UPDATE 1-Brazil Senate closer to Petrobras corruption probe
(Updates to add Petrobras statement in paragraphs 8, 9)
BRASILIA, July 9 (Reuters) - Brazil's Senate agreed on Thursday to move ahead with a long-delayed corruption probe of state oil company Petrobras (PETR4.SA) that is unlikely to harm the company's massive offshore oil developments but which could slow key energy legislation.
The inquiry was originally announced in May, but partisan wrangling delayed the proceedings.
"The (Senate) President Jose Sarney convoked the Petrobras inquiry for next Tuesday ... The government decided to heed his call," said Senator Romero Juca, head of the ruling coalition.
Markets have so far shrugged off the probe that will investigate charges that Petrobras overpaid for services, used accounting "tricks" to lower tax payments and showed political favoritism in sponsorship funds.
But analysts say the inquiry could slow President Luiz Inacio Lula da Silva's efforts to revamp oil laws regulating sub-salt oil reserves if opposition accusations that Petrobras were not transparent in its dealings led to a scandal that mired energy reform in partisan sniping.
The inquiry was back in the spotlight following new allegations in Brazilian media on Thursday that a cultural foundation linked to Sarney had pocketed Petrobras sponsorship money.
A spokesman for Sarney, who is being investigated for other alleged wrongdoings as part of a broader Senate ethics scandal, said the veteran politician did not actively manage the foundation. Sarney has ordered a full investigation, the spokesman said.
Petrobras said in a statement that by law the beneficiary and not the sponsor of tax-deductible donations must document the appropriate use of funds.
The foundation had complied with its contractual obligation to publicize Petrobras, the company said.
Petrobras' stock was not trading on the Bovespa stock exchange on Thursday due to a Brazilian market holiday. The shares have declined along with crude prices over the past several days.
Senators backing the probe say Petrobras' accounting practices let it dodge as much as 4 billion reais ($2.1 billion) in taxes and allege political favoritism in Petrobras's use of sponsorship funds.
They also say Petrobras overpaid for goods and services to build a refinery in northeastern Brazil.
Petrobras has denied any wrongdoing and describes the probe as a political witch hunt. Petrobras CEO Jose Sergio Gabrielli has said the Senate probe risks creating a political "free-for-all" that could stymie discussions on oil reform.
The investigation could also target Lula's chief of staff, Dilma Rousseff, who is on Petrobras' board of directors and is Lula's hand-picked candidate to run in 2010 presidential elections.
Lula wants to reform the regulatory system governing the participation of oil companies, including Petrobras, in exploration and production in the offshore sub-salt oil blocks that could hold more than 50 billion barrels of oil. ($1 = 1.99 reais) (Reporting by Natuza Nery in Brasilia and Brian Ellsworth in Rio de Janeiro; editing by Raymond Colitt and Gerald E. McCormick)
