Still “love” Brazil’s state-owned Petrobras? Think twice… or ask their suppliers.
We have previously pointed out how Petrobras will have huge challenges to manage different projects and how inefficient the company can be with its expenditures. Well, it’s a government-owned company… why should one expect more?

Now, recent articles at the Economic Times and Brasil@gro just point out how Brazil’s “huge offshore oil wealth called a lottery jackpot” has its dark side. A few of Petrobras’ suppliers risk going broke before they can claim their prize. After all, it’s not all carnival…

Via ET (our comments in bold): 

Lupatech, Brazil’s biggest supplier of industrial valves and anchor cables, was counting on its place in a nascent oil services industry to guarantee a slice of the boom led by state-controlled oil company Petrobras and its $225 billion five-year investment program. 

(But it’s not all carnival… )

Instead, Lupatech (a public company) is struggling to stay solvent. Petrobras business has been slow to materialize, and a cold shoulder from credit markets chilled by a looming European debt crisis, has put it at the mercy of key shareholders to avoid default. 

… the suppliers’ revenue depends increasingly on one client: Petrobras, which is falling behind on ambitious investment goals. 
“The cost and technology risks are higher than the government or Petrobras are saying,”  “The government has set production goals for 2020 that probably won’t be met until 2023 or later.” 
 
Petrobras has also been hamstrung by rules forcing it to pay a premium to buy from new and untested local suppliers… However, companies are finding the road there more treacherous than promised by the government.


(Lupatech’s fault, too!)

In the euphoria following the discovery of new deep-sea fields in 2007, Lupatech acquired 17 rival suppliers in anticipation of a flood of Petrobras contracts. Debt soared over 1.2 billion reais ($667 million) or 20 times operating profit, according to Moody’s Investors Service data. Shares of Lupatech shed over 73 percent this year, and the yield on Lupatech’s 9.875 percent perpetual bond spiked above 25 percent as creditors jumped ship in anticipation of a default.

(Petrobras “motto”: over-promise, under-deliver… )

Swept up in its ambitions and encouraged by the government, Petrobras agreed to build five refineries and a fleet of more than 300 ships. The company also sought new oil discoveries at record sea depths and invested in biofuels, even as it struggled to boost output from existing fields. An overstretched Petrobras has now fallen behind on its goals, forcing it to cut costs and postpone investments, sapping revenue for Lupatech and service industry rivals.

(BNDES to the rescue, like always…)

With banks and investors wary of lending new money as they try to protect themselves from Europe’s woes, Lupatech has struggled to refinance its debt. Analysts now expect a lifeline from state development bank BNDES, Brazil’s principal long-term lender and a key Lupatech shareholder.
Some analysts also warn that BNDES’s dominant role risks fostering an uncompetitive oil services industry stuck between two bottle necks as it relies on both a single state-controlled buyer and a single, state-owned source of funding. 
(F#$% the gringoes, let’s do everything in Braziiiiiiil!)
Despite economist warnings about the risks of Brazil’s industrial plan, the government seems determined to expand its influence over the industry, increasing minimum requirements for local content as production grows. 
President Dilma Rousseff has emphasized the importance of … reducing Brazil’s dependence on imported equipment. 

Our comment: Lupatech is only one story of how a company depending on the government can go broke … it’s in the media because Lupatech is the biggest supplier and a public company. There are several other suppliers that have issues with getting paid which is not reported… read here, for another example, to see that Autograf and its contributors have issues collecting money from Petrobras. Or the company Santa Barbara Engenharia with the same problems with VALE. After all, being a supplier to the “rich” Brazilian government is not that easy …

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