No company has embodied Brazil's rise like the oil giant Petrobras. Bolstered by some of this century's largest oil discoveries, Petrobras soared into the top ranks of global energy producers. Executives at the state-controlled company boasted it could even outstrip Apple as the world's most valuable publicly-traded company.
Now Petrobras is coming to symbolise something else: the disarray afflicting Brazil’s sluggish economy and the reassessment of growth prospects in emerging markets.
Instead of surging, Petrobras’s oil production has stagnated, heightening Brazil’s reliance on imported oil.
Petrobras finds itself mired in corruption investigations and claims of managerial incompetence. And its debt load is exploding: Petrobras now ranks as the world’s most indebted company, dependent, more or less, on US mutual funds to finance its ambitious investment plans.
"The decline of Petrobras has been stunning, swift and painful," said Fabio Fuzetti, a partner at Antares Capital Management, a Sao Paulo investment firm. "This is the energy company that served as the model for others in developing countries. Now it's the example of precisely what not to do."
Deep-sea exploration
Despite these problems executives at Petrobras say the company still has strengths. It remains profitable overall despite mounting losses from importing fuel and is a pioneer in deep-sea exploration. It commands coveted assets around the world, including oil and gas reserves of 13 billion barrels.
In a statement, a spokeswoman for Petrobras said that debt levels had climbed as the company invested in offshore oil and expanding refining capacity. "We'll have an inflection point in our debt starting in 2015, when revenue generation will surpass investment, initiating a trajectory of debt reduction," said Paula Almada, the spokeswoman.
So far foreign bondholders, who now fund a record 43 per cent of the company’s giant investment programme, have been remarkably patient. But analysts warn that much of this largess has been driven by the global liquidity glut.
If Petrobras’s troubles continue to mount, it could run into resistance on international markets.
The ills that plague Petrobras – too much debt and spending for too little return – reflect a larger concern that the golden age for Brazil, China, Russia and Turkey, once the vanguard of the emerging-market boom, is coming to an end.
“The problem with Brazil is that the days of 4 per cent growth are gone,” said Tony Volpon, a Latin America expert at Nomura Securities, who expects its economy to expand at well below 2 per cent this year.
The problems at Petrobras, which is 60.5 per cent owned by Brazil's government, have come into sharp relief in recent weeks as the company grapples with a simmering scandal over its acquisition of a Houston refinery, beginning in 2006 and completed years later, at an estimated cost of $1.19 billion from Astra, a Belgian oil trading company that bought the refinery for $42.5 million in 2005.
Recently arrested
Police here also recently arrested one of Petrobras's most powerful former executives, Paulo Roberto Costa, who led refining operations until 2012. Investigators say he was involved in a sprawling money-laundering scheme and may have received bribes related to the construction of a refinery that has ballooned in cost to $18.5 billion from $2.5 billion.
Citing the increasing debt load, Moody’s downgraded the company’s debt last October to Baa1, the third-lowest investment grade rating offered by the credit agency.
Perhaps Petrobras’ biggest challenge is that it is not just an energy company. It is also at the heart of a fierce debate over the extent of the Brazilian government’s use of its wealth to achieve political and economic goals. – ( Copyright The New York Times 2014)
