By Chesney Hearst, Senior Contributing Reporter
RIO DE JANEIRO, BRAZIL – Petrobras announced last Friday, November 29th, that the state-controlled oil company would be increasing fuel prices for the third time this year. The price hikes, which went into effect over the weekend, will represent four percent for gasoline and eight percent for diesel, and the impact on prices at the pump is estimated to reach R$0.05 per liter.
Fuel prices had previously been maintained at a stable level in an effort to curb inflation. In January, Petrobras raised prices by 5.4 percent for gasoline and 6.6 percent for diesel. In March, Petrobras announced further readjustments of five percent for diesel due to rising costs at refineries. Experts observed that last Friday’s fuel price hike should only have a small effect on inflation this year.
This comes after Petrobras and government official had held talks to allow Petrobras to conduct automatic fuel price adjustments. On October 25th, the massive oil firm reportedly asked its board of trustees for the ability to adjust fuel prices on a regular basis. The automatic price adjustments would factor in international oil prices, among other things.
Over the last two years, Petrobras’ profits have fallen as they continue to sell imported gasoline below cost. The government is said to have resisted the giant oil firm’s attempts to align its local fuel prices with international prices and the actual costs of production in a bid to keep inflation at bay.
The company also has a growing debt as it funds a US$236.7 billion investment plan from 2013 to 2017. In early October, Moody’s downgraded Petrobras to level Baa1 due to concerns about its negative cash flow. Its shares have fallen by 22 percent since February 2012. Its 2013 third quarter results revealed the company’s net profits were down 39 percent compared to February 2012.
Bruno Piagentini of the brokeage firm Coinvalores told O Globo that an increase in prices wouldn’t help without a defined methodology for the company. “You need to set a pricing policy for the company,” Piagentini said. “On fuel imports, the loss is R$13.2 billion through September. This generates cash problems and is reflected in the company’s ability to invest.”
“The government wants to close with less than inflation in 2012,” Luiz Roberto Cunha, economist and professor at Rio de Janeiro’s Pontifical Catholic University (PUC), told O Globo. “But the important thing is that there is no risk of reaching the 6.5 percent target ceiling. This increase should have been given. At the margin, it will stay at 5.8 or 5.9 percent.”
Read more (in Portuguese).
* The Rio Times Daily Updates feature is offered to help keep you up-to-date with important news as it happens.