The Kickback That Killed Brazil

Itabora was once a petro-boomtown; its now an

empty shell. How the Petrobras mega-scandal is
destroying ordinary lives and bringing down the
rich and powerful.

BY BRUCE DOUGLAS-APRIL 15, 2015

RiO DE JANEIRO Underneath the tiled awning of her whitewashed veranda,
Cassia Gonalves Moreira, 46, scoops clumps of damp pastry from a large plastic tub,
rolls them between her hands, and methodically lines the bottom of a dozen or so
small tins arranged on the table in front of her.
Next comes the filling: cheese, chicken, or hearts of palm. Then, she molds another
dollop of pastry for the lid, before placing the completed empadas on a metal tray. A
faint smell of rising dough drifts through the open door. Once she has cooked enough,
she will put on her Brazil soccer shirt and start her daily trek around Itabora, a town a

few miles east of Rio de Janeiro, across the Guanabara Bay, selling each empada for
3 real ($1).
They dont exactly pay for everything, she said. In fact, they dont even cover the
cost of the rent here. Still, they keep us from starving.
To try to make ends meet, Moreira is falling back on the baking she first learned from
her mother, when she was a child in the neighboring state of Minas Gerais. Until last
December, however, she had spent most of her working life soldering metal in
industrial plants across the country. For the last four years she worked at Comperj, a
petrochemical complex on the outskirts of Itabora.
Ten years ago, Itabora was a commuter town, a home for those who could not afford
to live in Rio, with some minor agricultural activity in its surrounding fields. What little
local fame it enjoyed derived principally from the quality of its oranges.
But in 2005, then-President Luiz Lula Incio da Silva laid the foundation stone for
Comperj, a 17-square-mile refinery complex due to be the largest in Latin America.
While Petrobras, Brazils state-run oil company, had an enviable reputation at the time
for its technological prowess and managerial competence, it lacked refining capacity.
Comperj was designed to plug that gap. According to Petrobrass own website, the
plant is due to open in August 2016 and will process up to 165,000 barrels of
petroleum per day. By February 2015, it was 82 percent complete, according to the
company.
From the moment construction began in 2005, tens of thousands of Brazilians flocked
from across the country to Itabora in search of work opportunities. According to Paulo
Csar, the president of Sintramon, the main union at Comperj, the plant was expected
to create up to 200,000 direct and indirect jobs. A real estate boom followed, with
hotels, apartments, and shopping malls springing up across the former farming
community to cater to both the high-skilled and blue-collar workers drawn to the area.
Moreira joined the rush in 2011.
Now, what may be the worst corruption scandal in Brazilian history is turning Itabora
into a ghost town.Petrobras, once the largest company in Latin America,lost half its
stock value between September 2014 and January 2015, following revelations that the
company had colluded with some of Brazils biggest civil engineering firms to
overcharge on its construction contracts, with the surplus cash lining the pockets of
corrupt executives and politicians.
When I arrived here four years ago, it felt like we had won the lottery, Moreira said.
All the professionals I knew wanted to come here. It was like a gold rush. She brings
up a video on her smartphone that her husband, Paulo Cunha, had filmed when they
worked together inside the plant, in which she appears dressed in her protective
welding gear, brandishing a blowtorch, and waving enthusiastically at the camera.
Moreira said the footage makes her sad now. Its the end of our dream, she said. I
got goose bumps when I found out I had a job here. Now, it has become a nightmare.
Over the course of 2014, rumors about the possible implications of the corruption story

