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New diesel rules to affect valuation of Brazil's Petrobras refineries

(Reuters) - The valuation of refineries being sold by Brazilian state-run oil company Petrobras might face additional pressure as the country's oil regulator mulls banning the use of S500 diesel, sources familiar with the matter said.

Brazil is expected to replace S500 with low-sulfur S10 diesel in the coming years, requiring large investments in some refineries in order for them to produce the less polluting fuel.

Two of the refineries put up for sale by Petroleo Brasileiro SA, as the company is formally known, in particular face uncertainties - Refap and Repar, located in the Southern states of Rio Grande do Sul and Parana respectively.

Both have the capacity to process more than 200,000 barrels of oil per day, but are not focused on producing S10 diesel.

Petrobras had expected to sign confidentiality agreements with interested parties this month to sell the plants, but questions are now mounting - including political ones, as presidential front-runner Luiz Inacio Lula da Silva opposes selling refineries.

"Refap, and probably other refineries, will face problems (to be sold)," an executive in the sector said, adding that Refap did not have the required capacity to produce S10 diesel.

"Repar already makes a small amount of S10, so whoever buys it would need to invest in an adaptation - not in a conversion, which would require a lot more money," said a second executive, who asked for anonymity to discuss the matter.

The ban on the use of S500 diesel is expected to occur by 2025. Market participants told Reuters that oil regulator ANP is expected to present in the coming months a detailed schedule on the move.

Asked if the change would affect refinery divestments, both Petrobras and ANP did not immediately respond.

In a statement, Petrobras said that S10 already accounts for more than half of its total diesel sales.

(Reporting by Rafaella Barros and Rodrigo Viga Gaier Rio de Janeiro Writing by Gabriel Araujo Editing by Matthew Lewis)

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