The Rise and Fall of Petrobras

Petrobras in 2010 launched a $72.8 billion IPO, the largest by any company in the world. (Photo: Ricardo Stuckert/Brazil President's Office)

Despite overwhelming problems of corruption and inefficiency, Petrobras can recover.


Petrobras, which rose to become the fourth largest company in the world, is now battling a serious corruption scandal that has left its reputation in tatters. How did this global oil major scale such heights spectacularly and then fall so low?

Petróleo Brasileiro S.A. (Petrobras), the Brazilian national oil company, is at the center of a major corruption scandal which has been unfolding since March 2014 and sparked widespread protests across Brazil earlier this year. Prosecutors found that bribes of $800 million had been taken by Petrobras executives, private contractors and politicians. The assets and contracts of the firm were inflated and auditors had initially refused to certify its balance sheet in the absence of quantification of the losses caused by the scam.

This marks a considerable fall from grace for Petrobras, which just four years ago launched a $72.8 billion IPO, the largest by any company in the world—and went on to become the fourth-largest global corporation, with a market cap of $214 billion.


Petrobras’ transformation from a firm founded as a government undertaking in 1953 that lacked any meaningful oil reserves or expertise, to one that was considered a model for national oil companies globally, was indeed remarkable. In the company’s favor, was a monopoly in the national hydrocarbons sector, which Brasilia opened up in 1997 to the private sector—during the heyday of the Washington Consensus—when neo-liberal policies were viewed with favor. 

The company invested in research, and developed deep sea technology, working with local suppliers in much the same way as Brazilian aircraft manufacturer Embraer did. Nationalistic spirit and determination was high. Investments led to discoveries of large off-shore pre-salt reserves.

By 2008, Petrobras had arrived.

It was listed among the top 50  companies in the world for its high transparency levels, according to Transparency International. And by 2011, the company had become a giant, producing over 2.5 million barrels per day of oil a day, working its way to making Brazil self-sufficient in crude oil. Boasting assets in 17  countries across Africa, Latin America and the U.S., Petrobras possessed cutting-edge expertise in deep-sea drilling and production.

But the oil giant was not done yet. It sought to enhance its management and financial information systems by incorporating best practices and technology from the developed countries. So the company decided to make its international debut, through a public listing on the New York Stock Exchange (NYSE). Petrobras kept the controlling 64 percent shareholding and the rest were sold to foreign investors. All of Brazil cheered when CEO José Sergio Gabrielli rang the bell at the Sao Paulo exchange on September 23, 2010, and Petrobras’ shares began to trade simultaneously on the NYSE.

Thus refurbished, Petrobras embarked on an ambitious investment plan—the largest ever corporate investment plan at the time—of $220.6 billion during 2014-18. Its bonds were the benchmark for other Brazilian companies. The Índice Bovespa (Íbovespa), the key stock index, rose and fell with Petrobras’ stock. The company was also the country’s largest patron of cultural and sports institutions, and events, and conservation efforts. Petrobras became the crown jewel of Brazilian industry and its rise was seen by Brazilians and the world as emblematic of the emergence of a New Brazil.

So, what went wrong?


A massive decade-long corruption scandal was uncovered in early 2014 by Brazilian police investigating a money launderer, linked to Swiss accounts, politicians and Petrobras. Since then, over 30 Petrobras executives and the company’s contractors have been indicted by the courts, and investigations by police and prosecutors have been initiated against 54 politicians and 24 top private building and engineering firms. A senior Petrobras executive Pedro Barusco—who stole and kept money in Swiss accounts—turned approver, and agreed to return around $100 million from his Swiss bank accounts.

Unlike Delhi’s bafflingly slow investigation into money laundered by Indians and kept in Swiss accounts, the Brazilian authorities acted fast. They approached the Swiss government which collaborated quickly and froze suspect accounts. The banks promptly returned the money, and $57 million has already been received by Brazilian courts.  Meanwhile, some U.S. law firms have filed class action suits on behalf of minority shareholders like Wall Street firms and other investors, and the U.S. Security and Exchange Commission has begun an investigation of its own.

