Will the Bolsonaro administration use its majority on the Petrobras board to stabilize diesel prices in Brazil?

RIO DE JANEIRO, BRAZIL – The federal government wants to keep Petrobras’ diesel oil prices stable in the future. This would be done through the board of directors of the state-owned company, where the Union has 6 of the 11 seats, writes Poder360 newspaper in its latest report.

According to the newspaper, the aim is to force a discussion on the social function of Petrobras, by recognizing that the war in Ukraine has created an unstable environment that justifies emergency measures.

In this way, Petrobras would have to reduce its profit margin and deal with the price differential between the domestic and world markets by adjusting fuel prices less frequently or not at all.

On Monday (9), Petrobras increased diesel prices at its refineries for the third time this year. The increase was 8.9%, while the cumulative increase in 2022 is about 40%.

The reason for these controversial price hikes is due to the fact that the state-owned company applies the international parity price (PPI), which equates the values practiced in the domestic market with international values.

However, this approach is Petrobras’ own decision. No one is forcing them to do so. One could therefore well imagine simply discontinuing the application of the PPI and creating new realities and rules for the domestic market.

The price increases have already brought down two presidents of the state-owned company: Roberto Castello Branco in 2021 and Joaquim Luna e Silva a month ago.

Last Wednesday (11) was the turn of Minister Bento Albuquerque (Mining and Energy), who was replaced by Adolfo Sachsida, part of the team of Minister Paulo Guedes (Economy).

According to Poder360, the economic team led by Paulo Guedes – and the new Minister of Mines and Energy agrees – wants to stabilize prices in refineries at the current level of R$4.91 per liter.

In this way, even if prices were to fall on the international market, Petrobras would not reduce the value of diesel fuel.

Poder360 writes that it heard from government circles that “this would provide Petrobras with enough ‘fat’ so that it would not have to raise prices in the event of an abrupt increase in oil prices.”

The price of barrels has become unstable due to the war in Ukraine and the increase in Covid-19 cases in China.

If, on the one hand, sanctions against Russian oil and the resulting reduction in supply are driving up the price of Brent, on the other hand, the prospect of lower Chinese demand is causing the value to fall.

Nevertheless, the barrel has reached levels last seen in 2014. This, combined with the increase in Petrobras’ oil exports, led the state-owned company to report a profit of R$44.6 billion in the first quarter of 2022, outperforming the major companies in the market.

It was the highest profit recorded in the period among the major oil companies in the world.

Shortly after, the state-owned company announced the distribution of R$48.5 billion, of which the Union will receive R$17.7 billion.

Since the announcement of Petrobras’ results, President Jair Bolsonaro (PL) has criticized the state-owned company’s profits. He said the state-owned company is profiting “at the expense of the people” and that “Brazil can no longer accept an adjustment in fuel prices.”

FUEL PRICES ARE THE SUBJECT OF DISPUTE

In the run-up to the election dispute, former President Luiz Inácio Lula da Silva (PT) said he would end PPI. “It is important that the shareholder receives his dividend when Petrobras makes a profit, but I cannot enrich the shareholder and impoverish the housewife,” he wrote on Twitter in early February.

The number of Brazilian families in extreme poverty registered in the country’s CadÚnico (Unified Registry) will increase by 11.8% by 2022.

But not only has the impoverished population increased in Brazil. Just a few days ago, it was announced that more than 50% of all households in the country must now be considered poor.

Often they are working poor. They maybe have a house, a car, furniture – all on credit – but they can no longer drive around and eat only the cheapest food, if at all regularly.

In vast Brazil, where there is no public transport to speak of, most people are dependent on driving. Therefore, the level of gasoline and diesel prices has a decisive impact on the family budget.

In addition, more than 90% of food distribution is done by truck. The rising diesel prices are charged separately by the transport companies to the supermarkets and then passed on to the end consumer in further price increases.

In this sense, the pricing policy of Petrobras is, to a significant extent, complicit in the massively increasing price of basic foodstuffs in Brazil.

According to a poll conducted by PowerData between April 24 and 26, 67% of the Brazilian population supports government intervention at Petrobras to lower fuel prices.

The price adjustments have a strong impact on the economy and have been criticized by President Jair Bolsonaro, who called the company’s profit “rape“.

With information from Poder360