Petrobras cleared to raise refinery output without controls

RIO DE JANEIRO (Reuters) - Brazil’s Petrobras received a license on Monday allowing it to boost crude processing by 35 percent at its controversial RNEST refinery, the local government said, a move that lets the company delay installation of promised pollution controls.

A flag of Brazil's state-run Petrobras oil company is pictured at a gas station in Mariana, Brazil, November 11, 2015. REUTERS/Ricardo Moraes

Under the license, Petroleo Brasileiro SA, as government-controlled Petrobras is formally known, can process up to 100,000 barrels a day of crude at the refinery, up from 74,000 barrels under the previous license, according to a statement from the environmental protection agency of Pernambuco, the Brazilian state where the refinery is located.

The license requires Petrobras to use a special low-sulfur crude blend instead of high-sulfur heavy crude from Brazil’s Campos Basin near Rio de Janeiro that the refinery was designed to process.

The pollution-abatement systems initially ordered by the Pernambuco government were designed to reduce oxides of sulfur, nitrogen and other dangerous compounds and protect fragile environmental and tourist areas near the refinery.

Pernambuco did not state the blend’s formulation and did not immediately respond to questions about the license.

Petrobras said in a statement that work on the pollution control system is 70 percent complete but halted. It plans a tender for its completion by July and has budgeted 756 million real ($186 million) for RNEST this year.

At $20 billion, five times the original budget, the RNEST, or “Abreu e Lima,” refinery is probably the most expensive refinery ever built. Only one of two 115,000 barrel-a-day heavy-oil refining “trains” at the plant is operating.

The new license raised the train’s processing capacity to 87 percent from 64 percent. Pernambuco originally limited output to 45,000 barrels a day or 39 percent in November 2014.

At nearly $90,000 for each new barrel of refining capacity, RNEST cost almost double the next most expensive refinery in a Reuters survey.

RNEST is at the center of a giant price-fixing, bribery and political kick-back scandal. In 2008, Brazil’s Congress, citing construction irregularities, cut off funds, but then-President Luiz Inacio Lula da Silva, on recommendation of current President Dilma Rousseff, then his chief of staff and Petrobras’ chairwoman, vetoed the measure.

Since the scandal exploded in 2014, Petrobras slashed spending and cut off payment to contractors involved in the scheme. With oil at 10-year lows, Petrobras, whose nearly $130 billion of debt is the largest of any oil company, faces a cash crunch. These factors helped block completion of the pollution controls.

Reporting by Marta Nogueira and Jeb Blount; Editing by Leslie Adler and Sandra Maler