Brazil to grant up to Real 892 subsidy to gasoline importers, producers

The Brazilian government will grant subsidies of up to Real 892.50/cubic meter to gasoline imports and domestic production, similar to what has been done with diesel, according to an executive order published in the Official Gazette May 13.

While the exact amount of those grants has yet to be determined by the Ministry of Finance, they will not exceed the amount charged through federal taxes. Gasoline PIS/Cofins taxes amount to Real 792.50/cubic meter, while CIDE is set at Real 100/cubic meter.

This makes the gasoline subsidy under this decision capped at Real 892.50/cubic meter.

In a press conference before the executive order, signed by President Luiz Inácio Lula da Silva, was published, the Minister of Mines and Energy, Alexandre Silveira, pleaded for distributors to cut prices as quickly as possible.

According to the ministry, the government is expected to spend up to Real 272 million ($54 million) per month for every Real 100/cubic meter subsidy on gasoline, and Real 492 million for diesel.

Until now, diesel has been the only fuel to receive subsidies. The federal government first announced a Real 320/cubic meter benefit to be granted by offsetting certain costs in mid-March, while bringing PIS/Cofins from Real 351.50/cubic meter to zero. Then, in a partnership with most state governments, it also granted Real 1,200/cubic meter subsidies, tied to the ICMS value-added state tax.

Benefits total Real 1,520/cubic meter for diesel importers, and Real 1,120/cubic meter for domestic producers. The new program will target gasoline first, but can pivot to diesel when that subsidy expires at the end of May.

The current subsidy program has a price cap that is calculated by the oil and gas regulator National Petroleum Agency, or ANP, using Platts import parity prices as the basis. It is unclear whether that would be the case for gasoline, as well.

This executive order is part of the plan announced by authorities April 23, in which the Executive branch would discuss a special tax regime for fuels with Congress due to the Middle East war.

Brazil has been relatively well-guarded against the price spike seen as an effect of the US-Israel attacks on Iran and the subsequent closure of the Strait of Hormuz. Despite prices at ports soaring in tandem with international markets, lower levels maintained mostly by the state-owned oil company Petrobras kept retail tags at bay.

The latest survey from ANP showed that prices at the pump for finished S10 diesel (Brazil's brand of ultra low sulfur diesel), after the 15% biodiesel blend, averaged Real 7,360/cubic meter in the Northeast and Real 7,180/cubic meter in the Southeast in the week ended March 9, up 22.9% and 18.1%, respectively, from the last week of February, before the Middle East war.

Meanwhile, Platts, part of S&P Global Energy, assessed S10 on an FCA basis in Itaqui, the main northeastern port, at Real 5,294.50/cubic meter May 13, rising 59.7% from Feb. 27. S10 FCA Santos, in the Southeast, was assessed at Real 5,402.60/cubic meter, up 56.5% in that same comparison.

Gasoline prices had an even milder impact. ANP shows retail increases of 9.7% and 5.2% in the Northeast and Southeast, respectively, since the end of February, following the 30% anhydrous ethanol blend. Platts gasoline FCA Itaqui assessment rose 67.9% during that period, and FCA Santos jumped 70.6%.