January 21, 2015 / 7:29 PM / 5 years ago

UPDATE 1-No need for Petrobras investment cut due to corruption probe -minister

(Adds comments on electricity sector)

By Jeferson Ribeiro and Alonso Soto

BRASILIA, Jan 21 (Reuters) - State-run Brazilian oil producer Petroleo Brasileiro SA does not need to curtail its multibillion-dollar investment plan because of a growing corruption scandal, Mines and Energy Minister Eduardo Braga told Reuters on Wednesday.

Revelations of price-fixing, bribery and political kickbacks at Petrobras, as the company is known, and a sharp fall in oil prices have locked the company out of capital markets and reduced revenue. As a result, company officials said in December they expect to cut back a five-year $221-billion investment plan.

When asked if Petrobras should reduce its investments, Braga said: “No, not necessarily, unless we have other factors.”

Braga, who took office on Jan. 2, did not say which other factors he as referring to.

On Dec. 17, Jose Formigli, the Rio de Janeiro-based company’s exploration and production chief, said investment would be cut to preserve cash and avoid new borrowing. Petrobras is the world’s most indebted and least profitable oil industry major.

Chief Executive Maria das Graças Foster has said that spending “in principle, will be lower in 2015 than in 2014.”

Braga said that the scandal is leading to a clean-up that will help shield Petrobras from political interference and that the company remains attractive to investors despite a 60 percent drop in its principal share price in five months.

The scandal has also raised concern that Petrobras could lose its investment-grade credit rating, prompting some investors to call for further spending cuts.

Prosecutors believe the scandal may involve the illegal diversion of more than 10 billion reais ($3.84 billion). Police suggest the value may be more than double that, making it the biggest corruption scandal in Brazil’s history.

Electricity is another sector that is facing financial and political problems as drought reduces hydropower and forces the country to use more expensive thermal power, threatening many utilities with bankruptcy.

The government plans talks with banks to lower interest rates on 17.8 billion reais of loans to utilities last year, Braga said. The government will also ask banks to give utilities more time to pay their debts.

“It doesn’t make any sense not to extend the duration of the loans and seek a review of interest rates because risks have diminished,” he said.

Lower interest rates and longer duration could reduce the rate hikes power distributors are expected to institute this year, easing short-term inflationary pressure.

$1=2.6059 Brazilian reais Additional reporting by Leonardo Goy; Editing by Jeb Blount and Peter Galloway

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