May 30, 2019 / 2:18 PM / a year ago

Brazil government, Petrobras lobby ahead of key privatization court ruling

BRASILIA, May 30 (Reuters) - Brazilian state-run oil company Petrobras and sectors of the government are mobilizing in the lead-up to a Supreme Court session later on Thursday that could have a profound effect on privatizations in the country.

In recent days, lawyers for Petroleo Brasileiro SA as well as Brazil’s Ministry of Mines and Energy and the federal solicitor-general’s office, known as the AGU, have been lobbying the top court to overturn injunctions suspending divestitures by Petrobras, according to several sources with knowledge of the matter.

At 2 p.m. Brasilia time (1700 GMT), Brazil’s Supreme Court, the STF, is set to rule on whether the sale of state-run companies and their subsidiaries needs the approval of Congress and whether they need to be sold in an auction format.

The hearing follows a decision by a single justice on Tuesday to suspend the $8.6 billion sale of Petrobras’ TAG pipeline unit to France’s Engie SA, and stems ultimately from a similar decision made my a different judge last year.

A ruling upholding the injunctions would be a blow to Petrobras, which is counting on asset sales to reduce its hefty net debt load of roughly 372 billion reais ($93 billion). Among the asset divestitures that would likely be affected by the ruling is the sale of eight refineries that the company has said could fetch some $15 billion.

Privatizations are a major pillar of President Jair Bolsonaro’s economic program. His economy minister, Paulo Guedes, has said privatizations could bring 1 trillion reais into public coffers.

As part of the government’s full court press, the AGU has sent a memorandum to STF justices defending the sale of assets without congressional approval, according to the sources, who requested anonymity as they were not authorized to speak to media.

Brazil’s solicitor-general, André Luiz Mendonça, has personally met with STF President Dias Toffoli, and Petrobras lawyers have also been at the STF to defend the company’s position.

Privatizations are generally unpopular in Brazil and would be unlikely to move swiftly through an often-dysfunctional Congress.

The AGU has also publicly defended Petrobras’ ability to sell assets without congressional approval.

“This ruling is going to give a big signal to the market,” said a government source. “It’s strategically important, and it’s vital for Brazil.” (Reporting by Ricardo Brito Writing and additional reporting by Gram Slattery; Editing by Steve Orlofsky)

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