Exclusive: Petrobras to receive offers for Bahia refinery on Thursday, sources say

© Reuters. Brazil's state-run Petrobras oil company headquarters is pictured in Rio de Janeiro

By Tatiana Bautzer, Carolina Mandl, Gram Slattery and Sabrina Valle

SAO PAULO/RIO DE JANEIRO (Reuters) - Brazil's Petroleo Brasileiro SA is set to receive binding offers for the country's second-largest refinery on Thursday, five people with knowledge of the matter said, as the state oil company aims to restart a plan to divest more than $10 billion in assets.

If the deal for the Landulpho Alves refinery, also known as RLAM, is concluded, it would mark a first in the producer's decade-long efforts to end its near-monopoly in refining in Brazil and open one of the top ten fuel markets in the world for private investors.

Potential bidders for the refinery in the northeastern state of Bahia include UAE investor Mubadala Investment Co PJSC [MUDEV.UL] and top Chinese state refiner Sinopec (NYSE:SHI), the people said.

Indian conglomerate Essar Group, which has exploration operations in its home country and refining and fuel distribution assets in Britain, may also bid for RLAM, two sources said. Essar was initially interested in one of the smaller refineries expected to be sold later this year, according to the sources, that asked for anonymity to disclose private talks.

Petrobras, Mubadala and Essar declined to comment by email. Sinopec did not immediately respond to a request for comment.

Petrobras, as the producer is known, plans to sell half of its refining capacity, or eight plants, starting with RLAM, Brazil's first fuel unit ever. Although Petrobras' monopoly was ended by law two decades ago, the company has retained control of more than 98% of Brazil's fuel production.

The unit has processing capacity of 323,000 barrels per day, or about 14% of Brazil's total, and will be sold together with pipelines and terminals. The northeastern Brazilian plant, which dates from 1950, requires renovations, according to one of the sources.

As social isolation measures have been progressively eased in Brazil's largest cities, refineries are back to operating close to their regular capacities.

Bidders had asked Petrobras for more time earlier this year, as financing became difficult and restrictions on visits due to the COVID-19 pandemic affected due-diligence work, Reuters reported.

Two other refineries in Brazil's southern region, REFAP in Rio Grande do Sul state and REPAR in Parana state, will have deadlines for binding offers in the third quarter, which could be as soon as July, two sources added.

Some potential buyers for all three refineries have completed due diligence, two sources said, as financing for acquisitions slowly returns after a dropoff as markets cratered in the initial months of the COVID-19 pandemic.

The pandemic has squeezed the value of refineries, as drivers stayed home, reducing fuel consumption, and oil prices fell. Still, no potential bidders from an initial round of non-binding offers have so far dropped out, one of the sources said.