Petrobras Under Pressure

Petrobras struggles to fend off pressure to clarify the cause of the sinking of a $450m offshore oil platform, which killed 11 people.

Police, parliament, unions and environmentalists have launched a wave of inquiries into one of the country's worst industrial accidents, sparking a public debate about the company's management.

Critics have been seeking to link the disaster, which happened March 15th, to market reforms. Yet most analysts believe such pressure is unlikely to hit the company's top management or produce a significant setback to its reform efforts.

During a lengthy congressional hearing on Tuesday, Petrobras' detractors argued that operational and environmental safety had deteriorated as the company sought to maximise profits. "This was a disaster foretold," said Mauricio Franca Ruben, director of the federation of petrol workers. He argued that many of the workers in companies contracted by Petrobras were inexperienced and insufficiently trained.

Fernando Siqueira, head of the Association of Petrobras Engineers said that corporate restructuring along lines of business had produced "confusion" in the chain of command. This, he argued, may have caused a delay in reporting the platform's technical problems.

Evidence emerged last week that platform managers knew of "problems with pressurisation in the platform vent system" three days before the explosion. Correcting the problem would have required halting production, they said in an internal memorandum. Henri Philippe Reichstul, Petrobras president, told the congressional committee that such a conclusion was completely premature.

It is still a complete mystery to us," he said. While he admitted that the company's organisational overhaul was still incomplete, he rejected accusations that outsourcing was to blame. While the inquiry is certain to trigger a review of the company's safety practices, analysts say it is unlikely to implicate Mr Reichstul directly. "It does not appear - nor could it be expected - that he was aware of decisions which may have caused the accident," say sources in Rio de Janeiro. "He has been key in guaranteeing transparency during the inquiry."

Meanwhile, the insurance on Petrobras’s refinery and oil platform risks is due to expire on March 31st. The Brazil oil giant reports that its insurance premium will likely be $48.8 million in 2001 as compared to $7.5 million in 2000. Petrobras, worth $20 billion, was forced to extend the deadline for insurance companies to submit coverage proposals to Wednesday from last Friday as companies demanded more time to evaluate the company's risk. A consortium led by Bradesco Seguradora offered the best insurance coverage bid of $48.8 million, but the winner has still not been announced.