to increase Brazilian anger at government mismanagement, analysts say.

While some voice respect for Bendine, who was previously chief executive for state-run bank Banco do Brasil SA (BBAS3.SA), they expect he will lack the independence to break free of the politics surrounding the company's accounting.

"A big loss would please the market but hurt Rousseff," said Reginaldo Gonçalves, a professor of accounting at Faculdade Santa Ursula, a Sao Paulo university. "I don't see getting a reliable (estimate of the loss) anytime soon."


Petrobras results have been delayed since November, when the corruption probe led to the arrest of executives from the company and its suppliers. Auditors refused to certify third-quarter results.

If the company fails to publish results by June, investors can declare the company in default, which could force Petrobras to repay or renegotiate as much as $54 billion in bonds.

Petrobras' press office did not respond to requests for comment or for an interview with Bendine, who officially began the job on Monday.

Shares of Petroleo Brasileiro SA, as the company is formally known, have fallen more than 60 percent since September, and 5 percent since word of Bendine's appointment first leaked early Friday.

Before becoming president in 2011, Rousseff spent seven years as Petrobras' chairwoman, mostly during years when police say company executives conspired to overcharge billions of dollars for contracts.

Some of the money was kicked back to executives, politicians and political parties as bribes and campaign contributions, the largest part going to Rousseff's own Workers' Party, prosecutors say. Rousseff has denied knowledge of the corruption scheme at the time and urged a full investigation.

The political difficulties surrounding the loss will make Bendine's turnaround effort even harder, investors say.

"Bendine faces a mine field of political noise," said Bill Rudman, who manages emerging market stocks, including Petrobras, at Blackfriars in London. "With shares trading at distressed levels, there's not much the government can do for investors."

Bendine's predecessor, Maria das Gracas Foster, abruptly resigned last week along with most of the company's senior management team.

Foster and most of Petrobras' board had agreed on Jan. 23 to take a net writedown of 61.4 billion reais ($22 billion) in the third quarter, but Rousseff, through government-appointed board members, vetoed it, saying it was too large, Reuters has reported. The writedown was rejected by the full board on Jan. 27.

Gil Castello Branco, founder and general director of Contas Abertas, a Brasilia-based corporate and government transparency group, said Bendine is loyal to Rousseff but will approach Petrobras as more of an outsider than Foster, who spent her career there.

Bendine may therefore be "far more likely to do Rousseff's bidding (and) keep corruption-related losses small," Castello Branco said.

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