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Brazils black market pipeline Gangs hijack Petrobras oil, fuel

In September, police investigating a wave of killings in the northern Rio de Janeiro suburbs followed a tip to the isolated scrubland near the massive Duque de Caxias oil refinery. Police presumed the killings were linked to turf battles between criminal gangs in the run-up to municipal elections the following month. They found a different explanation buried beneath the grass: a system of tubes to siphon fuel from underground pipelines leading from the refinery, owned by state-run oil company Petrobras. Some of the killings, police said, were part of a power struggle between rival gangs earnings millions of dollars a year from stealing crude oil, diesel and gasoline and selling it on a thriving black market. The discovery highlighted a fast-growing criminal enterprise in Brazil's oil heartland, between Rio de Janeiro and Sao Paulo. From just one recorded incident in 2014, the number of thefts and attempted thefts from Petrobras rose to 14 in 2015 - before jumping five-fold to 73 last year, the company told Reuters. The racket is part of a larger crime wave in Brazil, and especially Rio, amid the country's worst recession on record. Investigators believe the oil and fuel thefts were masterminded by the city's powerful militias - often made up of retired or off-duty cops - as they seek to move away from terror and violence to lower-profile crimes following a crackdown by authorities in recent years. The thieves' methods range from hijacking tanker trucks to tapping the company's more than 11,000 kilometers of pipelines - and processing stolen crude at their own secret refineries."Not even Petrobras knows exactly how much is being stolen," said Giniton Lages, the Rio police chief who led the investigation at Duque de Caxias. "It's a huge business, moving millions of reais."INSIDE JOB While oil theft - often with environmental damage from the accompanying spills - is commonplace in regions like the Niger Delta of Nigeria, it has not traditionally been a problem in Brazil. The thefts add to the steep challenges facing Petroleo Brasileiro SA, as the Rio-based firm is formally known. Amid weak oil prices, the company is scaling back under new CEO Pedro Parente and trying to emerge from a $100 million pile of debt. For the past three years, the state-run company has been hit by a sprawling investigation into corruption and political kickbacks in its dealings with construction firms. Police suspect corruption in the oil thefts as well. The taps and pipes near the Duque de Caxias refinery were so precisely engineered that investigators concluded the thieves must have had help from inside Petrobras.

"They knew what type of fuel was inside each pipe and what was the ideal point to place a tap without the change of pressure in the tube raising the attention of the company's security system," Lages said. Petrobras, whose production of about 2.8 million barrels a day makes it one of the world's top 10 oil companies, said it was working with police to identify any employees or ex-employees that may have been involved in the crimes."In 2016, there was a startling increase in theft from our pipelines," said Rodrigo Spagnolo, head of pipeline maintenance at Transpetro, Petrobras' transport subsidiary. The company, however, said the robberies had no material impact on its earnings. Petrobras reported revenues of $81 billion last year. RUTHLESS GANGS The militias in Rio de Janeiro emerged to combat drug gangs in the city's violent hillside favelas. But they evolved into criminal organizations preying on those impoverished communities, controlling everything from real estate and electricity to cable TV. Some of the leaders entered local politics. In the wake of high-profile killings at the end of the last decade - prompting a government crackdown - the militia have maintained a lower profile, said Ignacio Cano, a professor at the state university of Rio de Janeiro and a member of its Laboratory for the Analysis of Violence."Stealing fuel was not typically a crime associated with militia, but they must see an opportunity for making millions," he said. "It's unusual for them to operate outside the territory they control."

Most oil and fuel thefts reported by Petrobras in 2016 took place on the populous Sao Paulo-Rio de Janeiro axis, which groups five of the company’s biggest refineries. In Rio de Janeiro, thefts tripled last year to 33. Five of the incidents caused oil spills, Petrobras said. Police arrested 13 people for the Duque de Caxias refinery scam, including two military police officers. A judge has issued warrants for 26 others. The gang, set up in June 2015, stole 14 million liters (3.6 million gallons) of fuel last year, worth an estimated 33 million reais ($11 million), prosecutors said. Police believe the Rio branch of the gang was headed by Caxias Denilson Silva Pessanha, a former city councillor in Duque de Caxias and the owner of illegal gasoline stations. Such service stations, operating without a license or a distribution contract with a fuel supplier, have become more common in Brazilian cities in recent years. Pessanha, a fugitive, is wanted for torture and attempted homicide. Reuters attempts to locate an attorney for him were not successful. Transpetro said it was investing in more security, but Rio de Janeiro police say the company remains an easy target.

"The company's security officials who we have spoken to admit there is little they can do," Lages said. "This involves armed gangs, and private security can do little about it because they are afraid." A SECRET REFINERY While Brazil's high unemployment and deep recession could be driving the thefts, Lages said, another motivation is the low risk of capture and punishment. Convictions are unlikely to result in imprisonment because Brazil's jails are chronically overcrowded."You might get a bit of community service time, so this is profitable and not much trouble," Lages said. Police are trying to classify the robberies as environmental crimes, which can carry up to five years in prison in cases where the pollution threatens humans or animals. The 13 people arrested in the Duque de Caxias refinery thefts were charged with forming a criminal enterprise, which also carries stiffer penalties. The scale of the crime has surprised police. At the end of last year, they uncovered a secret refinery in Boituva, Sao Paulo state, one of the installations used to process stolen crude. Video images show a large complex, with four giant storage tanks surrounded by a complex mesh of pipes, and a vast forecourt filled with unmarked tanker trucks."The gang was stealing oil from Petrobras' pipelines in Rio de Janeiro, filling trucks and taking it to these secret refineries," said Sao Paulo police chief Emerson Martins. The fuel would then be sold to illegal service stations and to small-scale vendors in rural towns or city slums, police say. The criminals sometimes use water trucks to transport the stolen cargo without drawing suspicion. In reaction, Brazil's Federal Highway Police have increased roadblocks on highways between Rio and Sao Paulo."The militia has rushed headfirst into this business," said Jose Helio Macedo, a spokesman for the police agency. "We are trying to curb it."

