What would be the alternatives to Petrobras’ current pricing policy? | Economy

The escalation of fuel prices in Brazil, with no signs of improvement, led to widespread criticism of the pricing policy adopted by Petrobras. Today, the company is based on International Parity Price (PPI), which consists of selling gasoline and diesel at the same price as they are sold in the rest of the world.

The federal government, congressional leaders and leftist leaders are among the critics of the current system. But what are the real alternatives to the current price policy that could hold back consecutive increases without breaking Petrobras’ coffers and burdening the government and states?

The answer is not simple and the solutions presented demand a medium to long-term effort. To understand the prospects, the g1 spoke with two economics professors: William Nozaki, from the University of Campinas (Unicamp), and Mauro Rochlin, from the Getúlio Vargas Foundation (FGV).

In summary, some of the proposals are:

  • In the short term: stabilization of the price of oil derivatives and the use of the company’s profits and dividends that are received by the government to make public policies that reduce the impact on the less favored parts of society.
  • In the medium term: investment in refineries to reduce the need to import refined oil and, with that, the payment in dollars for the product.
  • And in the long term: stabilization and strengthening of the real against the dollar to reduce the impact of the exchange rate on fuel prices.

Understand Petrobras' pricing policy

Understand Petrobras’ pricing policy

What was the pricing policy like before the PPI?

Before the change, in 2016, the government determined the values ​​of gasoline and diesel. With the objective of reducing inflation rates, Petrobras sold gasoline and diesel at prices below the market. Thus, the government prevented the increase from having a chain reaction in the economy, since the increase in fuel prices also increases the cost of road transport and, consequently, other goods.

The policies adopted before the freeze were not so clear. There used to be a pass-through of the increases, but done in a more spaced way. The government used to wait for a price trend outside for a period and only then decide whether to increase, maintain or decrease the value in here.

The two economists, with different political views, agree on one point: Petrobras should not go back to freezing prices. According to Rochlin, the pre-2016 freeze had two important financial impacts. The first was the fiscal impact because, in 2012, to cancel the effect of the gasoline and diesel readjustment, the government zeroed the Cide (Contribution for Intervention in the Economic Domain) of oil and derivatives, in 2012, a contribution from federal collection.

And the second impact was on Petrobras’ accounts. “The company assumed responsibility in terms of liens. It began to import fuel at a higher price than what it charged internally, which led to the company’s over-indebtedness. It became the most indebted oil company in the world and had serious repercussions in terms of investment”, evaluates Rochlin.

From then on, the company adopted a divestment program, with the sale of international branches and other refining and distribution branches. These decisions affected the market share that the company holds in Brazil.

“Since 2016, it has ceased to be an integrated energy company, operating in several segments, to be a company strictly for oil exploration and production, operating in the pre-salt layer. The result of this strategic decision was that Petrobras increased production and exports of crude oil, but reduced production and sales in the domestic market of oil and fuels”, explains Nozaki.

In practice, this led to increased dependence on imported refined products and opened the Brazilian market to the entry of importers. According to Nozaki, the country went from 300 importers to more than 600.

The PPI started with a forecast of price revisions at least once a month. In 2016, a barrel of oil had its lowest value in more than a decade. But, starting in 2017, it started to rise. At the end of June, Petrobras announced a policy adjustment, with price changes made more frequently, “at any time, including daily”, to be able to keep up with volatility.

The first major shock of the model occurred in 2018, the peak of the uptrend that started the previous year. It was then that the truckers’ strike broke out, putting pressure on the government to stop the daily readjustments. At the time, Petrobras gave in and interfered with prices: it agreed to reduce the value of diesel by 10% and hold the increases for 15 days.

Since the end of last year, we have faced another atypical scenario: increased demand, with the end of the pandemic restrictions, and reduced supply, with the war in Russia. With this combination, the prices of a barrel of oil exploded. To make it even more difficult, the real is very devalued against the dollar. Therefore, buying in dollars was very expensive. This scenario is totally different from when the PPI was adopted: real stable and oil production booming.

For Nozaki, the major problem with the current model is the “direct and immediate” transfer of international fluctuations directly to the final consumer at the gas station pump. And also this atypical scenario, very different from what existed in 2016.

Without being able to interfere directly in the price, the government supported the project that limited the rate of the Tax on the Circulation of Goods and Services (ICMS) on fuels, energy, natural gas, communications and public transport. As a result, prices at refineries and at the pump in São Paulo and Goiás began to fall, but 11 other states and the Federal District filed a lawsuit with the Federal Supreme Court against the measure.

