Difficulties caused by fuel subsidies, project delays and soaring costs at Brazil's state-led giant oil company Petrobras are spreading to the wider economy, undermining the company's suppliers and raising credit risks, a report said.
To fight cost overruns on its $237 billion, five-year expansion plan, limit rising debt and make up for the more than $8 billion in refining-unit losses, Petrobras is squeezing suppliers and investors by making them wait longer to receive payment, Reuters reported.
The delays have hurt Brazil's struggling oil equipment and service industry, a sector the government has sought to encourage.
With an eye on giant new offshore oil reserves, President Dilma Rousseff wants to keep as much of the hundreds of billions of dollars budgeted for ships, platforms and pipelines at home to bolster economic development.
Dependent on Petrobras for much of their business, project delays have played a part in forcing some firms such as construction company GDK SA to request bankruptcy protection.
Larger companies such as Lupatech SA have had to sell assets and raise new capital to avoid the same fate.
"In general Petrobras has been taking several more months to pay than they did before," a corporate director of a medium-sized construction company that gets two-thirds of its revenue from Petrobras told the news wire on condition of anonymity.
"This has forced us to seek out more expensive short-term debt in the market and unbalanced our accounting."
Executives at two other Petrobras suppliers confirmed mounting payment delays, also asking not to be named so as not to strain ties with the company.
Petrobras , in an e-mailed response to questions, declined to discuss specific contracts with suppliers but told the news wire it pays its obligations.
Growing concerns about doing business in Brazil's offshore oil industry, where Petrobras is responsible for about 90% of crude output, led to a 34% drop in the shares of Italy's Saipem on Wednesday.
The company said problems in Brazil could help cut 2013 profit by 80%.
London-based Subsea 7 and France's Technip, both major Petrobras suppliers, on Wednesday fell 5.3% and 7.1%, respectively.
While larger companies have "the fat" to withstand the Petrobras delays, "smaller, totally dependent companies, could fail," said Adriano Pires, head of the Brazilian Infrastructure Institute, a Rio de Janeiro energy research company.
The payment delays, caused in part by a push from chief executive Maria das Graças Foster to cut $15.4 billion in costs and reduce budget-busting project revisions, are also having an impact on investors financing Petrobras’ suppliers.
Overdue Petrobras payments to the five "FIDC" investment funds set up with the sole purpose of financing its suppliers soared 58% to 18.4 million reais ($9.25 million) on 31 December, from 11.6 million reais in September, according to Brazil's securities regulator.
Those late payments now account for 7% of the funds' 254.3 million reais of assets, up from 5% in September.
Petrobras needs as much cash as it can get. Its planned $25 billion of borrowing in 2012 was 56% above the projected annual average of $16 billion outlined in its 2012-2016 business plan, the world's largest corporate spending programme.
In December, after Moody's Investors Service put the company's investment-grade debt rating on watch for a possible downgrade, a person with direct knowledge of Petrobras finances told Reuters that debt levels had broken the company's own ceiling of 2.5 times earnings before interest, taxes, depreciation and amortization, or EBITDA.
Besides its giant investment plan, the main reason for Petrobras ' growing cash squeeze is the government's reluctance to allow domestic fuel prices to rise in line with world prices.
A decision Tuesday to let Petrobras boost the price of gasoline 6.6% and diesel 5.4%, the first rise in pump prices in seven years, is not expected to fix the problem.
With fuel demand rising, refineries working at full capacity and oil output falling, imports have jumped to record levels and Petrobras is still selling the fuel in Brazil at a loss.
After the fuel price increases effective Wednesday, gasoline is still 6% below world levels and diesel 9% below, according to Caio Carvalhal and Felipe Dos Santos, oil company analysts with JPMorgan Chase & Co . in Sao Paulo.
In a Tuesday report, the analysts called the increases "good but not enough," adding that the "refinery price increase came in below market expectations."
Petrobras shares fell 4.5% Wednesday, its biggest decline in seven months and edging closer to five-year lows.
The motive for delays goes beyond fuel prices and falling output. They are also caused by efforts to weed out unnecessary and possibly fraudulent cost overruns, Werneck said.
"There has been a lot of projects whose budgets have soared," he said. "A lot of the payment delays stem from a lack of capacity to properly manage its projects. There has been a lack of planning that the company is now trying to rectify."