Brazil: As Petrobras scandal spreads economic toll mounts

Tens of thousands of Brazilian workers have taken the latest hit in a multibillion dollar corruption scandal involving state oil company Petrobras, as a wave of job losses since November follows intensifying probes into price-fixing, bribery and political kickbacks.

As the scale of events has deepened in recent months, key infrastructure projects have been suspended or scrapped, some suppliers have sought bankruptcy protection and job losses are mounting. Nationally, Brazil shed payrolls for a third straight month in February, bringing job losses over the past year to 47,228.

Petrobras' size as the biggest company in Brazil, amplifies the furore. Each year it invests double the government's entire discretionary infrastructure budget, giving it enormous power to shape Latin America's largest economy.

All told, economists expect the chain reaction set off by the scandal will tip an already weak economy into its worst recession in a quarter century, a harsh reversal for a country that was booming just a few years ago.

Limbo

Two refineries worth a combined $30bn (£20.15bn) have been cancelled. Comperj, a $1.3bn fertiliser plant and dozens of production and drilling ships, each costing hundreds of millions of dollars, are in limbo.

The city government of Itaborai, a former boom town, says there were 17,000 workers at Comperj in December and fewer than 3,000 now. In Itaboraí, new office parks, hotels, stores and high-rise apartments stand empty.

"Having to leave is very complicated as I don't see it as the company's doing. For me this comes from what went on in Brasília, where a lot (of money) was stolen. They wound up with no money so they started taking ours, and then what happened, there was nowhere left for them to take money from so now they are taking it from the workers. That's it, the company has had it," former Comperj employee Elias Brasil da Silva said as he picked up his documents.

The damage spread quickly after the scandal prompted Petrobras to put 23 suppliers, including some of Brazil's largest construction firms, on a payment blacklist.

Five of the companies – OAS Engenharia, Galvao Engenharia, Iesa, Schahin Engenharia and Alusa Engenharia – have filed for bankruptcy protection since November, slowing projects like Comperj and halting the building of new production ships. More bankruptcy petitions are possible.

Municipal Secretary of Work and Income for Macae, Alexandre Fernandes said that Petrobras was already cutting back because new output had lagged spending for a decade.

Then oil prices fell to six-year lows, adding to the woes. Schlumberger NV, the world's largest oil-services company, has laid off hundreds in Brazil, many in Macae.

"These two phenomena, which happened within a short space of time and which were both very serious, were a great shock, a real surprise. So the government, the city, the companies are all adapting to the new scenario," Fernandes said at his office, where workers were lining up in search of employment.

Ivanilda Costa de Souza is one of those who is now suddenly looking for employment, but she says that the odd jobs available to her do not suffice to pay the bills.

"They reduced the volume of their workers, and we weren't expecting to lose our jobs, which means that many of us had bought things which are now very difficult to pay off, and to pay taxes too. I was paying everything exactly right and now I am in big problems again. Even if we take odd jobs, it is not something you can count on. On top of that, we have lost the Sodex credit cards, the money that we counted on every month in order to be able to pay our bills. It's over," de Souza said.

Even if work returns, there will be less of it. Petrobras plans to cut 2015 investment by as much as third. According to President of the Association of Commerce and Industry in Macae, Antonio Gondim, the impact of the crises has trickled from the top down.

"There was a chain reaction. If the large companies on top are not employing, those which are below them and which offer services to Petrobras end up not making any profits and stop buying from the companies below them, which then affects the micro-businesses and the individual," said Gondim.

Rio Olympics

The impact is also being felt beyond the oil industry. The 23 implicated firms are among Brazil's most ubiquitous, building everything from ports and highways to stadia and other facilities for the 2016 Rio Olympics.

Cooperating witnesses say politicians and political parties received kickbacks on inflated contracts from other state-run companies, such as utility Eletrobras. That has raised concerns the probe will delay completion of Amazon hydro dams and transmission lines, needed to stave off electricity shortages.

Brazil's government is so concerned that it is rushing to sign "leniency accords" with the banned companies. If they admit guilt, return stolen funds and pay fines, the ban on receiving money from Petrobras and the federal government will end, no matter the outcome of criminal and civil suits.