Analysts: Petrobras’ new price policy creates risk – 05/16/2023 – Market

The fuel sector considers that Petrobras’ new fuel price policy leaves the market without parameters and may have negative impacts both on product importers and on biofuel production in Brazil.

The absence of a price reference also increases the risk of political interference in the state-owned company, such as those that led to billionaire losses with price damming during the campaign for the re-election of Dilma Rousseff (PT).

Announced this Tuesday (16), the policy abandons the PPI (import parity price), but does not bring a new price reference, limiting itself to saying that the state-owned company will practice competitive prices in the markets where it operates, preserving its profitability.

Since the election campaign, the Luiz Inácio Lula da Silva (PT) government has argued that the PPI penalized consumers by charging import costs on products produced in Brazil and transferring volatilities, sometimes artificial, from the international oil market to gas stations.

Abicom (Association of Fuel Importers), however, argues that the lack of references creates insecurity about the operations of companies that help supply the domestic market and, ultimately, can cause supply problems.

“The lack of transparency creates insecurity for new imports, it also generates insecurity for other fuel producers and for alternative fuels”, says the entity’s president, Sergio Araújo.

Imported diesel represents a quarter of Brazilian demand. In the case of gasoline, this percentage is 12.5%. Petrobras now has to participate more in imports and is now responsible for around half of purchases of both products abroad.

With less predictability of prices, says Araújo, private companies will have less security to bring the products, since at least 60 days are needed between the moment of purchase and the arrival of the cargo in the country. That is, between the purchase and the sale, the price can change to values ​​that companies will have less ability to predict, they say.

The hydrous ethanol market, in turn, is totally related to gasoline prices: when it is very cheap, the consumer stops consuming the biofuel, which has lower engine performance.

During the first Dilma government, with fuel prices dammed, the sugarcane sector faced one of the worst crises in its history. With high indebtedness for expansion in previous years, it saw sales plummet, leading dozens of mills to bankruptcy.

At the time, the government had the final word on readjustments in fuel prices, as former Petrobras president Graça Foster told the Federal Public Prosecutor’s Office.

Between 2013 and 2014, amid soaring international oil prices, Petrobras’ management repeatedly tried to approve increases, always hearing negatives from the then Minister of Finance, Guido Mantega, who headed Petrobras’ board of directors.

The implementation of the PPI was a response to this crisis, with an attempt to create a formula that would shield Petrobras from new pressures to hold prices — Foster even announced a formula in 2013, but the model did not work.

Representative of minorities on the board of directors at the time, Mauro Cunha sees risks of a return to the past, with new interference in case of high prices. “The statement [da Petrobras] It’s purposely confusing,” he says.

For him, the elimination of an international price parameter violates the laws of oil and the defense of competition, which determine that Petrobras operates in a system of free competition under market conditions and prevents abuse of economic power by dominant agents.

This last point is raised by an executive linked to regional fuel distributors: by allowing itself to charge different prices for each type of customer, Petrobras could make life difficult for smaller companies.

These companies have lower sales volume and access to credit than the large distributors that dominate the market and, therefore, see less possibility of obtaining better prices with the state-owned company. Furthermore, they are unable to import more expensive products.

Defender of prices less aligned with the international market, the Brazilian Association of Independent and Free Fuel Resellers also questions the lack of details about the new pricing policy.

“Transparency is essential for the entire market (investors, internal competitors, importers, distributors, retail outlets and consumers) to understand what will be done to achieve the objectives presented there and to review their competition, investment and purchase strategies “, he states.