Damage to Petrobras from Fraud Scheme Still Unclear

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Dow Jones Newswires

RIO DE JANEIRO Jul 12, 2007 (Dow Jones Newswires)

Brazil's state-run oil firm Petroleo Brasileiro SA (PBR) hasn't yet estimated the losses it suffered due to the fraud discovered in contract tenders, a company spokesman said Wednesday.

The fraud scheme is bad news for the company, but it's too early to assess whether it will cause any lasting damage, analysts said.

Brazil's Federal Police Tuesday arrested 13 people involved in the scheme, among them three employees of Petrobras, as the company is known, and an employee of the Rio de Janeiro state environmental office. Arrest warrants have been issued for another five people, including a federal police officer.

"All those involved in the scheme will be charged with the crime of the formation of criminal organizations, corruption, money laundering, tax evasion and fraud in tender processes," the Federal Police said in a release Tuesday, adding that the accused face prison sentences of up to 20 years.

Petrobras said it has set up an internal investigation into the fraud scheme, which will establish what the cost of the fraud was to Petrobras, the spokesman said. Petrobras has also pledged to cooperate with the authorities.

"This obviously is not good news for Petrobras," said Adriano Pires, an energy analyst at the CBIE consultancy in Rio de Janeiro. "But we first need to wait and see how deep the fraud scheme went to know the size of the damage."

Petrobras shares rose 0.2% to BRL53.96 ($28.54) at 1916 GMT Wednesday. On Tuesday, however, its shares had fallen 1.6% to BRL53.85, despite rising international crude oil prices.

"Tuesday's slide was probably linked to the fraud scheme," said Luiz Broad, an oil analyst at the Agora brokerage in Rio de Janeiro. "But I don't think there will be a lasting effect." Broad added, however, that Petrobras now needs to improve its licensing processes or risk damaging its image.

In total, the Federal Public Prosecutor's office has accused 26 people of manipulating the tender of contracts to build several oil platforms. One method, according to Brazilian press, was to send bidding instructions to incorrect addresses to reduce the number of competitors.

The prosecutor has accused - but not issued arrest warrants - for two executives at the Maua Jurong shipyard, a joint venture of Singapore's SembCorp Marine Ltd. (S51.SG) and Brazil's Grupo Synergy.

A spokesman for Maua Jurong said the company wouldn't comment until its lawyers have examined the accusations.

According to Maua Jurong's web site, the firm has participated in construction of Petrobras' P-43, P-48, P-50 and P-54 oil platforms.

Copyright (c) 2007 Dow Jones & Company, Inc.


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