BRASILIA, (Reuters) – Brazil’s Supreme Court ruled yesterday that state-run firms do not need congressional approval to sell their subsidiaries, a major victory for the government of President Jair Bolsonaro and state-run oil firm Petrobras.
Also yesterday, Supreme Court Justice Edson Fachin, who ruled in May to suspend the $8.6 billion sale of Petrobras’ TAG pipeline unit to France’s Engie SA, reversed his decision in light of the full court’s ruling, allowing Petroleo Brasileiro SA, as the firm is formally known, to go ahead with the divestment.
The decisions will allow Petrobras to proceed with its plan to divest $27 billion of non-core assets by 2023, which it has repeatedly said is key to reducing its bloated debt load.
The ruling was also a positive for other state-run firms such as power company Centrais Eletricas Brasileiras SA , or Eletrobras, which is also eyeing divestments.
Plans to privatize state firms are central to Bolsonaro’s economic proposals as he aims to kick-start the country’s flagging economy. Paulo Guedes, the economy minister, has said the government could raise some 1 trillion reais ($258 billion) through privatizations.
Mines and Energy Minister Bento Albuquerque cheered the decision.
“It was very important for the investments we will have in the oil and gas sector and in the electricity sector,” he said in a statement. “In addition, it brings predictability and legal security to the market.”
In a surprise ruling last month, Fachin suspended the TAG sale after a lawsuit by a union, arguing that divestments of subsidiaries by state-run firms required congressional approval. That requirement could have effectively brought such sales to a crawl.
His decision was based on a separate 2018 decision by another justice.
The case raised questions about the clarity of Brazil’s judicial framework. Brazil’s slightly lower Supreme Judicial Court and the nation’s solicitor general had approved the sale before the May ruling. Brazil’s antitrust regulator had signed off on the deal as well.
By the time the deal was suspended, Engie had already raised $3 billion for the acquisition.