in the news began to spread across Comperj. Steadily, the workforce began to
diminish. Contracts at the firms building the plant were not renewed; workers were
fired. In December, Moreiras employer, Alumini, one of the dozens of infrastructure
and engineering firms subcontracted by Petrobras to build the plant, summoned its
staff for an emergency meeting.
They told us that business was slow at the moment, and that they were giving us a
two-week vacation, Moreira said. After that, things would be back to normal, fullsteam ahead.
But while on vacation, Moreira began to feel a sense of unease. On a visit to the
doctor, her private medical insurance credit card, one of the perks of her job, was
refused. Then the credit on her workers meal card, usually topped up automatically,
ran out. Finally, at the first day at work after the vacation, the bus due to drive Alumini
workers to the plant never showed up.
The company just disappeared, she said. There was no one in the office. The phone
rang out. Moreira has not seen any of her monthly $1,000 salary since December.
And she is not the only one. According to Sintramon, the main trade union at Comperj,
around 13,000 workers from the plant have been dismissed since July. Alumini alone
has laid off 2,500 employees since December.
***
The corruption investigation into Petrobras that has brought work at Comperj to a
virtual standstill burst onto Brazils headlines on March 17, 2014, when federal police
arrested Carlos Habib Chater, the owner of a gas station outside Braslia, accusing
him of running a money-laundering service.
This was the seemingly innocuous start to Operao Lava Jato (Operation Car
Wash), an investigation that has wiped billions of dollars off the value of Petrobras,
implicated dozens of the countrys top business executives and politicians, and is even
threatening to bring down Brazils president, Dilma Rousseff, who won re-election for a
second term of office last October. Thelatest opinion polls, published on April 11, show
her approval rating at just 13 percent, while 63 percent are in favor of initiating
impeachment proceedings.
Part of the evidence against Chater came from phone intercepts from conversations
with Alberto Youssef, a black-market money dealer. Youssef, who began his career
selling pastries on the streets of the southern city of Londrina and then became a
smuggler of electronic goods from Paraguay, has spent the last 20 years helping a
network of powerful contacts send money to foreign tax havens. He had previously
been arrested nine times, including for suspected money laundering.
Three days later, in a separate inquiry, the police arrested Paulo Roberto Costa, the
former director of refining and supply at Petrobras. Costa was under suspicion for his
part in the purchase of an oil refinery in Pasadena, Texas. Between 2006 and 2012,
Petrobras paid a total of $1.2 billion to buy the facility, despite the fact it had been
purchased by a Belgian oil company, Astra, for just $42.5 million in 2005.

Shortly after their separate arrests, police established that the two men were longstanding associates. They are accused of coordinating a network of senior politicians
and business executives from some of Brazils largest engineering and construction
firms to siphon off cash from Petrobrass public works contracts.
Youssef and Costa subsequently signed a plea deal with the public prosecutors office
in which they offered to reveal all they knew about the massive scheme in return for
reduced sentences. They testified that the state oil company was overcharging up to 3
percent on infrastructure projects, with the surplus cash going to the ruling Workers
Party (PT) and its principal allies, the Brazilian Democratic Movement Party (PMDB)
and the Progressive Party (PP). Andr Vargas, a PT deputy from So Paulo, was the
first congressman to be removed from office, following reports that he had taken trips
in Youssefs private jet.
As the revelations emerged, Petrobrass share price began to tumble, dragging down
the index of the Bovespa (Brazils main stock market), as well as the real. The
Brazilian currency fell to a 12-year low against the dollar in mid-March.
The companys importance to the Brazilian economy can hardly be overstated.
According to Samuel Pessoa, an economist at Fundao Getulio Vargas, a respected
Rio de Janeiro-based think tank, the company and its subcontractors are responsible
for around 10 percent of Brazils economic output.
For most of 2014, Brazils politicians were left sweating, while the police inquiry
focused on the infrastructure companies subcontracted by Petrobras. In November,
arrest warrants were served for 39 senior directors from some of Brazil most highprofile companies, including Camargo Corra, OAS, Odebrecht, and seven others. All
are major donors to Brazilian political parties.
According to prosecutors, those companies willingly colluded in overcharging on
Petrobras contracts, in return for individual kickbacks and corporate favors. Now, not
only the individuals involved, but the companies themselves face potentially severe
penalties, including fines of up to 20 percent of their previous years revenues and a
ban on bidding for future government contracts.
With uncertainty surrounding the future of these companies, work on some of Brazils
major infrastructure projects has ground to a halt, or at best been reduced to a
minimum. Even work on some the countrys most prestigious projects, like the
controversial Belo Monte hydroelectric dam in the Amazon, could be delayed by the
legal consequences of Operation Car Wash. In late March, Eduardo Paes, the mayor
of Rio de Janeiro, felt compelled to reassure local and international media that the
corruption probe would not delay work preparing for the 2016 Olympic Games, despite
the fact that many of the companies involved in their delivery are under investigation.
Meanwhile, at Comperj in Itabora, only around 4,000 of the 30,000 workers previously
employed at the plant remain in their jobs. Alumini, Moreiras employer, isunder
investigation for overcharging on its contracts with Petrobras. It vehemently denies the
accusation and claims that it is still owed $300 million from the oil company for work it

has already completed.

