Brazil court approves Sinopec Petroleum’s exit from bankruptcy protection

The Rio de Janeiro court of justice (TJRJ) has approved the conclusion of Sinopec Petroleum's judicial reorganization, paving the way for the company to come out of what is a form of bankruptcy protection, a source with knowledge of the matter told BNamericas.  

Together with Galvão Engenharia, the Chinese company was responsible for the engineering, procurement and construction (EPC) of Brazilian federal oil company Petrobras' nitrogen fertilizer unit III (UFN III) in Três Lagoas, Mato Grosso do Sul.  

A key milestone for the resumption of the undertaking, the court’s  decision was unanimous, and the planned obligations, such as settling debts with suppliers and labor disputes, have been met. 

"Creditors who are still dissatisfied, in theory, can still appeal to Brazil's supreme justice court, but the chance of a reversal is minimal. If they don't automatically appeal, the company will be released from judicial reorganization," said the source.

A remaining payment to the creditors of the EPC consortium is linked to the conclusion of the lawsuits against Petrobras relating to the early termination of the UFN III contract. 

The total value of the lawsuit between Petrobras and the consortium determined by an expert report is no less than 410mn reais (based on the year 2014, currently US$81mn). The engineering companies are still claiming a higher amount, but the courts have yet to rule on the request.

"Recent visits [of Petrobras management to UFN III] and mobilization by Petrobras lead us to believe that the plant's suppliers will soon have a happy ending," said the source.  

Construction of UFN III began in September 2011 but was halted in December 2014. The unit, which is close to the consumer market and is connected to the Gasbol pipeline to receive natural gas as a raw material, has projected urea and ammonia production capacity of 3,600t/d and 2,200t/d, respectively.

UFN III was included in Petrobras’ divestment program, but with the change of government in January 2023, the process of selling the plant was halted and the company decided to keep the asset in its portfolio, as expected.

The project is part of Petrobras’ strategy to resume investments in the petrochemical segment, which analysts consider to be a correct move both from a strategic and financial point of view.