Fuels: what is true and what is a lie about prices in Brazil?
On the eve of the electoral campaign, the government of Jair Bolsonaro (PL) is still trying to promote changes in legislation to reduce or at least hold fuel prices. Among the ruling party, the discourse is that the increases in diesel and gasoline in Brazil are the result of international pressure, amplified by the pandemic and the war in Ukraine.
Lawmakers and President Bolsonaro himself, however, also blame Petrobras and state governors. The governors, in turn, blame the state-owned company, controlled by the federal government, for the successive increases, and defend the formation of a fund to reduce the impacts on consumers.
But what is true and what is a lie in relation to fuel prices in Brazil? See below for answers to the main questions on the subject, which promises to be one of the highlights of the presidential campaign.
Oil prices are rising. This is a problem?
Yes, but not just for Brazil. All oil-consuming countries are suffering from rising prices, which make fuel at gas stations more expensive.
The rise in oil began during the Covid-19 pandemic. After the quotations have retreated at the beginning of the health crisis, they began to rise in the international market.
The barrel of Brent oil traded in London, one of the global benchmarks, was around US$ 25 in April 2020, at the beginning of the pandemic. By the end of that year, the price had already exceeded US$ 50.
The war between Ukraine and Russia — a major exporter of oil — worsened the scenario at the beginning of 2022. The result is that the Brent barrel reached US$ 120 this month of June.
Does the rise in oil abroad affect fuels in Brazil?
With the raw material (petroleum) more expensive, it is inevitable that the cost of diesel and gasoline will also rise.
This is because Brazil, despite being self-sufficient in oil production, imports part of the refined fuels consumed domestically. The refineries in operation in the country are not enough to meet all the demand.
In the case of diesel oil, according to information from the Ministry of Mines and Energy (MME), Brazil imports around 30% of the fuel consumed domestically.
With the rise of oil in the international market, which also boosts the value of diesel, imports become more expensive. The result is the passing on of costs to the pumps.
Is the dollar also a factor in the rise?
Undoubtedly. The rise of the dollar in relation to the real makes the import of fuels by Brazilian companies more expensive. So, there is also pressure to pass on the cost.
As in the case of oil prices, the pandemic and the war between Russia and Ukraine were factors that acted to raise the dollar.
At the beginning of 2020, before the pandemic, the value of the commercial dollar was around R$4. In recent days, it has fluctuated close to R$5.20.
If fuel increases abroad, why does it need to increase in Brazil as well?
This is because of the current functioning of the market. As the country buys part of the fuel consumed internally from abroad, importing must be economically viable.
If an importer pays dearly for fuel abroad, but is unable to pass the cost on to the domestic market, the tendency is for him to give up importing: the operation would not be profitable.
Due to this dynamic, fuel prices have risen in Brazil in recent months, following the increases abroad.
On March 25, Petrobras even sent a letter to the MME and the ANP (National Petroleum Agency), warning of the risk of a diesel shortage in Brazil.
The state-owned company’s concern is with the gap between the domestic price of fuel and the value practiced in the international market. The lag exists despite the readjustments already announced in 2022 by the state company itself.
Can there really be a lack of diesel in Brazil?
The possibility exists and is linked to the difficulty of importers in passing on the cost of the operation in the Brazilian market. Currently, there is a gap between national and international diesel prices. That is, diesel here is cheaper than abroad.
The lag occurs despite the fact that, in 2022, Petrobras promoted four increases in diesel prices: 8.08% (January), 24.9% (March), 8.87% (May) and 14.3% ( June). The elevations are for diesel refined by Petrobras, which ends up serving as a reference for the imported product.
On June 17, in addition to raising diesel prices, Petrobras announced a 5.2% readjustment for gasoline. Despite the increases, Abicom (Brazilian Association of Fuel Importers) estimates that the lag of diesel in relation to foreign countries is close to 9% and that of gasoline, 5%.
With such a lag, many companies are unable to import, because they would have to pay a higher amount abroad than what is charged in Brazil.
Has Petrobras always passed on the rise abroad to prices in Brazil?
Not. This transfer policy was adopted in October 2016, during the government of Michel Temer.
At the time, Petrobras started to calculate the price of fuels based on the international market, passing on variations more frequently. It is the PPI (Import Parity Pricing) policy.
Critics of the PPI, such as President Jair Bolsonaro, claim that it increases the profit of Petrobras shareholders at the expense of the consumer, who ends up paying for the rise in the dollar and oil.
Supporters of the policy say that this is the best way to attract investment, guarantee supply and stimulate competition.
They recall that, during Dilma Rousseff’s government, when the PPI was not applied, the government held back fuel increases, keeping an eye on inflation. This ended up punishing the company and reducing investments in the oil sector in Brazil.
In practice, controlling prices is a disincentive for those who want to invest in the sector.
Is ICMS to blame for the price of fuel?
This is one of the arguments used by the Bolsonaro government when dealing with fuels. In the government’s view, the collection of ICMS (Tax on the Circulation of Goods and Services) by the states is one of the main factors for fuels being so expensive.
The problem is that ICMS does not represent the largest share of fuel prices.
Petrobras data on the cost of gasoline show that, in the period from June 12 to 18, the average price at Brazilian gas stations was R$ 7.23 per litre. This cost is broken down as follows:
- BRL 1 (13.8%) for distribution and resale
- BRL 0.95 (13.1%) for the cost of ethanol blended with fuel
- BRL 1.75 (24.2%) for ICMS
- BRL 0.69 (9.5%) for federal taxes
- BRL 2.84 (39.3%) for Petrobras
In the case of diesel, the average price at Brazilian gas stations was R$ 7.03 per liter, with the following cost division:
- BRL 0.94 (13.4%) for distribution and resale
- BRL 0.73 (13.1%) for the cost of biodiesel blended with fuel
- BRL 0.84 (11.9%) for ICMS
- BRL 0.00 (0%) for federal taxes
- BRL 4.52 (64.3%) for Petrobras
Thus, although the federal government pressures the states to reduce the ICMS on fuels, other costs, such as the share that goes to Petrobras itself, are more relevant.
If ICMS is zeroed, will the price at the pump drop?
Nobody knows the answer to that question.
The government argues that, if the ICMS is zeroed, the price would fall at the pumps. Some analysts believe that the measure would not contain prices in the long term.
The governors claim that most of the cost is linked to international prices and the exchange rate. Thus, it is possible that the reduction in ICMS is diluted by the rise in oil and, with that, the final consumer does not even notice the difference.
Due to the opposition of the governors, the government gave up last week to vote in Congress on a PEC (Proposed Amendment to the Constitution) that would grant financial compensation to states that had zero ICMS on diesel by the end of 2022.
Now, the government is betting on the creation of a truck driver allowance of R$ 1,000 per month, to be paid until the end of the year, to minimize the effects of high diesel prices among drivers.