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Petrobras Chair | Reassuring Words on Contracts


November 17 –With its ADRs at $9.35, down 6.8$, everything at the Bovespa is coming down alongside Petrobras. (You might want to read Michael Kaufman at BidnessETC for an overview.)

Meanwhile, while awaiting the return of Chairman Dilma from the G20, Petrobras news and rumor could not help becoming the buzzmost item on the editor’s desk.

First, the Petrobras Investor Relations office has politely underscored the fact that oil production is at a record high in the history of oil companies, while announcing that third quarter results will be late in coming as accountants figure out what hole all that graft fits in, and how to make it — the Brazilian government — whole.

And as if that were not enough, it is reported that chief architects of the Petrobras machine may have played a similarly central role in the growth spurt of the energy business in Northern Brasil.

But back to Petrobras and the wrongs it suffered: Can these sums be eventually be recouped through a complicated piece of financial engineering? In recent days, W$J has pondered the applicability of the Foreign Corrupt Practices Act as a complicating factor in the case.

Today, however, with Dilma still traveling abroad, the virulently anti-government Veja attends a press conference …

Petrobras board chair Maria das Graças Foster argued today that “crushing evidence” of crimes would be necessary to justify the severance of contracts with suppliers suspected of corruption, such as public works and engineering contractors.  In a press conference, the executive was questioned about the steps to be taken to combat recent cases of corruption and graft, such as the case of the Dutch firm SBM and the contractors under investigation in the Car Wash case. “We are not going to suspend our contracts with SBM or any other contractor until we have built a case so solid that it justifies breaking off the relationship,” said Foster.

Asked by the VEJA Web site to quantify what would be considered “overwhelming evidence,” Foster was assisted by the Petrobras director of Exploration and Production, José Formigli: “In the case of SBM, our board chair received a phone call and we received a letter in which the company said it had received this information from the Dutch Public Ministry that these sorts of deposits had landed in escrow accounts pending ongoing investigation. This is an example of “crushing” evidence since it was the company itself admitting it.

This was the pattern of police and judicial activity these week, in fact: Companies racing to cobble together plea deals, groggy executives being shoveled into the back of Black Marias.  With that, the case threatens to devolve into months on end of creditor and debtor negotiations, while undeniable operational successes might just hold back the Persian tide and its Immortals … followers of the Veja opinion forum …

What I found really interesting today, in fact, was a column by anarchocapitalist Veja blogging star, Reinaldo Azevedo.

Translation to come:

What does “compliance” mean? We lack a corresponding term in Portuguese.

What is so alien about the meaning of the standard dictionary terms concordância and conformidade?

The European technical term base contains, for example, the phrase PT não conformidade for EN non-compliance. PT Cumprimento fiscal = EN tax compliance.  Shelved under Accounting terminology is the PT Teste de conformidade. PT Custo de conformização is EN«cost of compliance»

We are obliged to use a compound phrase to define it: It means the adhesion to pre-agreed norms of good governance, which range from federal law to the internal affairs office of the company.

In  other words, governance cannot be defined.

Thus, governance is governance. Tautology alert.

According to Graça, the board of directors have already approved the plan. In fact, it is astonishing that the largest company in Brazil and one of the largest in the world still lacks this function. But will it be effective?

That is the heart of the matter. We know of and have seen recent examples of gigantic global corporations corrupting the authorities of various governments the world over. To cite two famous cases, there was the German Siemens and SBM, of Dutch origin. And so we see that private enterprises are also likely to commit wrongdoing — after all, the contractors that appear as corruptors in the Petrobras case are from the private sector.

But relax. [The analogy is not a solid one]. The agents of Siemens, SBM and the Brazilian contractors, certainly did act outside the rule of law in order to benefit themselves, even if it meant breaking the law altogether. And they should pay for this.

Those who operated inside Petrobras were scofflaws as well, but the difference is that Petrobras lost money! The private agents wanted to increase the profits of their respective companies.  The petty thieves of Petrobras, meanwhile, assaulted the assets of what is, after all, a public company.

The C Word

In a state-run company similar to Petrobras — or, more broadly, in Brazilian state-owned firms —, is it possible to have a real system of Compliance?

If compliance is defined as a set of actions consistent with clear, consistent rules and subject to close public and shareholder scrutiny, then yes.

Here, they call it the ANP, the National Petroleum, Oil, Gas and Biofuel Agency, and it is set up in manner similar to other semi-independent regulators, or “autarchies,” such the CVM or Anatel.

I ask this quite sincerely, though there might be a touch of irony in the thought: Will this directorate [internal audit committee] also be subject to partisan political interference?

Careful, Reinaldo, your Reagonomics are showing!

Without changing the culture of state capitalism, “compliance” at Petrobras will be translated into “cumplicity.”

At the end of a long harangue on the vagaries of public morality, his trump card, Reinaldo closes with a set of rhetorical questions:

Graça Foster has announced that Petrobras will not be in conditions to issue its third quarter results. She hinted that the company is waiting for developments in the plea deals being negotiated. With all due respect, the smell of this decision is a little ripe. After all, with or without corruption, revenues are revenues, no?

Perhaps the percentage of corrupt payments is carried over into the column for costs. Can it be added to gross income? Will the money to be returned be added to the current cash position of Petrobras? I think not. You?

Há coisas que parecem não ter cura. No dia em que a presidente da Petrobras anuncia a criação de uma diretoria de Compliance, ela não explica por que não se divulgam os dados do balanço.

Essa gente não aprende nada nem esquece nada. E nós pagamos o pato.