Another Brazil State-Run Giant Readies Its Own Graft Writedowns

  • Eletrobras probe into corruption losses nears completion
  • Final piece of puzzle is testimony from Andrade executives

A year after Brazilian oil giant Petroleo Brasileiro SA took a writedown of $2.1 billion because of the sweeping corruption scandal known as Carwash, another state-run company is getting closer to reporting its own price tag from graft losses.

The team of lawyers and specialists hired by Centrais Eletricas Brasileiras SA has finished the bulk of its investigation to assess the size of losses from corruption committed by some builders the company contracted, according to a person familiar with the matter who isn’t authorized to speak publicly and asked not to be identified. Before it can finish its work, the group needs one more piece to the puzzle: testimony given to federal prosecutors last month by executives from Andrade Gutierrez SA, a construction firm that worked on key projects, from the Belo Monte dam deep in the Amazon jungle to the Angra nuclear plant tucked in a Rio de Janeiro bay, said the person.

That testimony is likely to be made public in coming weeks after prosecutors send it to a Supreme Court judge to sign off on this week, said a second person with direct knowledge of the process. The executives, who admitted to paying bribes to win lucrative contracts at Petrobras, reached plea bargains to testify about other graft losses, including at Eletrobras, as the utility is known, said the two people. Andrade’s press office declined to comment.

While the kickback scheme at Petrobras has exploded publicly and received almost daily coverage in every major newspaper in Brazil, the saga playing out at its counterpart in the electric sector has unfolded largely out of the international spotlight. The larger investigation has helped tip Brazil into its worst recession in a century and paralyzed its political institutions.

Eletrobras’s press office in Rio de Janeiro, where the company is based, didn’t respond to requests for comment. The company’s stock rose 2 percent to 10.70 reais as of 11:15 a.m. in Sao Paulo trading.

Almost a dozen Andrade executives testified last month for five days, and at least two of them described an illegal pay-to-play scheme in energy projects like Belo Monte, which is controlled by an Eletrobras unit, said one of the people. According to the testimony, builders agreed to pay kickbacks equal to 1 percent of the 15 billion-real ($4.2 billion) project, which were then allegedly routed to the PT and PMDB political parties as official donations, said the person. The PT and PMDB have repeatedly denied any accusations of wrongdoing.

Eletrobras’s legal team, which is led by British-American law firm Hogan Lovells and Brazilian firm WFaria Advogados, is running against the clock to put a price tag on its losses from the graft. The U.S. Securities and Exchange Commission has set a May 18 deadline to file Eletrobras’s long-delayed 2014 annual financial statements. The utility has postponed the filing three times since April 2015 after its auditor, KPMG LLP, refused to sign off on the full report unless the corruption writedowns were included, said one of the people.

While Eletrobras is aiming to meet the May 18 deadline, any new allegations from Andrade executives could force it to ask for more time to investigate the matter further, the person said.

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