Brazil oil sector woes may hurt Olympics

OREANDA-NEWS. June 21, 2016. A financial crisis stemming from lower oil prices has prompted a Rio de Janeiro state official to warn of a "total breakdown in public security, health, education, mobility and environmental management" just weeks before the Olympic Games kick off in the city on 5 August.

For months the state of Rio has struggled to stay current on payments to state workers in the health, education and security sectors, as low oil prices have cut state revenues. In some cases salaries have been delayed for months and hospitals have been forced to cut services.

The financial crisis could prevent the state from "honoring its commitments to the Rio Olympic and Paralympic Games … and has been causing severe difficulties in the provision of essential public services," according to a decree from interim governor Francisco Dornelles.

Dornelles has authorized "competent authorities to take exceptional measures necessary for the rationalization of all essential public services, with a view to the Rio 2016 Olympic and Paralympic Games," without including details on those measures.

Just a few years ago Rio state was soaring following a surge of production from recently discovered offshore sub-salt oil deposits. But with the oil price collapse that began in 2014 and the corruption scandal surrounding state-controlled Petrobras, state revenue has fallen. In recent weeks Rio has missed debt payments to international creditors and has warned of its inability to meet other debt obligations.

Rio adopted controversial new oil and gas production taxes in 2015 to offset the losses, but this has prompted a lawsuit by a number of major energy firms, including Chevron, Portugal's Galp, Spanish-Chinese joint venture Repsol-Sinopec, and Shell.

The emergency decree, published on 17 June, is a controversial move intended to force the federal government's to release around R3bn (\\$879mn) needed to complete key logistic projects for the games. It would free up the funds to pay contractors such as Odebrecht, OAS and Queiroz Galvao — the same firms alleged to have stolen billions of dollars from Petrobras through inflated work contracts.