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Petrobras corruption catching up with workers retirement plan

Upstream

80,000 people could see pensions cut as much as 40% monthly. Petrobras Pension fund needs $8.7 billion to keep operating

By Sabrina Valle

RIO DE JANEIRO
Petroleumworld 10 19 2017

Sins of past to haunt Petrobras worker paychecks 18 years into future

The sins of the past are about to follow 80,000 active and retired Petrobras workers 18 years into the future.

That's the time frame for a plan, nearing approval, that will trim their monthly payments by as much as 40 percent to keep their private pension fund solvent. The cutbacks proposed by Petroleo Brasileiro SA target a 27.7-billion-real ($8.7 billion) deficit run up by the fund since 2013, when many of its investments soured in the wake of a massive graft scandal affecting the company and a rout in global oil prices.

If approved by regulators, the cutbacks -- which vary depending on salary levels -- could start just before Christmas, a final kick in the wallet for affected workers. Officials argue that the fund known as Petros could collapse without the planned changes. But they're already facing a legal challenge from one of Brazil's largest unions, and workers argue they're being forced to pay for decisions they were never part of.

“The burden on us is too heavy, the price is high and 18 years is too long,” said Silvio Sinedino, who retired in July and will have around 3,000 reais from the 10,000 he receives from Petros discounted automatically from his paycheck.

Sixty percent of the $8.7 billion deficit is the result of investments in companies that became targets in corruption probes, as well as the impact of Brazil's recession, according to Petros. The increasing life expectancy for Brazilians and other structural changes account for the remaining 40 percent of the deficit.

All participants already make regular contributions to the fund and the additional charge won't be higher than 26.9 percent of the salary, Petros said by e-mail.

Collapse Feared

Rio de Janeiro-based Petrobras and its fuel distribution subsidiary are only required to plug 13.7 billion reais of the deficit under the plan presented by the company. If the remainder isn't addressed swiftly the fund will collapse and be unable to pay any benefits at all, Petros President Walter Mendes told reporters, after it was announced.

“Investments didn't have the returns the fund expected, '' said Mendes, who entered the job a year ago.

Sinedino, a former Petros council member and a former Petrobras board member who represented employees, said the additional contributions leave the fund exposed to lawsuits. The FUP oil union, one of the largest in the country, has already entered a civil class action claiming the charge is abusive and asking for its suspension.

“This represents legal exposure, which is not good for any pension fund,” Sinedino said in an interview.

Employee Savings

Petros used employee savings to invest in a host of oil industry projects during the commodities boom, including a $25 billion venture to build drilling vessels for deep waters in the Atlantic Ocean. Since then Petrobras became the center of a massive pay-to-play scandal that saw leading executives from the company and domestic equipment suppliers go to jail. Then the oil price crash forced it to slash investments in the domestic supply chain, further undermining companies Petros had invested in.

The cutback plan is now in front of the government and regulators. Approval is almost certain, said Ronaldo Tedesco, a Petros fiscal council member.

“I'm sure Petrobras presented the plan only after negotiating previously with the government," Tedesco said by telephone. “The chances it gets rejected are very low”.

Petros will start charging bigger contributions within 60 days after approval. 

Adalberto Lourenço, a refinery worker who contributed 11 to 14 percent of his monthly payments to Petros starting in June 1981, isn't happy about the upcoming changes. “I won't go hungry, but this charge is too damaging, specially considering all I've paid in," he said by telephone. “I have people in my family who depend on me to eat.”

Lourenço, who said he is studying the best way to dispute the extra charge legally, will lose more than $2,000 a month in income under the plan. “I'm ok paying,” he said. “Just not that much.”

Complimentary Plan

The fund was created in the 1970s as a complimentary retirement plan for Petrobras employees in addition to Brazil's Social Security. The current deficit started in 2013 when Brazil entered an economic downturn that eroded the value of Petros' portfolio. Petrobras also started slashing investments to counter a debt binge it pursued during the oil boom, which further undermined some of the projects Petros had invested in.

Investigations into Petrobras and its suppliers have uncovered government intervention in the pension fund, where investment managers would allocate funds to high-risk projects that were beneficial to the ruling party at the time.

One of Petros' most notorious investments was Sete Brasil, a $25 billion company created to build 28 high-tech drillships for Petrobras to use at some of the deepest oil fields in the world. Sete Brasil executives have been arrested in the Carwash operation and it filed for bankruptcy protection before its first vessel was finished.

 


Story by Sabrina Valle from Bloomberg.

bloomberg.com 10 18 2017

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