The company’s changes of command are also an attempt to interfere. On Tuesday, June 28, Caio Paes de Andrade assumed the presidency of Petrobras, the fourth to occupy the position during the administration of Jair Bolsonaro. According to information from Valdo Cruz’s blog, the president has told interlocutors that Paes de Andrade will change the entire board. Bolsonaro also said that the new president will give “new dynamics” to fuel prices.

what are the alternatives

Gasoline prices already reach R$ 8.99 at some stations in Rio, points out ANP

Gasoline prices already reach R$ 8.99 at some stations in Rio, points out ANP

The alternatives discussed by the interviewees are not convergent and vary according to the political-economic orientation. But on one thing they agree: a return to the price freeze is not one of them.

But, to understand the proposed alternatives, it is necessary to understand, first, the scenario of the oil chain in Brazil. Despite being one of the ten largest oil producers in the world, the country is not self-sufficient in refining. This makes it possible for us to produce and sell crude oil, but we need to buy refined derivatives, such as gasoline and diesel.

“Without investment in refineries and in the refining and distribution activity in Brazil, we will not overcome dependence on the import of derivatives. Today it would be neither feasible nor appropriate to practice a policy of freezing prices because we import more than in the past. So , if we were to freeze the price today, we would probably have a risk of shortages. Therefore, it is not able to face the scenario that is set”, says Nozaki.

But this investment in refining does not solve the current problem. Therefore, in the short term, the alternative would be, according to Nozaki, “some measure to stabilize the price”.

“Experts are discussing as an alternative the creation of a stabilization fund that dampens these fluctuations and creates conditions for us to have the supply of derivatives and fuels in the domestic market. I think the fund is an important measure. Evidently there is a debate about how this fund should be supplied”, explains the professor.

The Instituto de Estudos Estratégicos de Petróleo, Gás Natural e Biocombustíveis, which he coordinates, believes that the fund should be supplied with the creation of two taxes: on the “extraordinary profits” of oil companies operating in Brazil and on the export of crude oil, “as a way of discouraging the sale of oil and stimulating the production of derivatives in the country”, he explains.

As for the project being evaluated at the congress, the resources for the fund would come from government shares in the oil and gas sector destined for the Union, dividends (profits distributed to shareholders) from Petrobras paid to the Union, public revenues generated with the evolution of quotations international crude oil and shares of extraordinary financial surpluses.

Rochlin does not agree with the project, but also suggests a form of “compensation” by the government targeting the poorest, without holding back the price.

“Petrobras is a mixed-capital company. The government, as the controlling shareholder, is entitled to an important portion of the dividends that the company pays. So I understand that this high profit from Petrobras, resulting from this policy that it currently uses, could be used by the government to make public policies and very well calibrated for the lower income population”, he says.

How other countries have acted

Latin American countries adopt different pricing policies, including: transfers at a fixed frequency, stabilization funds and government subsidies.

In Chile and the Dominican Republic, the government adjusts prices weekly following international values. And Chile, Colombia and Peru have stabilization funds, which consist of establishing maximum and minimum prices. So, when the international value is very high, the maximum is charged. And when it’s very low, the minimum.

Ecuador adopted, in recent years, a policy of monthly adjustments, through which suggested and maximum prices were established. But late last year, President-elect Guillermo Lasso announced a price freeze to quell protests. And this Sunday (26), he reduced the price of a gallon by 10 cents on the dollar to stop a two-week strike.

In the United States, President Joe Biden proposed a three-month suspension of a federal tax on fuel prices and urged hydrocarbon producers to increase their refining capacity and track fluctuations in crude oil prices down, not just when they go up.

In Europe, most countries adopt the PPI. However, faced with this atypical scenario in which demand is high and supply is low, many governments have decided to make small interventions to contain the advance of inflation.

Portugal adopted, in November last year, a “car voucher”, a kind of petrol allowance: the government gives 40 euro cents per litre, up to a limit of 20 euros per month, to people enrolled in the program. And also suspended the increase of two taxes.

In France, Prime Minister Jean Castex announced in March a cut of 15 euro cents per liter of fuel between April and July. The discount is applied by distributors and reimbursed by the state. The measure will cost the government 2 billion euros.

In Poland and Ireland, governments have also reduced fuel taxes to 15 to 20 cents per litre.

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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