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Petrobras boomtown turns desolate as billions vanish

Bloomberg

Located just 30 miles east of Rio de Janeiro’s bustling Copacabana beach, Itaborai looks like many oil boomtowns after the bust — except the deserted stores and empty glass towers that loom over this town of 220,000 speak of some bigger cataclysm than the collapse of crude prices.
“They said this would be the new oil city,” says Jefferson Costa, one of scores of migrants from Brazil’s impoverished north lured here by a multibillion-dollar petrochemical project that was supposed to create more than 100,000 jobs. Work on the complex, known as Comperj, has stopped, and unless new investors materialize, the single refinery now standing may never produce a single drop of fuel.
“It’s empty inside,” says Costa, a plumber who lost his job six months ago when construction came to a halt. “People say it will become a large warehouse.”
Comperj has become a symbol of pervasive corruption at Brazil’s state-run oil producer, Petrobras. A sprawling investigation by federal police and prosecutors dubbed Operation Carwash has revealed massive graft, implicating construction conglomerates, banks, oil-service providers, shipbuilders and politicians. About 2 percentage points of the 3.8 percent contraction in Brazil’s gross domestic product last year can be attributed to the effects of the scandal on the company and its suppliers, according to estimates from Tendencias, a consulting firm based in Sao Paulo.
Court documents related to the Carwash probe show that contracts at Comperj were rigged by a cartel of 16 companies, which made continual changes to the project to boost illicit gains. Kickbacks from the companies were divided among top Petrobras and construction executives and political campaign managers.
In 2008, then-President Luiz Inacio Lula da Silva donned a white Petrobras hard-hat for a rally in Itaborai. Standing next to a bulldozer, he told the assembled crowd that machines would soon swarm Comperj’s empty construction site.
By then, the budget for the complex had already swelled to $8.4 billion, more than triple the $2.5 billion earmarked in 2004, when the project was first
approved.
It has already drained more than $14 billion. A similarly sized refinery that Qatar Petroleum is building in a partnership with France’s Total SA about 80 kilometers (50 miles) north of Doha is scheduled for completion as early as this year at a cost of $1.5 billion.
Shortages of skilled labor and suppliers typically add 30 percent to 40 percent to the tab for a refinery in South America, according to John Auers, executive vice president at Turner Mason & Co., an engineering firm in Dallas. But with political meddling, graft and bad management, “costs can spiral out of control” he said.

 

 

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