RIO DE JANEIRO, BRAZIL – Brazil’s Supreme Court (STF) ruled, by an 8 – 3 vote on Thursday, June 6th, that state-owned firms do not need congressional approval to sell their subsidiaries, a major victory for the government of President Jair Bolsonaro and state-run oil giant Petrobras.
Also on Thursday, STF Justice Edson Fachin, who last month had ordered suspension of the US$8.6 (R$34) 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 US$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 sign for other state-run firms such as power company Centrais Eletricas Brasileiras SA, or Eletrobras, which is also eyeing divestments.
Plans to privatise 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 up to R$1 trillion (US$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 had suspended the TAG sale after a lawsuit by a labor union claimed that divestments of subsidiaries by state-run firms required congressional approval. That requirement could have effectively brought such sales to a near standstill.
His decision in May was based on a separate 2018 decision by another individual Justice.
The case raised questions about the clarity of Brazil’s judicial framework. Brazil’s slightly lower Superior Federal 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 US$3 billion for the acquisition.