Brazil

BRAZIL-ROUSSEFF-CONSTRUCTION-SALONThe corruption investigation initiated by the Brazilian prosecutor, Rodrigo Janot, into 54 individuals including leading politicians is just beginning. The allegations behind the inquiry concern the diversion of huge amounts of money from Petrobras, the state oil company.

No one know how much money is involved, which means that no one knows what the company is now worth.

Petrobras’s share price has fallen by 44 per cent over the last year, with some some $90bn wiped off the value of the company in just six months.

Part of that is due to falling oil prices, but more is the direct result of the company’s internal problems. There are no signs yet of the ambulance-chasing investors who like to pick up undervalued assets for a song piling in. They must think, probably with good reason, that the worst is yet to come.

In the US a class action law suit has begun. The scandal could yet bring down the Brazilian government, not least because for most of the period when the corruption is said to have happened Dilma Rousseff just happened to chair Petrobras. It could also be a deep embarrassment for the audit firms who seemed to have missed what was happening.

The question for the moment is what happens now to Petrobras itself. Read more

Petrobras is in a mess. The Brazilian state company makes promises year after year, only to disappoint. Worse still, the Brazilian government heaps on the pressure by trying to push up production targets. But it refuses for national political reasons to give the company the means and freedom to deliver.

To start with the good news. Petrobras keeps discovering huge volumes of oil and gas. The Lula field for instance is estimated to hold 8bn bbls of oil, making it a world-class elephant. Offshore Brazil is clearly one of the most prolific new provinces in the world.

That’s the end of the good news. The bad news is that Petrobras seems unable to either set or deliver credible development plans for the resources it holds. Read more