Reuters/Itabora, Brazil


For the 20 men hanging on at the Pousada do Trabalhador, a 600-bed boarding house on the dusty outskirts of this boom town northeast of Rio de Janeiro, the dream that Brazil’s oil wealth would bring a better life was over.
Their jobs at Comperj, a $15bn oil refinery being built here in Itaborai by state-run energy giant Petrobras, are gone, and their employer - a mid-sized  engineering company - bankrupt.
The men are the latest victims of Brazil’s biggest-ever corruption scandal, a multi-billion dollar graft scheme involving Petrobras, engineering companies and politicians that is battering the world’s seventh-largest economy.
As the scandal has deepened in recent months, key infrastructure projects have been suspended or scrapped, some suppliers have sought bankruptcy protection and job losses are mounting by the tens of thousands.
Petrobras’ size - it is Brazil’s biggest company - amplifies the scandal. Each year it invests double the government’s entire discretionary infrastructure budget, giving it enormous power to shape Latin America’s largest economy.
All told, economists expect the chain reaction set off by the scandal will tip an already weak economy into its worst recession in a quarter century, a harsh reversal for a country that was booming just a few years ago.
“Our employer went bankrupt, then bankrupted us,” Ediney Morao, 38, an equipment operator from Sao Paulo said as he prepared to leave the boarding house earlier this month.
“I took leave for Christmas and New Year, came back and suddenly, there’s no work.”
He and the other men moved out the next day, and the boarding house closed.
There are tens of thousands like Morao, dependent on Petrobras’ more than $40bn of annual capital spending. Most job losses have come since November as police and prosecutors, backed by guilty pleas from key conspirators, unravel a web of price-fixing, bribery and political kickbacks.
Formally known as Petroleo Brasileiro SA, Petrobras accounts for more than 10% of Brazil’s investment, 87% of oil output and all domestic fuel production. Its annual revenue equals about 8% of gross domestic product.
Two refineries worth a combined $30bn have been canceled. Comperj, a $1.3bn fertilizer plant and dozens of production and drilling ships, each costing hundreds of millions of dollars, are in limbo.
“Brazil is paying a huge price for depending so much on Petrobras,” said Lucia Salgado, an economics professor at Rio de Janeiro State University. She expects the scandal to shave up to 1.5 percentage points from GDP this year.
The damage spread quickly after the scandal prompted Petrobras to put 23 suppliers, including some of Brazil’s largest construction firms, on a payment blacklist.
Five of the companies - OAS Engenharia, Galvao Engenharia, Iesa, Schahin Engenharia and Alusa Engenharia, Morao’s former employer - have filed for bankruptcy protection since November, slowing projects like Comperj and halting the building of new production ships.
More bankruptcy petitions are possible. Even if work returns, there will be less of it. Petrobras plans to cut 2015 investment by as much as third.
The impact is also being felt beyond the oil industry. The 23 implicated firms are among Brazil’s most ubiquitous, building everything from ports and highways to stadiums and other facilities for the 2016 Rio Olympics.



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