Challenges to Divestitures in the Brazilian Refining Market

This article discusses potential challenges to be faced during the divestiture process of the oil refineries held by state-owned company Petrobras. As a result of the COVID-19 pandemic and the oil price war between Saudi Arabia and Russia, there was a significant drop in demand and price of oil products. Those changes in the dynamics of the oil and gas market may adversely affect the divestitures plans of Petrobras, once the sector has been facing serious uncertainties on when the oil consumption and price levels will return to the pre pandemic scenario. The current situation may impair the attractiveness of the assets to be divested, the degree of risks considered acceptable by potential investors, the applicable rates of return, payback periods, and the incentives for new players to enter into the Brazilian refining sector. In addition to that, there are material institutional ambiguities surrounding Petrobras’ divestitures plans and the fulfillment of the divestiture agreement signed by Petrobras with CADE, the Brazilian Antitrust Authority. Even though the Brazilian Supreme Court has temporarily affirmed the legality of the divestiture plans, there is still room for litigation. Exacerbated activism by administrative and judicial authorities, obstacles caused by legislative and regulatory bodies, and resistance from political parties and unions may still hinder the divestiture process. In light of the peculiarities of the sector, there are also relevant antitrust and economic issues that were not carefully considered by CADE when designing the divestitures agreement