Gasoline tax reduction affects ethanol plants – 02/15/2023 – Market

The exemption of federal taxes on fuel, approved by the Jair Bolsonaro government, had a strong impact on the results of sugarcane producing plants, which began to be pressured by competition with cheaper gasoline.

The sector is trying to prevent a new extension of the tax benefit, which expires at the end of the month, claiming that the measure has economic, environmental and social impacts and may discourage investments in renewable energy, Brazil’s competitive advantage in the energy transition.

This Wednesday (15), for example, Raízen reported a 79% drop in its adjusted net profit for the last quarter of 2022, which was R$ 255.7 million. The losses are attributed to the reduction in sugarcane crushing and the performance of its fuel operations in the face of low prices.

The company says it managed to increase the volume of ethanol sales from its plants by 33% to external customers and its own operations, but its average price fell 11.2% compared to the same quarter of the previous year, to R$ 3,769 per meter cubic.

He also stated that “it was another challenging quarter for the fuel distribution industry in Brazil” that still absorbs the effects of changes in fuel taxation on gasoline prices and, consequently, ethanol.

Between the first week of February 2022 and the first week of February 2023, the average price of hydrous ethanol at Brazilian service stations dropped 36%, considering the inflation of the period, to R$ 3.82 per liter. In April, the height of the off-season and before the exemption, it reached R$ 5.68, in an amount corrected by the IPCA.

Falling prices could be favorable for sales. But, with cheaper gasoline, ethanol lost competitiveness and ended 2022 with the lowest consumption since 2017, 15.5 billion liters. It was the third consecutive year of decline.

Data from the ANP (National Agency of Petroleum, Gas and Biofuels) show that today ethanol does not have an advantage over gasoline at service stations in any Brazilian state, considering that the biofuel needs to cost up to 65% of the competitor’s price to compensate for less autonomy.

The closest to this level is Mato Grosso, with 67.2%. In São Paulo, where there is normally an advantage, the percentage is 74.7%. Fipe (Fundação Instituto de Pesquisa Econômica) considers that, if the percentage is between 65% and 75%, there are no advantages or disadvantages in choosing the fuel.

Another company that has already released a balance sheet, the São Martinho plant, reported a net profit of BRL 429.7 million, down 38.3% compared to the same period in 2021, also citing the reduction in ethanol prices due to the impact of tax measures, approved between May and August 2022″.

The exemption from federal fuel taxes was approved by Congress at the end of May. At the same time, the states were forced to lower the ICMS on gasoline up to the limit of 18%, which put even more pressure on prices.

The benefit would end in December 2022, but was extended for two months by President Luiz Inácio Lula da Silva (PT) to avoid inflationary pressure and impacts on the government’s image early in the term.

Anticipating an extension, Jalles Machado changed its strategy and concentrated sales on anhydrous ethanol, which is mixed with gasoline, selling a large part of its stock between October and December.

The sales volume was 244% greater than in the same quarter of the previous year, but the average price of the product marketed by the company fell 25.4%, to R$ 3.02 per liter.

Jalles’ balance sheet shows a 166% growth in profit for the last quarter of 2022, to R$450.9 million, but the result benefited from gains in the acquisition of Santa Vitória Açúcar e Álcool. Without considering the accounting effect, the profit fell 69%, to R$ 39.4 million.

“The exemption, as we have been announcing since last year, is tragic from an economic, environmental and social perspective”, says Evandro Gussi, director president of Unica (Union of the Sugarcane and Bioenergy Industry), which tries to prevent a new extension of benefits.

He emphasizes that the environmental impact has already been measured: a study by the FGV Bioeconomy Observatory indicates that switching from ethanol to gasoline increased greenhouse gas emissions by 6.52% in the consumption of light fuels in Brazil.

From the social point of view, he argues, the Union and states lose resources that could be allocated to education and health to subsidize fossil fuel. He says he expects the government to resume charging at the end of the stipulated period.