Lupatech (LUPA3.SA), Brazil's biggest supplier of industrial valves and anchor cables, was counting on its place in a nascent oil services industry to guarantee a slice of the boom led by state-controlled oil company Petrobras (PETR4.SA) and its $225 billion five-year investment program.
Instead, Lupatech is struggling to stay solvent. Petrobras business has been slow to materialize, and a cold shoulder from credit markets chilled by a looming European debt crisis, has put it at the mercy of key shareholders to avoid default.
Its struggles and those of its peers are shining a harsh light on Brazilian industrial policy that puts fledgling local suppliers at the heart of plans to double oil output and become one of the world's top four oil producers by 2020.
While policymakers are depending on an emerging array of shipyards, engineering companies, drill operators and other goods and service providers, those suppliers' revenue depends increasingly on one client: Petrobras, which is falling behind on ambitious investment goals.
"The cost and technology risks are higher than the government or Petrobras are saying," said Celio Bermann, an engineer and oil policy researcher at the University of Sao Paulo. "The government has set production goals for 2020 that probably won't be met until 2023 or later."
Petrobras has also been hamstrung by rules forcing it to pay a premium to buy from new and untested local suppliers, such as shipyards that have overrun budgets and deadlines.
