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SAO PAULO, Dec 19 (Reuters) - Brazil's state-run oil firm Petrobras said on Friday it had canceled a contract with a joint-venture group comprised of China's Sinopec and local engineering company Galvão Engenharia to build a fertilizer plant in Brazil's soybean belt.
Executives from Galvão Engenharia are among 39 people prosecutors charged with conspiring to inflate the price of Petrobras contracts and using the proceeds to kick back bribes and campaign contributions to Petrobras executives, politicians and political parties.
With construction stopped and many employees laid off, delays building the plant may foreshadow the wider economic consequences of the 10-billion-real ($3.76 billion) Petrobras corruption scandal. Many believe it will be the biggest such scandal in Brazil's history.
Petroleo Brasileiro SA, as Petrobras is formally known, said in a statement the deal was canceled because Sinopec and Galvão Engenharia failed to meet contractual obligations. A source close to the project said Petrobras had stopped re-negotiating a contract with Galvão Engenharia after the corruption investigations started.
Newspaper Estado de S. Paulo reported on Thursday that the 3.9-billion-real ($1.5 billion) fertilizer plant, meant to be one of the world's largest, was stalled over legal disputes and faced difficulty meeting a court order to pay 5,300 workers.
Petrobras said in Friday's statement it was up to date on all payments and contractual commitments and was "aware" of potential consequences of the legal dispute. Petrobras is taking steps to make sure legal obligations are met, the company said.
Galvão Engenharia declined to comment. Representatives of Sinopec were not immediately available for comment.
The project is 82 percent finished, Petrobras said, adding that the rest of the facility would be completed as soon as possible. The factory is expected to produce 1.2 million tonnes of urea and 70,000 tonnes of ammonia per year.
It would serve key farm states in Brazil's soy and corn producing interior. Brazil, the world's largest producer of coffee, orange juice and sugar and the No. 2 exporter of soybeans depends on imports for most of its fertilizer needs. While Brazil has abundant land for agriculture, its soils are notoriously lacking in some of the key nutrients needed for plant growth.
$1 = 2.66 reais Reporting by Roberto Samora; Writing by Caroline Stauffer; Editing by Jeb Blount and Leslie Adler