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 "Petrobras has one of the most accurate accounting standards in the
world," said Rousseff, who was then chairwoman of its board and is
now Brazil's president. "If it wasn't the case, investors would not
be seeking out the company as one of the great investment targets."
Today, it's clear her confidence was misplaced.
Petrobras now acknowledges it overpaid on contracts for years.
Prosecutors say engineering firms paid bribes to win Petrobras
contracts, systematically overcharged it to the tune of billions of
dollars and funneled a cut of the money to corrupt executives,
vendors and political parties, including Rousseff's ruling Workers'
Party.
A Reuters review of a 2009 federal investigation of Petrobras, and
interviews with those who conducted it, indicates Rousseff missed
opportunities to stop the graft before it erupted into a crisis so
big it could push Brazil's slow-growing economy back into recession
next year.
Rousseff says she did not know about the corruption, or participate
in it, when she was Petrobras' chairwoman from 2003 to 2010.
Opposition leaders say they believe her and that she is unlikely to
face impeachment. Polls show her popularity has suffered only
slightly.
Still, she faces mounting scrutiny over whether she did enough to
halt the corruption at Brazil's biggest company by revenue. The
scandal could haunt her in her second term as president, which began
on Thursday.
Petrobras' stock has fallen nearly 50 percent in the last six months
and its market value is down more than 80 percent from its peak in
2008.
Two top former executives and three dozen other suspects allegedly
involved in the scheme have been indicted.
The accounting standards that Rousseff praised are now in such
disrepute that independent auditors have refused to certify
Petrobras' quarterly results because, pending further investigation,
they are unable to put a value on its assets.
Records from the Federal Audits Court, or TCU, show that
investigators detected widespread over-charging on contracts and
irregular tendering practices at major Petrobras projects. They
included the Abreu e Lima refinery in northeast Brazil, the biggest
single investment project in Petrobras' history.
The TCU advised both the government and Petrobras' directors in a
report that was sent directly to Rousseff and her board.
Investigators say they would have uncovered even more abuses if
Petrobras hadn't refused to provide key documents.
The TCU's findings were "a clear warning sign of bigger problems and
likely corruption," Saulo Puttini, who was one of the auditing
officials, told Reuters. "What's happening now is not a surprise to
us at all."
DEEP INVOLVEMENT
Rousseff said in a statement on Nov. 22 that she reacted properly to
the TCU report and noted it detailed only a portion of the
wrongdoing that has since been uncovered. A spokesman referred
recent queries regarding Petrobras to that statement.
A senior official close to Rousseff said Petrobras' decision not to
share more information with the TCU at the time was made by
Rousseff's subordinates.
"It never crossed her desk," the official said.
Overseeing Petrobras was not Rousseff's only job, though people who
worked with her say it was her passion.
An economist with a zeal for energy issues, she was also energy
minister from 2003 to 2005 and President Luiz Inacio Lula da Silva's
chief of staff until 2010.
Rousseff oversaw Petrobras during a rise in its fortunes that
paralleled Brazil's commodities-driven economic boom.
She attended monthly board meetings, weighed in on investment
priorities and successfully pushed for a rewrite of Brazil's oil law
to make Petrobras a mandatory partner in new deep-sea finds.
"She was involved deeply and emotionally in Petrobras," said Ildo
Sauer, the former head of its natural gas and energy unit who worked
with Rousseff during those years.
Petrobras found huge new offshore oil resources starting in 2006 and
its market value soared to more than $290 billion in 2008 from $15
billion a decade earlier.
But problems were cropping up. The TCU, which is an office of
Congress and audits federal spending, in 2008 began reviewing
contracts for the Abreu e Lima refinery after spending estimates
started to rise sharply.
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In its 2009 report, the TCU cited irregular tender practices and
systematic over-charging on Abreu e Lima contracts. It also
criticized Petrobras for waiting until the last day of the
investigation to deliver many documents, saying it was tantamount to
obstruction.
After receiving the findings, Rousseff alerted the Comptroller
General's office, which in Brazil's regulatory system is responsible
for the protection of public property.
It found no wrongdoing but its ability to do its job has been widely
questioned. Its chief Jorge Hage resigned last month after
complaining that budget cuts mean it has trouble paying telephone
and electricity bills, much less the expense of tracking corruption.
Investigators believe Rousseff should have done far more.
"They could have undertaken an investigation, they could have fired
an executive, but they didn't take any steps. They just kept sending
money" for Petrobras projects, said Jose Jorge, who was one of nine
TCU judges before he retired in November.
PROBLEMS WITH OVERSIGHT
The TCU recommended stopping construction of Abreu e Lima until the
irregularities were addressed. Congress agreed and voted to suspend
2010 budget payments on some contracts cited by the TCU.
However, Rousseff, who was preparing to run for president, overruled
the recommendations, warned stoppages could cause unemployment and
persuaded Lula to veto that part of the budget proposal.
Construction continued, and so did the problems. Abreu e Lima,
budgeted at $9.2 billion in 2009, more than doubled to $18.5 billion
in 2014, partly because Venezuela's state-run oil company PDVSA
pulled out of helping to finance the project.
The TCU continued to flag irregularities in reports on the refinery
in 2010, 2011, 2012 and 2013.
Silvio Sinedino, a Petrobras director representing its employees,
said the board failed to detect graft because it had become a
"rubber stamp" for the government.
"The government doesn't want oversight," he said, adding that
important financial information on projects is often only provided
on the day of meetings and that government officials try to
strong-arm the board.
Sauer said Rousseff would regularly summon him and other top
Petrobras executives to the capital Brasilia.
"Those meetings were among the most unpleasant of my life ... Not
only were they long, but they involved her yelling a lot," he said,
adding he had to leave Petrobras after losing favor with Rousseff
because he opposed some projects that she supported.
The extent of the corruption at Petrobras became apparent after
Paulo Roberto Costa, its former refining chief, was arrested on
March 20. He testified that he helped orchestrate a kickback scheme
with a "cartel" of construction companies that inflated prices on
work they did.
"I can't remember a company that failed to pay," he said.
Other arrests followed and prosecutors say more are expected.
Costa and other witnesses say Abreu e Lima was ground zero for much
of the corruption. Puttini, the TCU investigator, said "some of the
people in jail now" are the same ones he questioned back in 2009.
The senior official close to Rousseff says she is "stunned" by the
extent of the graft. "No one believed anything on this scale could
have happened in Brazil."
The probe has forced Petrobras to freeze spending on dozens of
projects, leading to thousands of workers being laid off.
Economists say it could shave 1 percentage point or more off
economic growth in 2015. That could be enough to push Brazil into a
recession.
(Additional reporting by Brian Winter; Editing by Brian Winter and
Kieran Murray)
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