China Bails Out Petrobras's $14 Billion Refinery Misadventure

(Bloomberg) -- China National Petroleum Corp plans to help complete a refinery in Rio de Janeiro that already cost Brazil's state-controlled oil company Petrobras $14 billion before it was halted amid a widespread graft investigation.

CNPC, as the Chinese producer is known, signed a letter of intent adding the Comperj refinery to a partnership the two companies signed last year. The agreement also includes evaluating investments in some of Brazil's largest legacy fields at the offshore Marlim cluster.

The multi-billion dollar petrochemical and refinery project dates back to 2004 and the original plans were for seven plants and more than 100,000 jobs. It was suspended in 2015 amid the corruption investigation known as Carwash. Petroleo Brasileiro SA, as the Brazilian company is formally known, abandoned the petrochemical unit in 2015 amid a series of writedowns, and has been seeking a partner to conclude one of the two planned refineries.

Petrobras' non-binding agreement with CNPC comes a day after a major setback to a separate plan to divest refining assets. Petrobras has temporarily suspended the sale of four refineries and associated infrastructure after Supreme Court Justice Ricardo Lewandowski ruled that state-controlled companies need congressional approval for any privatizations.

Petrobras controls 99 percent of Brazil's refining capacity, and is also selling assets ranging from pipelines to biofuel plants.

Graft Magnet

Comperj became a symbol of pervasive corruption at Brazil's state-run oil producer after the Carwash probe showed that contracts were rigged by a cartel of 16 engineering and construction conglomerates.

At Comperj, contractors were accused of inflating expenses to boost illicit gains, after bribing Petrobras executives to win the original contracts. In 2016, Petrobras said at least $2 billion were needed to finish a 165,000-barrel-a-day refinery train that was 80 percent complete.

Petrobras and CNPC are also partners at the offshore Libra field, considered Brazil's largest oil discovery.

To contact the reporter on this story: Sabrina Valle in Rio de Janeiro at svalle@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Peter Millard, Walter Brandimarte

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