Petrobras scandal reaches Asia

June 25, 2015

The Petrobras Lava Jato (Car Wash) scandal is hitting Asia this week, as the names of two Singaporean shipbuilders are coming back into play for allegedly being linked to one of the largest oil and gas bribery and corruption waves to hit South America.

Image of the Petrobras 40, a conversion done by Jurong of the world’s largest derrick crane semisubmersible to floating production semisubmersible unit.

Keppel FELS and Jurong Shipyard, a Sembcorp Marine (SMM) subsidiary, are being linked to Sete Brasil, a company formed by Petrobras and a group of Brazilian investors.

In Brazilian court testimony this week, the two offshore engineering firms are under allegations for paying bribes to win contracts to build 21 deepwater drilling vessels worth US$800 million each, according to a Bloomberg report.

Sete Brasil ultimately awarded the deepwater rig construction contracts for the purpose of leasing out to state-owned oil producers.

Allegations first arose in February 2015 by former Petrobras and Sete director Pedro Barusco, who earned a total of $97 million in bribes and shipyard payments.

An analyst with Oversea Chinese Banking Corp. (OCBC) Low Pei Han noted in a report that Brazil-related orders account for 40-50% of SMM’s order book, and that more than 80% of the first drillship has been completed, 55% for the second, and 30% for the third.

“The average contract price for each drillship secured by SMM from Sete was $800 million in 2012, higher than average at that time due to local content requirements. The question is how much these rigs will fetch now, should they be sold in the open market, especially so during this current down market,” Pei Han said.

SMM's Brazilian shipyard, Estaleiro Jurong Aracruz, began initial operations in 2H 2014, with completion expected this year. The shipyard will be equipped with facilities, including a 1km berthing quay, ancillary piping facilities and steel fabrication workshops. When completed, the shipyard will have capabilities to undertake construction of drillships, semisubmersible and jackup rigs, platforms and supply vessels, FPSO integration and topside modules fabrication, in addition to the traditional activities of drilling rig repairs, ship repairs and modification works.

According to a report by Yeak Chee Keong, an analyst at Maybank, Keppel has been contracted to build six semisubmersibles worth $4.9 billion; SMM is constructing seven drillships worth $5.6 billion; and Sete is two months in debts in its payments to the shipyards.

“Our key concern is if Sete would have sufficient funds to complete the rig projects. A loan is a much needed lifeline to prevent its technical default and to ensure the continuity of its projects,” Chee Keong said.

Image from Jurong Shipyard.

However, both Keppel and Sembcorp deny the allegations.

Keppel said that the company’s code of conduct prohibits bribery and corruption, and works in compliance with the laws of the countries they operate.

SMM referred to its comment made in February 2015 that the group did not make any illegal payments and the group's policies prohibit bribery and unethical behavior as well.

Asia’s corruption troubles

Asia has seen its share of corruption with China National Petroleum Corp. (CNPC) this year, with senior executives currently in ongoing cases in China.

In April, former head of CNPC Jiang Jiemin went on trial, questioned over the transfer of a large sum of money from CNPC to the families of two injured victims during a crash.

Jiemin was also accused in 2013 of bribery, abuse of power, and having huge amounts of unaccountable assets while working in the Chinese state-owned oil company CNPC.

In March, Liao Yongyuan, vice chairman of PetroChina and general manager of its parent company CNPC was being investigated for suspected severe violation of relevant discipline and laws. Following, he tendered his resignation to the board and resigned from all his positions in the firm, after serving the company for 30 years.

Lavo Jato hits Odebrecht

Last week, Marcelo Odebrecht, Odebrecht president and CEO, was arrested by Brazilian police for bribery and corruption allegations in connection with Petrobras’ Lavo Jato scandal.

In addition, Otavio Azevedo, the president of Andrade Gutierrez, and 10 others were arrested for charges that their companies paid $230 million in bribe money to politicians.

Read more:

Odebrecht CEO arrested in Petrobras scandal

Brazil in flux: epic fail or opportunity boom?

Petrobras CEO, directors resign



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