Petrobras Pay-To-Play Probe Makes Room for Global Firms
While the investigations of Brazil’s Public Prosecution Service continue to look into construction and engineering companies involved in kickbacks to politicians and officials in exchange for contracts with one of the country’s largest owners, Petrobras, industry experts say the scandal may soon open up new opportunities for contractors as others are blacklisted from future work.
"We have a good amount of medium-sized engineering companies here, and they may gradually occupy these empty spaces,” says Luiz Fernando dos Reis Santos, CEO of the Association of Rio de Janeiro of Engineering Companies (AEERJ). "The biggest problem I see, perhaps more complex, is in the segment of mechanical contractors.”
Historically, many Brazilian medium-sized and global construction and engineering companies have been reluctant to participate in large projects in Brazil because they recognize that a political shield often blocks public bids. However, the ongoing Petrobras probe, which includes projects budgeted in the billions of dollars, now could provide a moment of opportunity for contractors looking to compete for such large projects or take over delayed works.
There are challenges ahead, though. Companies would have to meet strict and extensive requirements of Petrobras to prequalify and prove expertise in highly specialized areas, experts say, and Petrobras also would have to gain the trust of new companies, many of which would need to form consortia to participate. In addition, Petrobras is not subject to the government regulation of public bids, preferring to follow a set of internal rules the market has widely criticized.
International companies wishing to enter the Brazilian market will face stiff competition from the national engineering and construction industry, experts add. "With regard to heavy construction, there is no need for foreign companies to come cover the possible absence,” Santos notes. Opportunities do exist for speciality firms, he adds.
Petrobras has important projects in development, such as the Petrochemical Complex of Rio de Janeiro (Comperj) and others programmed to explore the "pre-salt" layer of the Brazilian continental platform.
Last year, investigators announced they were probing Petrobras in an action nicknamed “Operation Carwash,” which resulted in indictments of executives and the temporary suspension of nearly two dozen firms. The blacklisted firms, which cannot sign new contracts with the owner pending the investigations, include Alusa, Andrade Gutierrez, Camargo Corrêa, Carioca Engenharia, Construcap, Egesa, Engevix, Fidens, Galvão Engenharia, GDX, Iesa, Jaraguá Equipamentos, Mendes Júnior, MPE, OAS, Odebrecht, Promon, Queiroz Galvão, Setal, Skanska, Techint, Tomé Engenharia and UTC.
One of the named firms, Galvão, declared bankruptcy on March 25 but admitted no wrongdoing. The company says it has faced restricted access to capital and is owed more than $154.2 million from existing Petrobras contracts, according to Fitch Ratings, which downgraded the company on the news of the filing.
Several of the blacklisted firms, including Andrade Gutierrez, Camargo Corrêa, OAS, Odebrecht and Skanska were ranked last year on ENR's lists of the Top International Contractors and Top Global Contractors.
Odebrecht says it "repudiates the alleged charges and vehemently denies having participated in any illegal acts," according to a statement the company e-mailed to ENR. "The company has, for decades, contracts with Petrobras, all conquered according to the law of public bidding," it added. A representative of Skanska in New York City declined to comment.
Investigators allege that firms involved in the scandal paid at least $800 million in bribes to Petrobras executives and politicians in exchange for inflated contracts.
This article was updated on March 31, 2015.
