Petrobras Official Takes Leave in Possible PwC Resolution
A senior Petroleo Brasileiro SA (PETR4) executive cited in a corruption investigation took a leave of absence, clearing the way for the company to report earnings and debate a fuel-price increase.
Sergio Machado, head of the state-run oil producer’s transport unit Transpetro, will take 31 days unpaid leave, he said in an e-mailed statement yesterday. The decision follows a refusal by auditor PricewaterhouseCoopers to sign off on quarterly results bearing his signature, said two people with knowledge of the issue.
Petrobras delayed discussing a gasoline-price increase at an Oct. 31 board meeting where members disagreed about dismissing Machado, the people said, asking not to be named because the matter isn’t public. Petrobras will seek a 5 percent increase in gasoline prices at a board meeting today, O Globo reported today, citing an unidentified source.
“Despite a completely honorable life, I’ve been a victim of slanderous allegations in recent weeks,” Machado said in the statement. “The accusation is frivolous and frankly absurd. Even so, it led external auditor PwC to present an inquiry before the audit committee of the Petrobras board.”
The Rio de Janeiro-based producer is at the center of a multi-billion-dollar money-laundering and bribery investigation that has put President Dilma Rousseff, who was Petrobras chairwoman from 2003 to 2010, on the defensive. It was a major theme in last month’s elections that Rousseff won by a small margin.
Shares fell 2.3 percent to 14.51 reais at 1:06 p.m. in Sao Paulo as West Texas Intermediate crude fell to a three-year low.
Videotaped Testimony
The former head of refining Paulo Roberto Costa, who’s under house arrest under a plea bargain deal with prosecutors, said in videotaped testimony he received 500,000 reais ($202,000) from Machado, the only Petrobras executive cited by Costa for alleged bribery who still works at the company.
Petrobras and PwC didn’t respond to phone calls and e-mails requesting comment. Rousseff’s press office directed all questions to Petrobras when contacted by phone.
At an Oct. 31 meeting a majority of the 10-member board favored dismissing Machado to guarantee compliance with PwC’s requirements, while others voiced concern that firing a former senator and ally of Senate President Renan Calheiros would cause friction in Rousseff’s ruling coalition, the people said.
Calheiros’s office didn’t answer phone calls or respond to e-mails. Transpetro declined to comment on Machado’s political ties in an e-mailed response.
Political Alliance
Machado, who was first elected to the senate in 1994, joined Calheiros’s PMDB party in 2001 that became part of former president Luiz Inacio Lula da Silva’s ruling coalition in 2003. It remains part of Rousseff’s political alliance. Machado has headed Transpetro since 2003.
PwC alerted Petrobras in written correspondence before the board meeting that it wouldn’t approve Transpetro accounts signed by Machado and urged it to take action, according to the documents reviewed by Bloomberg. PwC said it may need to notify U.S. authorities and cancel the contract with Petrobras that expires at the end of this year, the documents show. Petrobras complied with another of the auditor’s requests by concluding internal investigations into three refinery projects mentioned in the corruption investigation, one of the people said.
PwC’s ultimatums highlight how the corruption allegations expose Petrobras to scrutiny in other jurisdictions where its securities trade. It also shows the company is deepening internal investigations to comply with market rules outside of Brazil at the request of third parties.
Congress Testimony
Management is dedicating time to investigate the claims and executives, including Chief Executive Officer Maria das Gracas Foster, have been traveling to Brasilia to testify before congress at a time it is trying to double production from deep-water fields in the Atlantic.
Earlier last month Petrobras hired two law firms to investigate alleged corruption after PwC said it wouldn’t sign off on quarterly results, the people said. PwC told Petrobras it would have to alert U.S. authorities if appropriate action wasn’t taken, the people said. On Oct. 30 PwC said it doesn’t comment on its clients in an e-mailed response.
Petrobras is a “victim” in the investigation and is collaborating with authorities, it said in a Oct. 27 statement.
Machado defended his tenure at Transpetro and said he hopes the investigations are done “rapidly.” Transpetro has modernized its fleet of tankers, increased orders from domestic shipyards and helped expand employment in the naval industry, he said in the letter.
Management Integrity
Under U.S. regulations, the CEO and CFO must certify accounts, saying they are free from material misstatements, including fraud. Most companies have sub-certifications, in which heads of divisions, units or others would certify that the accounts from the areas that they oversee are correct, said Jason Flemmons, managing director at FTI Consulting Inc. in Washington, and the former deputy chief accountant of the Division of Enforcement for the SEC.
“If the auditors believe there is a concern about relying on any certification or representation that could impact the financial statement, they would have to get comfortable with it before they would release the financial statement,” Flemmons said. “This is a management integrity issue at its core”.
Source: Bloomberg – Petrobras Official Takes Leave in Possible PwC Resolution
