Private refineries in Brazil point to higher costs and risks due to tax mismatch – 02/28/2023 – Market

Six private oil refineries in Brazil, which represent about 20% of the country’s refining capacity, will face high costs, pressure to increase prices of derivatives and will have the production of their fuels threatened due to a misalignment in the collection of taxes from Wednesday (1st), a spokesman told Reuters on Tuesday (28th).

The misalignment, according to the association of private refineries Refina Brasil, occurs because the government resumed charging PIS/Cofins on crude oil and some derivatives such as gasoline, as of March 1st, but maintained the exemption of taxes on diesel (fuel marketed in the country) and others until December.

Due to the nature of the PIS/Cofins collection, which is a non-cumulative tax, private refineries will once again pay PIS/Cofins on the purchase of oil, generating tax credits that cannot be recovered immediately with the sale of diesel and other derivatives.

The tax accumulation should total around R$ 4.7 billion until the end of the year, according to estimates by Refina Brasil.

“By not having taxation at the exit, everything I paid at the entrance goes to the Union cashier. I will be paying much more tax than I should”, said the lawyer representing Refina Brasil, Evaristo Pinheiro, pointing out that the Union it usually takes about three years to reimburse amounts like this.

The accumulation of tax credits should harm the accounts of private refiners, pointed out the spokesperson, noting that almost 90% of the cost of production in refining is oil and the profit margin of the activity is very low, of just one digit, ranging from 3% and 6% depending on the unit.

“Either it increases the price to offset the tax effect of this imbalance, or it starts to reduce production, because without money I reduce the purchase of oil”, he said, noting that the two situations can also happen simultaneously.

“If this problem is not resolved by tomorrow, March 1st, refineries may have to raise fuels by up to 30%.”

Price risk can occur in markets such as the Northeast, largely served by the Mataripe refinery (formerly Rlam), which was privatized and serves a large part of that region. The unit is one of the largest in Brazil, with a capacity of over 300,000 barrels a day.

Pinheiro also said that a reduction in the production of private refineries could cause a drop of up to R$ 2 billion in the collection of ICMS in the States.

Pinheiro said that Refina Brasil is already in contact with the Chief of Staff and the Ministry of Mines and Energy, who would be sensitive to the situation. He further stated that he is confident that a solution will be found. One way out would be to maintain the exemption from federal taxes on oil until the end of the year, he pointed out.

Details on the reinstatement are expected to be presented by the government later on Tuesday.

Created in December, Refina Brasil brings together the Refinaria de Mataripe (BA), Riograndense (RS), Ream (AM), Dax Oil (BA), SSOil (SP) and Paraná Xisto units, which together represent around 20% of capacity refining in the country. Only Paraná Xisto will not be impacted by the tax issue.

The entity comes after a broad divestment program by Petrobras, which included the sale in 2021 of the Mataripe Refinery, which represents 14% of Brazilian refining capacity.

Pinheiro pointed out that the entity will be very important to prevent new problems like this from happening.

“Every time you think of regular refining, people think of the verticalized market, and forget that there is a sector now that is not verticalized. Every time you think of Petrobras, people forget that there are other refineries that are not verticalized”, stated.

“That’s why Refina Brasil came about, to deal with these regulatory issues without the bias of verticalization.”

Pinheiro also pointed out that Petrobras is already running at high utilization rates in its refining park and that a reduction in production at private refineries could demand more fuel imports to guarantee supply, which today are around 20%.

However, the spokesman warned that foreign purchases are not carried out quickly, even more so in a scenario of tight global supply in the face of the Ukraine War and insecurities involving the collection of taxes in Brazil.

In the case of Petrobras, the tax misalignment does not affect the company in a relevant way, since a large part of the oil used by the company in the refineries comes from its own production.