Petroleo Brasileiro SA contracts at the center of a criminal investigation that has former executive Paulo Roberto Costa awaiting trial show that another top manager had negotiated and recommended board approval of the allegedly over-billed deals.
Renato Duque, a former director of engineering and services at the state-run crude producer, stamped and signed at least 6.6 billion reais ($2.7 billion) in contracts for the Abreu e Lima refinery in northeastern Brazil, according to internal Petrobras documents obtained by Bloomberg.
Prosecutors have identified evidence of fraud, overpricing and kickbacks in the same contracts and used them to recommend criminal action against Costa, the former head of refining. As head of engineering, it was part of Duque’s job to work closely with the refining unit. Efforts to reach Duque by phone and a written message to him delivered to his assistant weren’t answered.
Costa, as part of a request from prosecutors to have him released from jail and await trial under house arrest, agreed to turn over assets including $25.8 million held in accounts in Switzerland and the Cayman Islands to the Brazilian government, which controls Petrobras with a majority of voting shares. “He recognizes they are all, entirely, product of criminal activity,” prosecutors said of the assets in the request, which was also signed by Costa and his lawyer.
Costa has agreed to collaborate with investigations in exchange for a sentence reduction in the event he’s convicted, and he and his lawyer are not allowed to comment on the case, his lawyer Beatriz Catta Preta said by telephone.
The assets Costa agreed to turn over also include a 1.1 million-real ($440,000) yacht, land in Rio state worth 3.2 million reais, and a Land Rover sport utility vehicle, according to the house arrest request, which was granted yesterday by Judge Sergio Moro of the 13th criminal court in Parana state.
In court documents compiling the results of a police investigation, prosecutors said other Petrobras employees apart from Costa could be targeted, without naming who they might be. The documents don’t cite a formal accusation against Duque, who left the company in 2012 and has a private consulting firm in downtown Rio de Janeiro. Duque hasn’t been accused of any wrongdoing.
Petrobras’ press department didn’t respond to e-mails and phone calls seeking comment on allegations of over-billing at refinery contracts and on the managers allegedly responsible.
Shares of Petrobras slumped 5.5 percent to 17.09 reais in Sao Paulo today, extending an 18 percent rout so far this week, its worst three-day decline since October 2008.
The scandal has put Petrobras’ refining division under scrutiny and President Dilma Rousseff on the defensive ahead of elections this month. The unit has posted more than $44 billion in operational losses since 2011 mainly because of fuel subsidies that have made Petrobras the worst-performing major oil company over the period.
Rousseff was Petrobras’ chairwoman from 2003 through 2010 when she stepped down to run for the presidency. Petrobras has said the refinery contracts were approved by management, not the board of directors. Rousseff’s office and her campaign team declined to comment.
The engineering division was co-responsible for Abreu e Lima contracts, Petrobras Chief Executive Officer Graca Foster said in congressional hearings in June, without mentioning Duque’s name. Foster removed Duque, Costa and two other directors after she was promoted to CEO in February 2012 as part of a wider management shake-up.
Duque began his career at Petrobras as an oil engineer in 1978, and was promoted to a human resources manager for the exploration and production division in 1995 before taking control of the engineering and services division in 2003.
One Petrobras document from 2009 states that Abreu e Lima wouldn’t generate enough cash flow to cover costs if the construction bill exceeded $10.5 billion. Petrobras expects to spend at least $18.5 billion to complete the plant. Petrobras didn’t respond to an e-mail requesting comment on the expected profitability of the project that is slated to start operating in November.
The criminal investigation focusing on Costa has led to attacks against Rousseff by opposition candidates on televised debates and on the campaign trail, including speculation about Duque’s responsibilities.
“If director Costa is giving a lot of people headaches and keeping them from sleeping, when they get close to director Duque, I think a lot of people, especially those in the Workers’ Party, will have severe insomnia,” presidential candidate Aecio Neves said on Sept. 20 during a campaign event.
Neves is among candidates challenging a re-election of Rousseff, whose Workers’ Party has held the presidency since 2003. The party declined to respond to Neves’ comments in an e- mailed response to questions.
Prosecutors cited seven contracts suspected of fraud and overpricing in their recommendation for criminal action against Costa, including one for a 3.4 billion-real coking unit and another for a 3.19 billion-real hydro-treater and related units, key equipment for converting crude oil into transportation fuels. The Petrobras documents obtained by Bloomberg show Duque stamped, signed and sent the two contracts for approval from Petrobras’ executive board in late 2009.
The prosecutors cite evidence of overpricing and overbilling of as much as 446 million reais in the coking unit contract. The two contracts were also targeted by the Accounts Tribunal, a federal watchdog overseeing public spending, in a 2010 investigation. The TCU, as it’s known, found 1.3 billion reais of overpricing in Abreu e Lima contracts.
On Sept. 24, the TCU released a separate report citing evidence of overpricing in the way values were updated in amendments to the two contracts.
The companies that won the contracts include Odebrecht SA, OAS SA and Camargo Correa SA, three of the largest engineering and construction companies in Brazil.
The consortium led by Camargo Correa denied overpricing in an e-mailed response to questions, and said the 12 percent increase in the contract value was the result of adjustments to the project, which is 90 percent complete. The consortium formed by Odebrecht and OAS said in an e-mailed response that it hasn’t received any communication from the TCU and that the contracts include clauses allowing for adjustments. It uses a different formula to calculate labor costs than the TCU, it said.
Both consortia said they are willing to collaborate with authorities.
An alleged racket led by Costa inside Petrobras sent part of the money from the coking and hydro-treater contracts overseas through front companies, according to the court documents that include transcripts of wire taps, bank records and deposits from construction companies and have been made public by a federal court in Curitiba, where the case is before a judge.
“It is not appropriate to comment on any ongoing investigations or any statements made by people or companies currently under investigation by the Federal Police or any other regulatory authority,” Petrobras said in a Sept. 8 statement.
Costa told prosecutors and the federal police that the misappropriation of funds also existed in other division’s including the one Duque headed, newspaper Folha de Sao Paulo reported Sept. 19. The federal police said in a statement on its website that it was investigating the leaks to local media.
Costa decided to collaborate with authorities after learning he could spend more time in jail than advertising executive Marcos Valerio, who was sentenced to 40 years in prison in 2013 for involvement in a cash-for-votes scheme, his lawyer Catta said in an e-mailed statement today.
“If anything happened — and everything indicates that it did — I can guarantee that all the bleeding that eventually may have existed has ceased,” Rousseff said in a Sept. 8 interview with Estado de Sao Paulo when asked about alleged corruption at Petrobras.
Opposition party members on the commission investigating Petrobras plan to summon Duque to testify in Congress before the presidential run-off vote, which is slated for Oct. 26 if none of the candidates wins the majority of valid votes on Oct. 5, said Rubens Bueno, head of the Popular Socialist Party, or PPS, in the lower house.
The Brazilian Democratic Movement Party, or PMDB, would support summoning Duque to testify, according to Eduardo Cunha, the lower-house leader of the party, which is part of the ruling coalition.
“The situation is urgent,” Bueno said by phone from Brasilia. “It has to be investigated.”