PreSalt.com

1 Sep 2009 - by PreSalt.com - Source: Petrobras News

Petrobras reasserts there was no overbilling or overpricing in the earthwork done for the Pernambuco refinery (Abreu e Lima). Cost-reduction negotiations are an ordinary practice at the Company. Petrobras had been negotiating lower prices for several items in the agreement with the consortium in charge of doing the earthwork since March 2008 (therefore, before the Federal Court of Auditors started the audit that indicated an alleged overpricing of R$49 million).

The Company has already submitted upwards of 10,000 pages to the FCA, among clarifications and documents showing there is a divergence between the parameters the court uses and those Petrobras adopts. In statements made to the Senate today, FCA auditors said they are analyzing the refinery’s agreements and have noticed the Court has already accepted many of Petrobras’ arguments.

Petrobras considers the use of the SICRO (Road Cost System, used by the DNIT for road construction) and the SINAPI (National Civil Construction Cost and Index Survey System, used for sanitation and habitation construction work) as pricing parameters as insufficient to calculate estimates for work such as that required to build an oil refinery. In its pricing calculations, Petrobras takes logistics, labor qualification, social costs, buildings and lodging, in addition to safety, environment, health and social responsibility items into account. Since the Court does not consider these items, there are differences between the amounts the Company calculated and those the FCA came up with.

Petrobras also denies the “spreadsheet game” hypothesis, and clarifies it uses the lowest global cost criterion to bid winners. The FCA, meanwhile, compares unit item prices.

In the case of fibro-chemical and sand drains, mentioned in today’s CPI session at the Senate, it must be emphasized that on account of soil specificities, it was necessary to use more drains than previously estimated, and that this, in turn, prevented the removal of a layer of soil of approximately 1.4 million cubic meters. Opting to remove the material would incur in higher costs. The technical solution that was employed allowed for significant savings, of some R$58 million, for the project and offset the costs of using more drains.

The Company also clarifies that in cases of quantitative additions, it is an ordinary practice at Petrobras to discuss unit prices with its suppliers again, since larger amounts allow for gains in scale. In this regard, there are negotiations in progress with the consortium to lower the prices of a few of the items.

Petrobras hired Pini Engenharia to prepare a technical cost engineering report for the Pernambuco Refinery earthwork agreement. The company was hired based on its renowned experience pursuant to the applicable legislation. Additionally, Pini Engenharia has an updated civil construction cost database.

It must be highlighted that the Pini group, in the market since 1948, has proven experience in estimating costs and has published several technical articles on the matter.

Pini has partnerships with the Technological Research Institute, with USP’s Polytechnic School, Senai, with the State of Pernambuco Civil Construction Industry Union, and with several engineering associations nationwide.

With regard to the audits done at the refinery, Petrobras asserts it never attempted to obstruct or to make it more difficult for any control agency to undertake inspections. Quite the contrary. The Company has always collaborated with these institutions and in the event of divergences, it seeks to clarify them, as it has done with the FCA. Petrobras provided more than 60 folders containing all of the requested documents. Bidding procedure documents were not sent because the bids have not been completed yet. After they are wrapped-up, the information will be available to the FCA.

Documents that were not handed over contained information about bidding procedures that are still ongoing, such as pricing details.

Finally, Petrobras announces it has contested alleged irregularities singled out by court auditors and that it is awaiting for the completion of the suit. The merit has not been judged yet. Although it reasserts there are no irregularities, the Company accepted the FCA’s determination and suspended all transfers to be made to the consortium in charge of the earthwork. The work has not been halted. Kicked-off in 2007, the earthwork is 90% complete and is expected to be finished in 2010. The refinery is expected to go on stream in 2011.