Brazil�s Petrobras Scandal - Impact on the Construction Industry

The Brazilian construction industry is dominated by local construction firms due to two reasons 1. Higher preference when bidding for large Government contracts 2. High costs for entry of international construction firms. In 2013, Petroleo Brasileiro SA (Petrobras), the state-owned oil company and several large Brazilian construction companies rigged the bidding process for large oil projects. Since December 2014, 23 construction companies have been charged with billion dollar compensations. The 23 large construction firms have been experiencing tight cash flows since January 2015 due to the scandal. This will impact the pipeline of other projects especially infrastructure projects and industrial projects executed by these firms. Currently USD 15 billion worth of projects have been stalled and these projects must be restarted, this opens an opportunity for foreign construction firms to enter the market. Clients with large projects planned for the next few years, must engage with foreign suppliers for large construction project to avoid project delays and cost overruns. Introduction In January 2015, the case of the Petrobras scandal, the biggest corruption scandal,l escalated since investigators have calculated billions of dollars of taxpayers' money have been lost in corruption over the past few years. Project cost quotes were overpriced by contractors and the excess money was distributed between Petrobras officials and other political officials. Further investigation resulted in identifying 23 construction companies involved in bribing Petrobras officials to win large construction projects.� This has led Brazil's largest construction companies struggle to repay debts and interest payments, as the companies are defending themselves of several accusations related to the Petrobras case.   Author: Chandhini Raghupathy