Lawyers acting for the companies under investigation are seeking leniency accords
with prosecutors, arguing that penalizing the companies too severely could have
serious consequences for the Brazilian economy. The latest weekly survey of market
economists by Brazils central bank forecasts a contraction of 1.01 percent this year.
Not everyone is convinced by the companies arguments. Elio Gaspari, a columnist
writing for the daily newspaper Folha de So Paulo, compared their pleas to those of
Brazils 19th-century coffee plantation owners who lobbied against the abolition of
slavery. Like them, they say, the law may forbid it, but if the law is applied, the
plantations will fail. However, there is one big difference: Dom Pedro II [then emperor
of Brazil] did not take donations from slave owners, he wrote.
Prior to her election as president in 2010, Rousseff served as Brazils mines and
energy minister and spent seven years as the chairwoman of the executive board of
Petrobras. Her opponents argue that she must have known about the corruption
scheme. Some are even calling for her impeachment, just three months into her
second term of office, but as yet there is nothing to implicate her directly. Speaking on
March 9, the president acknowledged public anger at the corruption scandal,
but insisted there were no legal grounds for impeachment. We have to respect the
rules of our democracy. The election is over, there were two rounds. You cannot have
a third round.
Its possible that a smoking gun might appear, says David Fleischer, a professor at
the University of Braslia. Some people say that its possible, but not probable. What
she has to focus on now is trying to clean up the whole mess, but so far she has just
installed a bunch of cover-up guys. The new CEO of Petrobras, Aldemir Bendine,
appointed by the state-controlled board in February, has spent his entire working life at
the state-owned Banco do Brasil. Investors hoping for an outsider to take control were
disappointed;shares in the company fell 9 percent after news of his appointment was
made public.
In early March, the long wait for the names of the accused politicians came to an end.
The Supreme Court announced an investigation into 49 current and former politicians,
almost all of whom are from the ruling PT or its coalition allies, including Renan
Calheiros, the president of the Senate and speaker of the lower chamber, and
Eduardo Cunha, both from the PMDB. Though nominally a government ally, with three
ministerial portfolios, the PMDB isan opportunistic political party, with many different
factions. Calheiros and Cunha believe the accusations against them are designed to
divert attention from the role of the presidents party. They are now threatening to
derail the presidents legislative program in retaliation.
Amid the corruption scandal, Rousseff is attempting to implement an austerity program
by raising taxes and cutting spending in an attempt to post a primary budget surplus of
1.2 percent of GDP this year. To this end, the government has cut subsidies to fuel and
electricity, which has helped drive inflation up to over 8 percent. While sky-high interest
rates may help to rein in inflation eventually, they are also limiting consumption and

slowing job creation in an economy approaching recession. Many in Brazils labor

unions are horrified by the both presidents change of tack and the weakness of her
party in congress. Last week, the legislature voted overwhelmingly to approve a law
allowing companies to outsource their labor force, despite the opposition of the PT.
On March 15, more than a million Brazilians took part in massive anti-government
rallies in cities across Brazil. The march featured members of the opposition,
Brazilians calling for impeachment, and an extreme fringe demanding military
intervention. But among the marchers were also disillusioned, left-wing former PT
supporters. Another major protest took place on April 12, and though numbers were
down significantly from the previous month, at least 100,000 took to the streets in So
Paulo alone to protest against Rousseff.
At the demonstration alongside the Copacabana beach in Rio de Janeiro, Cristiano
Nascimento, 42, a university teacher, said that even though he voted three times for
the PT, he wouldnt do so again. Im here to show my disgust, he said. The country
is on the wrong path and the government is pretending that everything is okay.
***
Just three days before the latest anti-Rousseff demonstration, the president declared
that Petrobras is back on its feet. But for the residents of Itabora, it doesnt feel that
way. Almost every other apartment building or storefront has been plastered with a forsale or for-rent sign.
On a side street off the main road, the offices of Sintramon are a hive of activity. The
labor union is trying to negotiate settlements between the workers and the plants
subcontractors. Comperj workers of all kinds, from caterers to quality-control
managers, wait patiently in the tiled foyer for news of their salaries, their companies, or
even just their documentation.
Rafaela Correa, 26, has been waiting for days for news of her official dismissal,
without which she is unable to claim unemployment benefits. She is not hopeful that
she will return to work at Comperj any time soon. I dont see much light at the end of
the tunnel, she said.
Without back pay or their workers IDs, which are required for interstate travel,
migrants from states outside of Rio de Janeiro are unable or unwilling to return home.
Local authorities are warning of a rising tide of homelessness, with up to 20 families a
week seeking municipal assistance.
Paulo Csar, the president of Sintramon, said that it was not unprecedented for
companies working at Comperj to go bust, but in the past, the union had been able to
organize severance pay and compensation. This time things are much harder, he
said. Its the workers who are paying the price for all this corruption. Its the workers
who are the ones being punished. Csar is reluctant to pin too much of the blame on
Rousseff or her party directly.
This corruption has been happening for years, he said. It just so happens its blown

up on the PTs watch.

But as Cassia Moreira prepares for her journey around the town selling empadas, she
says she is ashamed to say she voted for Rousseff in Octobers elections. My family
mocks me. People laugh at me if they find out, she said. I voted for Dilma. Never
again. The PT no longer represents the workers.
VANDERLEI ALMEIDA/AFP/Getty Images
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