Brazil's state-controlled Petrobras plans to sell eight refineries with around 1.1mn b/d of installed capacity, representing almost 51pc of the company's total domestic refining capacity.
If concluded, the sales would transform Brazil's oil refining industry where Petrobras has long held a virtual monopoly.
Petrobras' 13 domestic refineries account for around 98pc of installed capacity in Brazil, which still relies on fuel imports to meet demand.
The company's board approved the guidelines for the sale of 100pc stakes in the refineries, additional stakes of distribution subsidiary Petrobras Distribuidora (BR), and a service station network in Uruguay.
Brownfield refineries to be offered are 315,000 b/d Landulpho Alves (RLAM) in the northeastern state of Bahia; 157,000 b/d Gabriel Passos (REGAP) in the southeastern state of Minas Gerais; 208,000 b/d Presidente Getúlio Vargas (REPAR) in the southern state of Parana; 201,000 b/d Alberto Pasqualini refinery (REFAP) in the southern state of Rio Grande do Sul; and 46,000 b/d Isaac Sabbá (REMAN) in the northern state of Manaus.
The sales portfolio also includes Abreu e Lima (RNEST) in the northeastern state of Ceara. The refinery, which was one of the assets caught up in Brazil's sweeping Lava Jato corruption probe, currently processes around 74,000 b/d. The completion of a pollutant treatment unit that would bring capacity at the first phase to 115,000 b/d is pending, as is the completion of a second 115,000 b/d phase.
The downstream divestment plan also covers an 8,000 b/d lubricants facility (LUBNOR) in Ceara and a 5,880 t/yr shale gas treatment unit (SIX) in Parana.
"The refineries divestment project, in addition to repositioning the company's portfolio to higher-yielding assets, will also allow for the increase in competitiveness and transparency of the downstream business in Brazil," Petrobras said in a 26 April securities filing.
In April 2018, Petrobras announced plans to sell 60pc stakes in two regional clusters covering four refineries—RNEST, RELAM, REFAP and REPAR—but was forced to halt the sales following a federal court injunction in July 2018. That injunction has not been formally overturned, but Petrobras has argued that a recent attorney general opinion clears the way for refinery sales.
The new plan is likely to draw the ire of labor unions and expose Petrobras to new legal challenges.
In October 2018, Petrobras and China's state-owned CNPC struck a preliminary agreement that could, pending feasibility studies, lead to the completion of the 150,000 b/d Comperj refinery in Rio de Janeiro. The deal would give CNPC a 20pc stake in the refinery, which is now around 80pc complete.
Chinese firms have been studying an entry in Brazil's refining sector for years, and are considered likely investors for the refineries now on offer—despite strained relations between Beijing and far-right president Jair Bolsonaro.
The success of the ambitious sales plan will hinge in part on how investors perceive the government's role in fuel pricing.
Earlier this month Petrobras backpedaled on a planned 5.7pc increase in diesel prices, a decision aimed at diffusing tensions with truck drivers threatening another strike. The decision followed a controversial phone call between Bolsonaro and Petrobras chief executive Roberto Castello Branco.
The market's negative response to the call and concerns over government intervention—repeatedly denied by Bolsonaro, Castello Branco and economy minister Paulo Guedes—appear to have accelerated the planned refinery sales, which were initially only expected to be announced at the end of May.
Petrobras did not detail what additional stake it plans to sell in BR. The company currently holds 71pc of the subsidiary. The remaining shares are traded on the Sao Paulo stock exchange following a 2017 IPO.
Castello Branco has made privatizing non-core segments of Petrobras a top priority of his two-year mandate.
Petrobras has already inked upstream and midstream deals worth around $11.3bn this year, representing around 40pc of the company's current $27bn 2019-23 divestment target. The company's divestment portfolio is likely to be significantly expanded under the 2020-24 plan, which is expected to be released in the fourth quarter.
