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Petrobras to sell eight Brazil refineries, help open domestic market

Highlights

Refineries on the block total 1.1 million b/d of refining capacity

Plans to reduce share of domestic refining market to 50% from 98%

Sales could face legal challenges from unions, federal prosecutors

Rio de Janeiro — Brazil's Petrobras plans to sell eight refineries, accounting for nearly half the country's refining capacity, amid an aggressive move by the company's new management to ramp up asset sales and open the domestic refined product market.

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"The new directives for asset sales, with a focus on the refining and distribution segments that includes the full sale of PUDSA, a service-station network in Uruguay; eight refineries totaling 1.1 million b/d of refining capacity; and the sale of an additional stake in Petrobras Distribuidora, or BR," the company said in a filing made with stock regulators Friday.

The sales were part of an update to Petrobras' plan to sell $26.9 billion worth of assets in 2019-2023 under new Chief Executive Roberto Castello Branco approved by the board the same day.

Petrobras' new plan calls for the sale of eight of the company's 13 refineries, including Refinaria do Nordeste (RNEST), Unidade de Industrializacao do Xisto (SIX), Refinaria Landulpho Alves (RLAM), Refinaria Gabriel Passos (REGAP), Refinaria Presidente Getulio Vargas (REPAR) Refinaria Alberto Pasqualini (REFAP), Refinaria Isaac Sabba (REMAN) and Lubrificantes e Derivados de Petroleo do Nordeste (LUBNOR).

Petrobras plans additional revisions when it releases its 2020-2024 investment plan in the fourth quarter, the company said.

Castello Branco said in March that he planned to update the company's model for refinery sales, which previously had featured the sale of stakes in two separate packages that included four refineries accounting for about 25% of Brazil's 2.3 million b/d processing capacity.

Castello Branco, who took over as head of the company in early January, wants to reduce Petrobras' share of the domestic refining market to 50% or less, down from 98% currently.

Brazil's National Petroleum Agency, or ANP, and the Justice Ministry's Antitrust Division, known as CADE, as well as most government officials, see the potential sale of Petrobras' refineries as the best way to open the world's fourth-biggest transportation fuels market to greater competition. Discretion, however, was urged so as not to pass along state-created monopolies to private enterprise for exploitation.

POTENTIAL CHALLENGES

An accelerated opening of Brazil's refined-product market, however, is unlikely, industry officials said. Petrobras' sales plan could face legal challenges from labor unions or federal prosecutors, or even undergo congressional scrutiny. Either issue would likely bring delays, officials said.

In addition, President Jair Bolsonaro's call to Castello Branco to complain about an announced increase to diesel prices, which was later canceled by the company in mid-March, raised concerns about a return of government meddling. New entrants in Brazil's refining industry will want clear signs from the government that there will be fair-market prices for refined products in Brazil.

The refineries will most likely attract interest from Asian investors, especially from China, an industry source told S&P Global Platts.

Chinese state oil company CNPC and Petrobras are already in the midst of a potential partnership to complete work on the 165,000 b/d Complexo Petroquimico do Rio de Janeiro, or Comperj, refinery. Petrobras officials also said last year that CNPC could potential end up taking a stake in several refineries in the country's southeast region as part of a larger deal that would reposition the company's refining portfolio under the previous divestment program.

Brazil's government has also outlined opportunities in the country's downstream sector at recent roadshows for investors.

Refinery Capacity
Refinaria Landulpho Alves (RLAM) 376,650 b/d
Refinaria Presidente Getulio Vargas (REPAR) 208,990 b/d
Refinaria Alberto Pasqualini (REFAP) 189,600 b/d
Refinaria Gabriel Passos (REGAP) 144,800 b/d
Refinaria do Nordeste (RNEST) 115,000 b/d
Refinaria Isaac Sabba (REMAN) 43,970 b/d
Lubrificantes e Derivados denull Petroleo do Nordeste (LUBNOR) 8,000 b/d
Unidade de Industrializacao do Xisto (SIX) 5,880 mt/d

-- Jeff Fick, newsdesk@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com

Petrobras puts up eight refineries for sale Refinery CapacityRefinaria Landulpho Alves (RLAM)376,650 b/dRefinaria Presidente Getulio Vargas (REPAR)208,990 b/dRefinaria Alberto Pasqualini (REFAP)189,600 b/dRefinaria Gabriel Passos (REGAP)144,800 b/dRefinaria do Nordeste (RNEST)115,000 b/dRefinaria Isaac Sabba (REMAN)43,970 b/dLubrificantes e Derivados denull Petroleo do Nordeste (LUBNOR)8,000 b/dUnidade de Industrializacao do Xisto (SIX)5,880 mt/d