Mobileye deal to fuel investment in late stage Israeli start ups

Intel's $15.3 billion acquisition of Mobileye has catapulted Israeli hi-tech into the global league, and is likely to stimulate investment in the sector's other late-stage startups, where funds are most needed. Fundraising in late-stage startups - more mature firms that are already selling products rather than just the bright but unexploited ideas of entrepreneurs - has begun to increase. According to the Israel Venture Capital (IVC) Research Center, it rose to $2.9 billion in 2016 from $2.4 billion in 2015 as investors search for a higher yield on their investments. Venture capitalists believe the U.S. semiconductor giant's purchase last week of Mobileye, which specializes in technology for driverless cars, should accelerate the trend."A concern over the years has been that compared to the U.S., Israel cannot produce outsized returns," said Adam Fisher, a partner who manages the Israel office for California-based venture capital fund Bessemer."Mobileye is a perfect example of how a big business can be built in Israel and how a large corporate will not hesitate to pay a strategic premium for the business despite its location."The price was about 21 times Mobileye's expected 2017 revenue, or more than six times more expensive than the semiconductor industry's three-year deal average. Until recently, many Israeli tech firms failed to grow enough to stay independent. Global companies, keen to tap into the skills of workers trained in the military and intelligence sectors, often bought them before they floated on the share market or when they were still small-cap stocks on the Nasdaq exchange. This was the case with Waze, the Israeli map app, which Google bought in 2013 for $1.15 billion. That same year, Wix, an Israeli startup which helps people build websites, made its market debut on New York's Nasdaq, raising $127 million seven years after the company was founded. Only a few, such as cyber security firm Check Point Software Technologies, which has a market valuation of almost $18 billion, have succeeded in remaining independent. Defense tech specialists such as Elbit Systems are largely off limits to foreign investors for Israeli national security reasons. Michael Eisenberg, a partner at the Aleph VC, said the Mobileye sale signaled to late-stage financiers that they can expect much more significant returns on their investments."It's an accelerant and a belief that there is no glass ceiling for Israeli companies," said Eisenberg, who also manages the portfolio of U.S. VC Benchmark in Israel.

Autotalks, a provider of vehicle-to-vehicle communication for improving road safety, said on Wednesday it raised $30 million in late-stage funding from investors including Samsung's Catalyst Fund, bringing to $70 million its total raised to date. Venture capitalists typically seek returns of 3-10 times their overall investment over time, with those investing at an early stage expecting a higher multiple than at the later stage. Long known as the "startup nation", Israel is maturing into a "scale-up nation", said Steven Schoenfeld, founder of BlueStar Indexes, which develops indexes and exchange traded-funds (ETF) that track Israeli stocks. However, Israelis are largely missing out on their own success as local institutions shy away from investing in technology companies, especially those listed abroad. Israeli institutions, which are typically conservative, tend to stick with indexes and benchmarks from the Tel Aviv exchange, he said. Mobileye now accounts for 16 percent of BlueStar's Israeli technology index. The ETF that tracks the index has gained 13.8 percent so far this year to an all-time high, while the Nasdaq is up 9.6 percent.

Schoenfeld pointed to software provider Amdocs and Wix as examples of other companies "going the distance" by staying independent for longer. Cyber security firm CyberArk, which is traded on Nasdaq, is another with strong growth potential. AUTOMOTIVE CENTRE Mobileye understood it could grow only so much on its own. The company has expanded rapidly in the two years since its New York share offering into mapping, systems building and intelligence of driving. "All of these take time to build and time to get resources and Intel already has these resources," said Mobileye co-founder Amnon Shasuha. "If we want to ... be the key player in autonomous driving, we need to think about it as an industry and not as a product." With more than 200 startups Israel is a growing center for automotive technology. Last year startups in the sector raised $681 million, nearly double the amount in 2015, according to the IVC.

Due to Mobileye, car manufacturers and their suppliers have been "making the pilgrimage" to Israel for the last several years and met with other startups, Fisher said. The sector is already enjoying robust pricing for M&A and the Mobileye deal will continue that, he said. Potential acquirers "will more likely be the traditional tech companies that have a declared interest in the automotive sector rather than car companies themselves, but the latter wouldn’t surprise me either," Fisher said. Bessemer has invested in depth sensor technology company Oryx Vision as well as Otonomo, which developed a connected car data exchange, and Vayyar, a provider of 3D imaging sensors. Argus Cyber Security, which has raised $30 million and collaborates with Qualcomm, is linking the automotive sector with another of Israel's most vibrant sectors - cyber security - helping to prevent connected cars from being hacked. The Mobileye deal, said Argus CEO Ofer Ben-Noon, could accelerate his company's growth. "There is no doubt there will be more investments in Israel for automotive, and a lot more M&A," he said. Car makers General Motors, Daimler, Volvo and Honda have all opened research and development centers in Israel. Josh Kram, senior director for Middle East Affairs at theU.S. Chamber of Commerce, noted that about 300 American companies have R&D centers in Israel, including Intel. "Now they are moving into the autonomous space and purchasing Mobileye has catapulted them to the next level," he said. "It's a win-win for both companies."