Petrobras in standoff with auditor on firing executive

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November

2014

The headquarters of Petrobras in Rio de Janeiro. PricewaterhouseCoopers, Petrobras’ auditor, is demanding that the company fire a top executive who is cited in a corruption investigation before it approves the third-quarter earnings.
Bloomberg

Rio de Janeiro

Petroleo Brasileiro’s auditor PricewaterhouseCoopers is demanding that the Rio de Janeiro-based producer fire a top executive who is cited in a corruption investigation before it approves the third-quarter earnings, said two people with direct knowledge of the issue.

Petrobras discussed dismissing Sergio Machado, the head of the Transpetro transport unit, for four hours at a board meeting without reaching a decision because some members said they were concerned it would cause friction in President Dilma Rousseff’s ruling coalition, the people said, who declined to be named because the information isn’t public.

PwC may have additional demands apart from Machado’s dismissal before it approves the earnings report, one of the people said.

Machado has denied any irregularities and says the accusations are absurd, Transpetro said in an e-mailed response from its press department. Machado has no knowledge about discussions at Petrobras’s board meeting or any recommendations from PwC, according to the response. Petrobras and PwC didn’t immediately respond to phone calls and e-mails requesting comment after normal business hours. Rousseff’s press office directed all questions to Petrobras when contacted by phone.

The state-controlled oil company is at the centre of a wide-ranging, multi-billion dollar money laundering and bribery investigation that has put Rousseff, who was the company’s chairwoman from 2003 to 2010, on the defensive. It was a major theme in elections last month that Rousseff won by a small margin.

Petrobras’s former head of refining Paulo Roberto Costa, who is currently under house arrest under a plea bargain agreement with prosecutors, said in videotaped testimony he received 500,000 reais ($202,000) in payments from Machado.

Machado is the only Petrobras executive cited by Costa for alleged bribing who still works at the company.

A majority of the 10-member board favoured 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, the people said. Executives at the meeting said Machado has refused to step down on his own, the people said. Calheiros’s office didn’t answer phone calls or respond to e-mails sent over the weekend. Transpetro declined to comment on Machado’s political ties in an e-mailed response.

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, and 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 US authorities and cancel the contract with Petrobras that expires at the end of this year, the documents show.

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.

Petrobras suspended the meeting without discussing a fuel price increase that investors were hoping for, and the board will resume the meeting on November 4 and compile the minutes afterward, one of the people said.

Petrobras originally planned to release its earnings on Friday, and it delayed the announcement without explaining why or announcing a new date.

Brazilian companies have until November 14 to release third-quarter

results, and the company currently plans to release on that day, one of the people said.

Management is dedicating time to investigate the claims and executives, including Chief Executive Officer Maria das Gracas Foster, have been travelling 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 US authorities if appropriate action wasn’t taken, the people said. On October 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 the statement.