State-run Petrobras is reportedly negotiating a partnership with state-owned China National Petroleum Corp. (CNPC) to finish a major oil refinery project near Rio de Janeiro that has been stalled since 2014.
The agreement is part of a “strategic deal” signed last week in Beijing by Petrobras CEO Pedro Parente and Wang Dongjin, deputy manager of CNPC and president of its listed subsidiary PetroChina, the O Globo newspaper reported. Finishing the refinery will cost US$3.5-4 billion, it said, adding that currently the only work being done at the refinery was construction of a processing unit for gas from offshore pre-salt fields.
An unnamed source told O Globo that CNPC was also interested in partnering with Petrobras in exploration and production and accepted a minority stake in the refinery. CNPC already has a 10% share of the huge Libra pre-salt field that Petrobras operates, China national Offshore Oil Corp. (CNOOC) has another 10%. Petrobras has 40% and Total and Royal Dutch Shell have 20% each.
So far, Petrobras has only said that it has signed a memorandum of understanding (MoU) with CNPC to begin negotiations on a “strategic partnership”.
“The companies committed to evaluate, together, opportunities in Brazil and abroad in key areas of mutual interest, benefitting from their capacities and experiences in all the segments of the oil and gas chain, including potential financing structuring,” Petrobras said in a statement.
Known as COMPERJ, the refinery and petrochemical plant was originally budgeted at US$6.5 billion when work began in 2006. Two refinery trains and a petrochemical plant were projected to be included, and work was due to finish in 2011. But by 2014, with work dragging on, the budget had soared to US$13.5 billion for just one refinery train and Brazil’s Federal Court of Accounts, which had been alerted to overspends, calculated the cost could reach as much as US$30.5 billion.
Petrobras has spent US$13 billion so far, the Folha de S.Paulo newspaper reported. Works have been halted since late 2014, after the project was linked to vast graft scheme that cost the state-run Brazilian company billions, along with another expensive refinery project near Recife in the North East, and investments were slashed.
Petrobras’s former downstream director, Paulo Costa, who cut a plea bargain deal, was a key figure in revealing the scandal. The suspension of works proved disastrous for the poor, outlying town of Itaborai, where the population had swelled by 50,000 because of construction works and many had launched businesses in expectation of the plant opening.
“I see the news with a lot of hope,” Rodrigo Neves, mayor of nearby Niterói and president of an organisation of neighbouring towns, told O Globo. “The towns suffered a lot with the paralysation of COMPERJ.”
Looking to Asia
The Agencia Estado news agency noted this was not the first time Chinese investors had been linked to COMPERJ. Asian companies have also been courting other expensive refinery projects – in 2012, Petrobras held meetings with South Korea’s GS Caltex over a possible partnership in the Premium II refinery then being planned in the North Eastern state of Ceara. The South Korean company later gave up on the project because of doubts over its profitability, local media reported.
Petrobras has also concluded financing deals with Chinese banks. In December 2016, Petrobras agreed a loan for US$5 billion from the China Development Bank (CDB) and signed commercial contracts with China National United Oil, China Zhenhua Oil and ChemChina Petrochemical.
“The three contracts, in conjunction, establish the preferential supply to these companies of a total volume of 100,000 [bpd] of oil, attending market conditions, for a deadline of 10 years,” a Brazilian government statement said at the time.