Petrobras scandal is a ‘contagion’
The corruption scandal surrounding state-owned oil giant Petrobras could become a contagion, enveloping a number of industries within Brazil and ultimately damaging its international footing.
This is the opinion of Ted Rhodes, Rio de Janeiro office managing partner at law firm CMS, who spoke to Intelligent Insurer earlier today (Thursday March 19).
“The scandal definitely has a lot further to run and we’re seeing new angles every day. It’s hard to see where this will end but it’s clear that this is a complex scandal that will have a deep impact on Brazil’s economy and the international insurance and banking industries,” he said.
CMS is encouraging re/insurers of Brazilian risks to monitor their exposures given the complex and rapidly changing circumstances surrounding the ongoing corruption investigations.
Corruption allegations have been rife for some time, and federal investigations have implicated a number of Petrobras’ top executives, a number of its main oil and gas contractors and some high-ranking politicians.
Rhodes said: “Petrobras has blacklisted 28 of its regular contractors and they are currently being investigated. Unfortunately some of these companies are the biggest infrastructure investors in Brazil.
“This means that huge projects are currently at a standstill. The industry is in a state of paralysis with a number of shipyards, which were contracted by Petrobras to build offshore production platforms and other infrastructure, are unable to continue work as funds dry up.”
He explained that even without claims of corruption, delays were likely, but the scandal has meant that a number of contractors are close to bankruptcy. Sete Brasil’s $89 billion plan to construct and charter to Petrobras 29 high-spec drilling rigs is now at risk of being cancelled or significantly downsized.
“A number of these contracts were secured by surety bonds, a common way of guaranteeing performance of major construction projected in Brazil’s oil and gas industry. As these contracts start to fall over, we expect to see a lot more litigation between Petrobras and its main contractors, between those contractors and their sub-contractors and throughout the entire value chain.
“Insurers will be brought into these claims via the surety bonds and potentially through D&O, construction risk and liability policies. This will have a significant knock-on impact on the reinsurance market,” Rhodes said.
