State-Owned Energy Firm Ties Up With Scandal-Struck Brazilian Peer

State-owned energy giant China National Petroleum Corp. (CNPC) will set up a joint venture with a scandal-ridden Brazilian peer to kick-start work on a stalled $16 billion refinery near Rio de Janeiro.

Petroleo Brasileiro SA, more commonly known as Petrobras, signed an agreement to set up a joint venture with CNPC subsidiary China National Oil and Gas Exploration and Development Co. Ltd., of which they will own 80% and 20% respectively, Petrobras said in a statement on Wednesday.

While no time frame was announced, the joint venture will be launched once a team made up of experts from both companies has inspected the Comperj refinery complex, the statement said. The joint venture will also work to develop the offshore Marlim oil field, one of Brazil’s most significant and substantial oil discoveries.

Construction of the Comperj refinery began in 2004, but work was suspended in 2015 after a major police investigation known as “Operation Car Wash” discovered rampant corruption linked to development contracts involving the state energy company. By this point, Petrobras had poured $13 billion into the project, with around $3 billion thought to be needed to complete it.

The Brazilian government is targeting a divestment of $21 billion of Petrobras’ assets as it looks to curtail the company’s political influence and reduce the burden of its debts, leading it to look for international partners to support ongoing projects.

“Chinese investment could prove a lifeline both to the company and the government,” Lucia Caamano, a senior analyst with AKE International, told Caixin in July, when the strategic partnership between the companies was announced. “Petrobras will not be able to keep key projects alive without finding new partners.”

While China did not target imports of U.S. crude oil in its additional list of $16 billion worth of U.S. imports on Aug. 8, “this has done little to revive buying interest from Chinese refiners who have continued to cut back on U.S. crude purchases, wary of the unpredictability of the ongoing trade dispute,” commodities information provider S&P Platts wrote in a recent report.

This will likely lead to greater imports from Brazil, which is likely to see a “steady stream” of large refining projects come online in the next few years, according to a recent OPEC report.

The move to develop oil supplies elsewhere appears to be part of an effort to diversify China’s supply, with CNPC also enlarging its footprint in the Middle East in recent months.

Contact reporter Ke Dawei (daweike@caixin.com)