With Priscilla Moraes
Desperate and exposed, Brazil’s oil capital is on its knees.
Since Macaé’s greatest paymaster – state-controlled utility Petrobras – has been under investigation for a $10bn real (£2.15bn) embezzlement fraud, the seaside town four hours from Rio de Janeiro has been reduced to survival mode.
“The market is prostituting itself,” said one business manager, embarrassed of the term. “You really have to offer any price to keep going.”
While the shockwaves of the Lava Jato (“Car Wash”) scandal have reverberated throughout Brazil, the epicentre is Macaé, where Petrobras arrived in the Seventies ahead of the oil boom, boosted recently by the discovery of pre-salt oilfields in 2007.
Originally a fishing village, Macaé once had a rate of economic growth to rival China thanks to the Campos Basin, responsible for 80 per cent of Brazil’s oil production and 47 per cent of gas production.
Sitting just beyond the town sign, which reads “Macaé – National Oil Capital”, is the Petrobras base, alongside international firms including OneSubsea, Transocean and Baker Hughes.
Along the outskirts of the town are large new-build condominiums for expat and native oil workers, while foreigners form a noticeable presence in the town. A new golf club, Costa do Sol Golf and Country Club, is being built for the many British and American immigrants working in the oil industry.
Macaé, whose population doubled since the early Nineties and now stands at 230,000, has relied on Petrobras not just for its economy but also for its public services and infrastructure, its government receiving millions in royalties from the world’s largest oil producer.
But as federal police question and hold dozens of Petrobras executives and politicians over allegations that contracts were inflated to cream off profits, the losses have had a knock-on effect, hitting industry, public services and property prices.
In the latest development, nine company executives linked to the investigation were granted house arrest, while the former treasurer of the ruling Workers’ Party (PT) remained in custody.
And with Petrobras squeezed by its recent annual results showing a net loss of R$21.6bn, of which R$6bn was written off as losses to corruption, business in the town has slowed, companies have left and the service industry has struggled.
Now, outside the Petrobras site in Macaé, there is a banner from oil union Sindipetro that reads: “To defend Petrobras is to defend Brazil. Oil workers demand punishment for the guilty in Lava Jato.”
With a net 50,000 jobs lost across the whole country so far this year, one in 50 were in Macaé, including 161 job losses in mineral extraction, 500 in civil construction and 400 in business.
There are estimates that as many as 20,000 people have lost their jobs as a result of the meltdown at Petrobras.
The mayor of Macaé, Dr Aluízio dos Santos Jr, announced earlier this year that he, along with his deputy mayor and department secretaries, would take a pay cut of 10 per cent. He warned the population that the situation was “serious.”
“As the market trend is passing through a period of recession, due to falling rates in the price of oil, the government considered it fundamental to reduce costs and as such, not run the risk of reducing investments,” said Marcos Riscado de Brito, controller general in Macaé. “The estimated loss in the collection of royalties is the same percentage as we are saving.”
Observers warned Macaé and neighbouring districts such as Rio das Ostras would become ghost towns, and passing through this week, theonce-bustling oil town was a shell of empty hotels, abandoned buildings andsold-up shops.
Fábio Reis, general manager of the Hotel Brisa Tropical on the beachfront in Macaé, said: “I manage to keep occupation between 70pc and 90pc or 60pc and 80pc, it fluctuates. But there are many hotels that are closer to 40pc, 20pc a day. These are hotels that were fully occupied every day.
“We knew that Macaé would have a boom. The forecast was that there would be another six hotels opening in Macaé by 2016. But of those six, two will be inaugurated this year. The rest have suspended work because of the crisis.”
While the hotel sector was the first to feel the impact of the stalling oil industry with fewer business visitors to the city, residents of the young town have also seen property prices affected as people start to leave.
Throughout Macaé, there were signs for residential and commercial properties to rent or buy, and in some cases, demolished buildings on bare plots of land.
“Macaé is passing through a difficult moment,” said Sonia Alexandre Bittencourt, a mother of three. “Petrobras is totally grubby.”
The housewife, who grew up in the town, is helping her neighbour to sell her three-bedroom house near the beach. “It’s been on the market a year and she’s reduced the price by R$100,000 (£21,000),” Mrs Bittencourt added. “It’s a difficult property to sell and it needs someone, maybe an executive, with a good salary.”
