Petrobras Supplier Ban Seen as Illegal by Attorney General

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Luis Inacio Adams
Brazil's Attorney General Luis Inacio Adams. Photographer: Evaristo Sa/AFP/Getty Images

Petrobras acted hastily in banning more than 20 contractors from bidding for new work during a graft investigation, according to Brazil’s attorney general.

The blacklist -- issued by the state-run oil producer in December and updated in March -- is illegal because Brazilian institutions responsible for fighting corruption haven’t yet declared those companies unfit for government contracts, Attorney General Luis Inacio Adams said in an interview Tuesday.

“In my opinion it is illegal to preempt the declaration of ineligibility,” Adams said. “The companies must be allowed to present their defense before they are judged.”

Petrobras released the list to show partners and investors it’s cracking down on corruption, Adams said. Without a legal foundation, it ends up hurting groups and their affiliates that may have played a smaller role or are innocent, he said. While Adams isn’t planning to take action in the matter, his comments could pressure Petrobras not to renew the ban on companies, some of which have submitted their own legal challenges.

The company known formally as Petroleo Brasileiro SA booked a 6.2 billion-real ($2 billion) writedown on 2014 results from a scheme that allegedly involved contractors bribing executives to inflate prices, with politicians receiving kickbacks. While former Petrobras executives and a black-market banker have been convicted, prosecutors continue to investigate suppliers with no convictions to date.

Top Builders

Banned companies include Brazil’s biggest builders, Odebrecht SA, Camargo Correa SA and Andrade Gutierrez SA, as well as units of Italy’s Techint and Sweden’s Skanska AB.

Andrade Gutierrez and Odebrecht said in separate e-mailed responses that they contested their inclusion on the list, weren’t part of any cartel and won contracts legally. Camargo Correa didn’t respond to a request for comment. Techint’s inclusion was based on plea-bargain testimony that’s insufficient to stand alone as proof, it said by e-mail. Skanska, which didn’t immediately respond to a request for comment for this story, said Tuesday it has zero tolerance for unethical practices and is undertaking an internal probe.

The scandal, and an ensuing credit crunch, is exacerbating a global oil industry slump for Brazilian suppliers. OAS SA filed for bankruptcy protection and Galvao Engenharia SA is in default, while Odebrecht’s oil and gas unit is expanding abroad to diversify operations.

In March, Petrobras added Brazilian companies Schahin Engenharia SA and TKK Engenharia to its blacklist while lifting the ban on Grupo Setal units after they signed leniency agreements in the criminal and antitrust investigations. Schahin, which is also seeking bankruptcy protection, says its shareholders and creditors have lost more than $4 billion since Petrobras canceled its contracts last month.

‘Concrete Proof’

The suspension of companies is based on concrete proof, Petrobras said Wednesday in a note on the company’s website. Not all foreign suppliers mentioned in witness testimony have been blacklisted by the Rio de Janeiro-based producer.

Petrobras confirmed it received a letter from Brazil’s oil regulator questioning the ban, and would respond to the regulator’s concerns. Adams said Petrobras didn’t seek a legal opinion from the government before publishing the list.

Petrobras didn’t respond to an e-mail seeking comment. Its shares fell 0.1 percent in Sao Paulo Wednesday after gaining as much as 2 percent.

Many of the companies on the list also hold contracts for public works projects, including airports, roads and soccer stadiums. With the government set to unveil another phase of infrastructure projects on June 9, Adams said these companies should be allowed to bid unless they are officially found guilty.

Leniency Accords

It’s up to Brazil’s comptroller general to declare if companies are ineligible to bid on future government contracts or receive public financing.

Adams defends the option of leniency agreements that require an admission of wrongdoing, full repayment of damages, cooperation with the investigation and compliance measures.

The comptroller is investigating 29 companies in relation to the Petrobras corruption case, and only four are negotiating leniency agreements, according to the agency’s press office. SBM Offshore NV also signed a memorandum of understanding, promising to cooperate with the investigation.

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