Analysis: Bolsonaro foamed, but had to swallow the inevitable readjustment, due to the risk of lack of diesel

Petrobras’ price increase should not be passed on at all to the consumer at the gas stations, especially in the case of gasoline, at the national average.

The pass-through must be 80% of the oil company’s adjustment to gasoline, although it must be integral in the case of diesel, a market that is very tight, on the verge of scarcity. The increase in pumps has been smaller than in refineries.

Fuel increase is an inflation engine, central issue of the election, more reason for high interest rates and more problem for the prestige of Jair Bolsonaro.

Until yesterday, at least, Bolsonaro was foaming at the idea that Petrobras would readjust prices for gasoline, diesel and LPG (cooking gas), which he heard in this week’s meetings with his government’s energy and economics summit.

As usual, I wanted immediate solutions and miracles of the hollow stick, like price freezes.

He then heard that the freeze could cause rationing, shortages and even greater price hikes, uncontrollable at more than 41,800 gas stations, as happened in the shortage caused by the truck drivers strike in 2018, which Bolsonaro supported.

Furthermore, he heard that the Petrobras adjustment would not fully pass on the increase in fuel prices on the world market. That said, he “accepted” the inevitable.

Companies and associations of fuel dealers and importers sent messages via ministers. The producers’ association, the IBP, lobbied publicly.

Last year, about 25% of the diesel consumed in the country was imported (about 40% of the import was from Petrobras). If the price is set below the world market price, importers do not buy diesel abroad — they would sell it here in the country at a loss, obviously (if they don’t give up the business altogether). The private refinery in Mataripe was already selling more expensive diesel.

Bolsonaro, his government and his regents in Congress never planned a lasting and articulated fuel policy. When the subject got hotter, when there were high oil prices, the government had tantrums. But nothing was done. The war came and the problem really exploded.

It will take time to collect the pieces, so that there is at least stability in the world price of oil, who knows at what level. This year alone, the barrel of Brent oil has already increased by about 45%. Even if the war ended tomorrow, it would have left lasting consequences: sanctions and changes in the world oil and gas market (Europeans, but not only, will look for suppliers other than Russia, however the war ends).

In Brazil, the most convenient, viable and immediate solution is to create a subsidy. That is, tax money will pay part of the fuel sold at pumps and the price of the LPG cylinder. For up to six months, the government would finance part of the price of gasoline, diesel and LPG.

Part of this subsidy may come through the reduction of PIS/Cofins on diesel (loss of revenue of R$ 18 billion per year for the government. That is, an increase in public debt by this amount). But it is not known how much of this discount would reach the final price for the consumer, or when.

The most direct alternative is to pay part of the fuel. How much would be spent on it? It is not known exactly, nor is it known who would have the right or the mechanism of the thing, in practice.

Part of the discount would be directed towards specific groups: those who buy cooking gas, a “truck card”, a “voucher” for self-employed drivers, taxi drivers or professional motorcyclists, provided they are sufficiently poor. A general subsidy, such as a tax cut, also benefits the rich, by the way.

It is said that the money could come from dividends (profits) that the federal government receives from Petrobras (about R$35 billion in 2021). So does the origin. The result of giving subsidy is more deficit. The more deficit, the greater the probability of higher interest rates and the more devalued real.

However, the subsidy can be a matter of life and hunger for the poorest.

The remaining options are now being discussed through a bill in the Senate. There may be a reduction in ICMS (politically unfeasible, as it is a state tax). A price stabilization fund can be created, which the country had until the Dilma Rousseff years (in this case, through tax, Cide: it went up when the world price fell, it decreased when the international price of oil increased).

To do so now, it would take money in excess of one hundred billion reais. It would take time to take effect, even because it is more complicated to implement.