She said Macaé had attracted migrant workers when Petrobras arrived but many of those who came were unskilled, growing the population of irregular communities or favelas with people unable to find work. She blamed many of the problems on the incumbent Workers’ Party (PT) and president Dilma Rousseff.
But if times are hard in Macaé, they are arguably worse in nearby Rio das Ostras, a sleeper town that also relies on Petrobras royalties.
It is the municipality with the greatest population growth in the state of Rio de Janeiro, exploding by 11 per cent a year to just under 130,000.
But so far this year, it has lost a net 617 jobs, the majority of those in civil construction.
The Petrobras crisis meant the authorities expected to lose R$120m in oil royalties, putting unparalleled pressure on public services, but oil money fell by more than R$33m in the first quarter alone, leaving the government fearing the real impact will be greater.
“We are living in an unprecedented crisis,” said Alcebíades Sabino, mayor of Rio das Ostras. “It’s having a profound effect.”
The town’s government said all areas of public services had been affected including education, security and health, which were marked as priorities.
Some 500 workers contracted to the local government had been let go as a direct result of the reduction in oil royalties and the crisis involving Petrobras, he said. The government is responsible for half of the town’s water supply and has had to reduce this by half, even in the City Hall offices themselves.
The greatest problem, he said, was that the town had been almost entirely dependent on Petrobras and needed to find alternative industries.
“The town has 48pc of its budget from oil royalties,” Mr Sabino, whose salary has been cut by 49pc since 2013, added. “We have been working a lot to reduce this dependency. It was as high as 75pc some years ago.”
The mayor, who took on the job in 1997 after his predecessor, Cláudio Ribeiro, was murdered, said the town had been turned around in his first eight years.
“People started to look to Rio das Ostras as if it was an oil paradise, where they would find a job, a home, schools, health and public services of a good standard.
“It was a strategic error by the town to allow this level of dependency in relation to resources from oil royalties,” he added.
Mr Sabino said the situation was not just an economic or financial crisis but a “moral” one as well.
“Because of this, the recovery is more difficult. Institutions no longer have the confidence of the population,” he said.
Government figures showed that last year, 215 companies closed their activities in Rio das Ostras, with 65 closing so far this year.
And it is a downturn that is expected to continue across Brazil. Earlier this year, the Economic Commission for Latin America and the Caribbean (Cepal) revised its forecast to a 0.9pc reduction in growth instead of the previously expected expansion of 1.3pc.
Rodolfo Duarte, 28, who runs a sports and health supplement store on the edge of Rio das Ostras said business was down by a quarter and he had been forced to cut prices by 10pc as a result of the crisis.
“People who work here do physical activities and want dietary supplements,” he said. “If they’re not here anymore [because of job losses], they go back to their home lands because there are no more opportunities here and consequently, not just my business, but others will also decline.”
Mr Duarte said another result of the economic downturn was an increase in crime, which was also having an impact on business.
“The level of assaults has been increasing,” he added. “Previously, we would have more or less one or two a week, now we have one a day. The feeling of insecurity has increased.”
Since Petrobras published its delayed audited results for 2014, some suggested it would draw a line under the scandal as far as business was concerned.
“I believe that the approval of these results is very important and allows Petrobras to turn a page and get back on track,” said president Dilma Rousseff last week.
“I’m sure that Petrobras will give us much happiness in the coming months and years.”
Mayor Sabino said he believed the situation could improve in as little as six months after passing a law to ensure that 15pc of the royalties received are used to pay down debts.
“Studies indicate that there will be oil here until at least 2060,” he said. “So this is a powerful industry.”
And those with the courage to sit out the slump hope it will be short-lived.
“Independent of the crisis, oil is here and it will be extracted,” said José Eustaquio Sartori, 48, site manager for a new hotel in Macaé. “It’s going to need people to come here. It will be okay.”
Next door at the Brisa Hotel, Mr Reis is also defiant. “This is the oil capital, that’s a fact,” he said.
“The oilfields will remain where they are, there’s no getting around it. It’s an ongoing crisis but it will pass.
“Petrobras is here. They’re not going to simply close their doors and say ‘goodbye Macaé’ because there is a lot of things involved here.”
Originally published by The Sunday Telegraph