Final Report in Corruption Probe Clears Brazilian State Oil Company and Regulator

The congressional commission (CPI) set up in the Senate to investigate the activities of the state oil company, Petrobras, has produced its final report. The 360-page report presented yesterday will now have to be voted on, but its formal approval is less important than the fact that the CPI's investigation has now been completed. The investigation lasted several months and heard the testimony of senior figures in the oil industry, from the head of the oil regulator the National Petroleum Agency (ANP), to senior executives of Petrobras.

The first focus of the investigation was allegations that Petrobras evaded over 4 billion reais (US$2.3 billion) in taxes through creative accounting. Romero Jucá, the senator responsible for drawing up the final report, concluded that Petrobras "did not commit any irregularities". Jucá also said that the CPI investigation had found that suggestions by the federal audit court (TCU) that cost overruns at a refinery under construction in north-eastern Brazil were due to irregularities were "inconsistent". The probe did acknowledge that there had been fraud in the award of some platform contracts although Petrobras was praised for helping to uncover the scam. Another of the principal areas of investigation by the CPI was allegations of royalty fraud involving a member of the ANP that were earlier investigated by the police. An investigation of these allegations by senators, however, cleared the ANP itself of any wrongdoing. The report also recommended two legislative proposals—including one consolidating laws on licensing by the state oil company.

The report's conclusion that neither Petrobras nor the ANP committed any wrongdoing is not surprising given the earlier exit of opposition members of the commission in protest at what they regarded as manoeuvres by the government to block the investigation. Instead the opposition wants to continue the investigation through another channel, and has submitted a request to the procurator-general's office for an investigation of 18 issues, including allegations that Petrobras sold its refineries in Bolivia below market price and the cost overruns at the refinery in north-eastern Brazil.

Outlook and Implications

The Senate probe called for by opposition parties was ostensibly aimed at investigating allegations of over-inflated contracts and royalty fraud, but the government was anxious that the real motivation behind it was to damage the electoral prospects of President Luiz Inácio Lula da Silva's chosen successor, Chief of Staff (and former energy and mines minister) Dilma Rousseff. The Worker's Party (PT) government has closely associated itself with Petrobras's successes, with President Lula and Dilma frequently attending ceremonies to mark the launch of new projects, and the PAC, the economic growth package, overseen by the chief of staff including many of Petrobras' infrastructure projects. President Lula has even joked that he would like to head Petrobras when his second term in office ends. Moreover, the company's current management has close links with Lula's PT: the two company presidents appointed by the current administration—José Eduardo Dutra (2003–05) and José Sérgio Gabrielli (2005–)—are both PT members and Dutra was recently elected by the party as its president.

The close association between the government and the state oil company meant that the probe had the potential to embarrass the government, especially if new revelations emerged that proved the involvement of company executives in any wrongdoing. For this reason it mobilised its supporters to make sure that the commission set up to conduct the investigation was dominated by allied parties, and the remit of the probe excluded some of the more politically charged allegations—such as the one concerning the alleged diversion of funds donated by the company to a charity bearing the name of Senate president José Sarney. The government was also concerned to see that the probe would not extend into an election year and risk becoming increasingly politicised.

The early completion of the probe and a final report that clears both Petrobras and the ANP of any wrongdoing means that the government has achieved its objectives, and the company itself can reassure investors that its reputation remains undamaged. Nonetheless, the matter does not end here, as the prospect of an investigation by the procurator-general's office and continued monitoring by the TCU of the cost of projects included in the PAC mean that the company's activities will remain under close scrutiny. Meanwhile elections to be held next year suggest that the government can expect to become the target of fresh allegations of corruption against its members or associates.