By Guillermo Parra-Bernal and Aluísio Alves

SAO PAULO, April 4 (Reuters) – State-controlled Petróleo Brasileiro SA unsuccesfully sought the appointment of arbiters to transform a long-term contract with debt-laden drilling rig leaser Sete Brasil Participações SA, in line with three sources with data of the state of affairs.

The proposal, made in current weeks, known as on every celebration to call three mediators to transform the contract, stated the sources, who requested anonymity for the reason that plan is personal. The contract between Petrobras and Sete Brasil has been in dispute for 2 years.

The destiny of Sete Brasil, which Petrobras helped create in 2008 to handle the world’s largest deepwater drilling fleet with $89 billion in orders, hinges on Petrobras’ willingness to signal the contract. Petrobras is Sete Brasil’s sole consumer and owns 5 % of the corporate.

Sete Brasil’s essential shareholders shunned the newest proposal and say the corporate ought to file for chapter safety to press Petrobras into signing extra favorable phrases, the sources added.

The arbitration proposal suggests Petrobras needs to thwart Sete Brasil’s risk to file for creditor safety, the sources stated. However, no arbitration “could fly at this point” as a result of two separate Sete Brasil shareholders have sued Petrobras over the contract deadlock, and they don’t seem to be prepared to drop it, stated the primary supply.

Sete Brasil and Petrobras, each primarily based in Rio de Janeiro, declined to remark.

According to the sources, Petrobras will current a reworked contract proposal in coming weeks.

A collapse of Sete Brasil can be devastating not just for the traders that backed the venture however for dozens of native suppliers. More than 800,000 native shipbuilding jobs may very well be misplaced, triggering $10 billion in losses at a time when Brazil’s economic system is already wrestling with a deep recession, trade estimates present.

The government-backed venture started to bitter when Petrobras and Sete Brasil grew to become engulfed in a corruption scandal referred to as “Operation Car Wash,” in 2014. The scandal has disadvantaged Sete Brasil of long-term financing, forcing Brazil’s high banks to roll over 14 billion reais ($3.9 billion) in loans.

A draft proposal that Petrobras offered Sete Brasil in February didn’t guarantee the rig leaser’s survival. Under that proposal, Petrobras would hire 10 rigs for 5 years, as an alternative of 19 for 15 years initially, and reduce lease charges by one-third.

Petrobras Chief Executive Officer Aldemir Bendine and officers on the firm’s exploration and manufacturing division stay at loggerheads over the problem, with the latter wanting a collapse of the rig leaser, the identical sources added.

($1 = 3.5760 Brazilian reais) (Editing by Frances Kerry)

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