Petrobras NTS Sale Drew Currency Risk and Valuation Flaws, Brazil Audit Court Says

By Brazil Stock Guide – Brazil’s federal audit court said Petrobras accepted excessive currency risk and structurally weak valuation premises in the 2017 sale of 90% of its gas pipeline arm Nova Transportadora do Sudeste (NTS) to a Brookfield-led infrastructure fund, a deal that totaled $5.19 billion, according to a newly updated monitoring report. The transaction, one of the largest divestments in Petrobras’ history, converted a reais-denominated price into U.S. dollars under conditions deemed unfavorable to the state oil company.

The Tribunal de Contas da União found that Petrobras’ decision to shift the transaction into dollars lacked prior technical justification under its own currency risk management rules. As a result, Petrobras absorbed sharp exchange-rate volatility between the signing and settlement of the deal in April 2017, cutting the effective value of the transaction by an estimated R$ 1.16 billion. The court concluded that this exposure violated Brazil’s constitutional principles of efficiency and economic rationality that govern state-controlled companies.

Auditors also identified structural valuation weaknesses that reduced the estimated worth of NTS. The sale incorporated gas transport tariffs that were not yet approved by the regulator, artificially lowering projected revenues. At the same time, Petrobras accepted discount rates (WACC and equity costs) that internal technical teams had flagged as fragile, resulting in a lower asset valuation. Compensation mechanisms embedded in the contract were later shown to fall short of fully offsetting these distortions, meaning Petrobras may have recovered less than the original valuation losses implied.

The court further highlighted governance distortions in the sale process, including exclusivity granted to the Brookfield-led fund, changes to transaction conditions without reopening the competitive phase, and the payment of success-based advisory fees that heightened conflict-of-interest risks. While the TCU ultimately refrained from assigning personal liability to individual executives—citing the absence of gross misconduct—it formally recommended that Petrobras overhaul its divestment framework to ensure neutral closing adjustments, stricter oversight of valuation reports, and stronger control over foreign-exchange exposure in future deals.