In February 2015, Maria das Graças Foster—appointed Petrobras CEO by President Dilma Rousseff­—along with five directors, were forced to resign. The state-run Banco do Brasil’s former CEO Aldemir Bendine, who is perceived to be close to the government, succeeded Graças Foster.

The fallout of the scandal and declining oil prices is that Petrobras’ stock in March 2015 was down by nearly 70% over four and a half years. The day Jose Gabrielli rang the bell at the Sao Paulo exchange was a distant memory. In the meantime, the company has lost its investment grade rating, and raising finance from the global market to service its massive debt that now stands at $170 billion will be difficult and expensive.

The construction and engineering firms working with Petrobras that are also involved in the scandal, face a credit squeeze and financial problems. This means that the company’s ongoing exploration and production projects mainly in Brazil’s deep seas will be delayed. So too will the country’s own infrastructure projects like roads, dams and airports that were being undertaken by the same contractors that worked with Petrobras, now hit by the corruption scandal and the credit freeze by banks.

The domino effect of the scandal is touching every aspect of Brazilian life, from political uncertainty to economic recession, water and power shortages. The fall of Petrobras is seen as the fall of Brazil itself. From its go-go growth years of 2003 to 2010 when the country looked as though it had arrived on the global stage, Brazil is beginning to resemble a lesson in overreach.


The decline of Petrobras is closely woven into the way Brazilian politics, economics and society function.

The first major factor was corruption—a national disease that Petrobras could not escape. While in the past the company was relatively clean, the multibillion dollar contracts brought out the company executives’ avaricious side.

Secondly, the company became too big and diverse for control. It expanded beyond its core competencies—deep sea prospecting and drilling—and ventured into petrochemicals, fertilizers, biofuels, electricity and wind energy. This massive and diverse structure was exploited by crooked executives who took cuts in contracts and inflated deal prices.

Third, hubris began to set in with the successful discovery of large pre-salt fields and the world’s largest initial public offering that raised around $70 billion in 2010. Swept up in the euphoria, top management and the government neglected to check the books of the company which contained the inflated contracts.

Fourth, the government has caused considerable loss to the company by forcing it to sell petrol at prices far below market prices. Like India, Brazil subsidizes retail petrol sales, so the loss to Petrobras has been massive.

The final factor was the incompetence of the CEO, board and auditors who failed to detect, and take action against corrupt practices. Even if they were aware of such practices, it is possible that they did not take action because Petrobras executives had become too powerful and had deep political connections.


Despite these overwhelming problems, Petrobras can recover – for a variety of reasons, both technical and political.

First, it is still one of the largest oil producers in the world with ample reserves — over 16 billion barrels per day (bpd)    and the ability to double production from 2.5 to 5 million bpd  in the next decade. This can be done by continuing its investment in technology and production.

Second, Petrobras is a research and innovation-driven company. It earmarks 1 percent of its $130 billion in revenue (2013) for R&D, outspending Exxon. Petrobras holds the world record in deep-sea production—5,000 meters below the sea—and in addition to in-house development technology, it has obtained numerous patents through smart collaboration with suppliers and subcontractors on technology.

Third, it really is too big to fail. Petrobras is the country’s largest tax payer and the corporate contributor to GDP—6.3 percent in 2013. Rousseff simply cannot afford to let Petrobras fail.

The company can exit from its loss-making operations and sell some assets such as a few refineries and retail outlets, to recoup finances. The full financial recovery of the company of course depends on oil prices firming up. At prevailing rates, recovery will take longer. And Rousseff must persevere in quickly drilling out the corruption and institutionalizing procedures to prevent such a scandal again. Institutionalizing a more transparent system with adequate checks and balances will be key.

R. Viswanathan is a Distinguished Fellow of Latin America Studies at Gateway House (Indian Council on Global Relations ). From 2007 to 2012 he served as India’s Ambassador to Argentina, Uruguay and Paraguay. That followed three years as Head of the Latin America Division in the Ministry of External Affairs of India and as Ambassador to Venezuela (2000-2003) and  Consul General of India in Sao Paulo (1996 to 2000).

This is an excerpt of a report originally published by Gateway House, a foreign policy think-tank established in 2009, to engage India’s leading corporations and individuals in debate and scholarship on India’s foreign policy and its role in global affairs. Republished with permission from Gateway House.