Analysis: strong dollar and economic recovery have raised fuel prices in Brazil

RIO DE JANEIRO, BRAZIL – Over the past few months, Brazilians have been surprised with the increase in fuel prices. The combination of the high dollar and the increase in the international price of oil has weighed heavily on the consumer’s pocket.

The price of fuel is felt at the pump – or at the resale, in the case of cooking gas.

However, a large part of what the consumer pays reflects the amounts passed on by Petrobras that largely depend on international factors. In a cascading effect, changes in Petrobras’ prices at the refinery, which follow the international oil price quotation and the exchange rate, are reflected in the other price components until they reach the final price.

Taxes, the adding of other fuels (ethanol and biodiesel) to the mix, and distribution and retail charges are in addition to the amount charged at refineries. When it leaves Petrobras, the fuel incurs several federal taxes: the Contribution for Intervention in the Economic Domain (CIDE), shared with the states and municipalities; the Social Integration Program (PIS), and the Contribution for Social Security Financing (COFINS).

When reaching the distributors, the price of the fuel is subject to the Tax on the Circulation of Goods and Services (ICMS), imposed by each of the states and the Federal District. Every 15 days, the National Council of Treasury Policy (CONFAZ), an agency comprising state treasury secretariats, publishes a survey of fuel prices charged to consumers at the pump in the Federal Gazette. This survey serves as the basis for calculating the ICMS tax on fuels.

When there is an increase in ICMS, the price can rise again, because gas stations usually pass the readjustment on to the consumer.

Composition

In the case of gasoline and diesel, the addition of other fuels to the mix raises prices. Anhydrous alcohol is added to the gasoline that leaves the refinery, in a proportion of 27% for regular gasoline and 25% for premium gasoline.

Diesel, on the other hand, suffers the addition of biodiesel, which can vary according to policy. These costs are incorporated into fuel prices that go to retailers, where the final price is defined after adding in the maintenance costs of gas stations and the profit margins of retailers.

In Brazil, the consumption of automotive diesel is basically restricted to the agricultural and road transport sectors. These sectors are extremely important for Brazil’s economy, so it is important that the consumer knows how this product’s market operates, from the producer to the end consumer, and also knows how its price is determined.

The diesel fuel market in Brazil is regulated by the National Petroleum, Natural Gas and Biofuels Agency (NPA) and by federal law 9.478/97 (the Oil Law). Thus, since January 2002 the imports of diesel fuel have been allowed and the price is defined by the market itself.

The diesel fuel consumed in Brazil can be produced by Petrobras, by other refiners established in the country, by private petrochemical plants, or it can be imported by a company authorized to do so by the ANP. Petrobras sells the diesel fuel produced at its refineries to distributors in operation in Brazil or directly to major consumers, such as thermoelectric plants.

Since January 2008 it has been mandatory for all automotive diesel fuel sold in Brazil to be blended with biodiesel, a renewable fuel produced from vegetable oils or animal fat. This rule is established by the National Energy Policy Council (CNPE), through Resolutions.

In bimonthly auctions organized by the ANP, Petrobras acquires from the biodiesel producing plants the volume to be resold, also in auctions, to the distributors, who are responsible for the mix. Currently, the proportion of biodiesel represents 12% of the final volume of diesel sold at pumps, which from then on will be called B12 diesel.

Distributors then resell the diesel fuel already blended with biodiesel to the thousands of service stations, to jobbers or directly to large consumers, such as cargo and passenger transportation companies, industries and farms.

In the marketing chain, the jobbers are responsible for reselling to large consumers that do not have their own structure, taking product from distributors and delivering directly to the customer. The price Petrobras sells diesel fuel to distributors can be represented by the sum of two parts: the Petrobras product value parcel and the taxes parcel, which are charged by the states (ICMS) and by the federal government (CIDE, PIS/PASEP and COFINS).

In most of the states, the ICMS is calculated based on an average weighted price for the final consumer (AWPFC), which is updated every 15 days. This means that the price at the retailer service stations can change without any change in the part of the price under the responsibility of Petrobras.

The price the consumer pays at the service station, in addition to the taxes and the Petrobras portion, also includes the biodiesel acquisition cost and the distributor, jobber, and retailer marketing costs and margins.

By understanding that the diesel fuel price formation chain comprises several parcels, it is easy to understand that any change in at least one of them will reflect, upwards or downwards, in the price the consumer will pay at the pump.

Thus, Petrobras only interferes in one part in the formation of the final price to the consumer, which is represented by the price at its refineries, with no incidence of taxes.

There are a few situations in which Petrobras does not participate in the product’s marketing chain, as in the case of diesel fuel that is imported or produced by an agent other than Petrobras.

Source: Canal Rural