Economy criticizes Petrobras’ price policy and counts on Cade’s attitude

Petrobras’ pricing policy, which supported the mega-increase announced by the company earlier this month, has been criticized by members of Minister Paulo Guedes’s team (Economy), albeit in a reserved way due to the sensitivity of the issue.

Although it seeks to distance itself from initiatives that could be seen as interference in the state-owned company, the economic team has conveyed its concerns to Cade (Administrative Council for Economic Defense), which has an investigation underway and will accelerate the pace of investigations into the company’s policy. .

Members of the Ministry of Economy heard by the sheet reiterate the speech that the government cannot change the company’s pricing policy, but claim that Cade can take some action to stop practices considered abusive.

The economic team tries to hold back the pressure from the political wing of the government for a direct subsidy to lower fuel prices, a measure that would increase spending, after the Union has already renounced R$ 14.9 billion in revenues to zero PIS/Cofins rates. about diesel.

Faced with Petrobras’ billionaire profit last year, there is a wing in the government that is not opposed to the idea of ​​the company holding on to readjustments – which end up putting pressure on inflation in the year in which President Jair Bolsonaro (PL) seeks re-election. The company, however, resists any measure in this regard.

It is in this context that members of Guedes’s portfolio specifically criticize the fact that Petrobras accounts for import costs, despite the fact that much of the fuel sold by the company is refined in Brazil.

The PPI (import parity price) methodology practiced today by the company takes into account the reference price of the fuel in the global market, the freight price to bring it to Brazil, the cargo insurance and even the Additional to the Freight for Renewal of the Merchant Marine (AFRMM), a tax levied on navigation.

Petrobras uses the international benchmark because it cannot meet the entire national demand for fuels and imports part of what it sells to the domestic market. With the soaring of oil and the rise of the dollar, mainly because of Russia’s war with Ukraine, fuel prices in Brazil have become even higher – which spills over into Bolsonaro’s electoral pretensions.

For the economic team, the inclusion of import costs increases the prices charged by the state-owned company and increases its profit margin, while the company’s actual expenses are lower whenever the product sold is refined in Brazil.

According to data from the Petrobras production and sales report, 118,000 barrels per day of diesel were imported in 2021, which would be equivalent to 14.7% of the total commercialization of 801,000 barrels per day of the derivative. In terms of gasoline, foreign purchases totaled 20,000 barrels per day, 4.9% of the total sales of 409,000 per day.

For members of Guedes’ team, the most appropriate thing would be for Petrobras to consider FOB prices (‘free on board’, free of freight or insurance costs) when calculating how much to charge internally, as this would be the remuneration obtained if the oil company exported its fuel .

At Cade, there is an understanding that the antitrust agency, as well as the government, cannot and will not interfere in the prices charged by the company. In the administrative inquiry opened in January, however, the agency analyzes whether the company exercises abuse of dominant power that allows it to maintain the values ​​practiced.

Possible acts of the company include restriction of access to means of transport, cross-subsidies in sales, and strategies to prevent the product from being sold to certain companies.

Cade has demanded explanations from Petrobras, which has responded. The antitrust body is also accelerating investigations and should hear from other bodies and companies interested in the matter.

Despite the pace, the investigation should not be concluded for at least four months. If the conclusion is that Petrobras abuses its dominant power, Cade may impose a fine and order the company to abandon a list of practices that may eventually be considered harmful to competition.

In the inquiry, Cade also mentions the “high profitability” of Petrobras. In 2021, the company set a record in the distribution of dividends, with the announcement of BRL 63.4 billion as a return on the income of BRL 75.1 billion accumulated in the first half.

In the whole year, the profit was R$ 106.6 billion. The high return and dividend payout to shareholders amid soaring consumer prices has drawn criticism from the opposition and even government allies.

In this context, an article circulates within the economic team, published on the website of the epbr agency, specialized in energy, by Ricardo Gomide, a specialist in public policies who worked for 18 years at the Ministry of Mines and Energy and was general coordinator of biodiesel and other biofuels. .

Gomide suggests in his article that Petrobras has purposely withheld production at its refineries to force greater imports of fuels. With this, the company would boost prices according to the PPI and increase its profit margin.

The greater the demand for imports, the higher the final price tends to be according to the PPI, as there is a need to seek greater quantities of fuel abroad and, often, new selling markets. As the cheaper options tend to sell out sooner, the cost of importing an extra unit of fuel tends to increase.

In the text, the technician cites data from the ANP (Agência Nacional de Petróleo) to show that refining capacity in Brazil increased by 14.5% between 2012 and 2021, largely explained by the start of operations at the Abreu e Lima refinery, in Pernambuco. In the same period, the daily volume of processed oil fell by 5.9%.

As a result, the utilization rate of Brazilian refineries, which was 92% in 2012, dropped to 75% in 2021, the article maintains.

In the same period, there was an increase in gasoline imports and the adoption of the PPI by Petrobras. The increase in the company’s revenues allowed it to reverse losses recorded at the height of the Lava Jato investigations and reduce debt.

The technician makes the reservation that each refinery produces certain types of derivatives, which makes it difficult to operate at 100% of total capacity. Still, he sees room for expansion of production.

“The inconvenient truth is the harsh effect of controlling refining idleness on all domestically produced fuel prices. In an uncompetitive market, where a single agent concentrates a country’s refining capacity, it can be a very opportune strategy to operate with idleness, in the view of this agent, to the detriment of society as a whole”, says Gomide in the article.

For members of the economic team, the text presents serious indications that the company, as the main player in the fuel market, may be manipulating its production in order to maintain Brazil as a net importer of oil derivatives. The practice would allow it to maintain higher prices and profit margins, in addition to guaranteeing the maintenance of the operation of other importers.

The article triggered a public response from the director of Refining and Natural Gas at Petrobras, Rodrigo Costa. In his text, Costa denies that production is idle when considering the need to meet certain conditions – including safety and profitability.

“The company’s refineries are already operating at their maximum capacity, considering the adequate conditions of production, safety, profitability and logistics. Therefore, it is false to say that there is idle refining or that Petrobras is deliberately reducing its production of derivatives”, he says. .

“The company is actually producing as much as possible under safe, sustainable and economic conditions and investing to expand its refining capacity in the coming years”, adds Silva.

In the latest Petrobras production and sales report, the company reports that the utilization factor of its refining park was 83% on average in 2021, compared to 80% in 2020.

Additionally, the company also defended, in a note to the report, the PPI as the most appropriate methodology, since Brazil is a net importer of fuels. According to Petrobras, gasoline and diesel prices seek balance with the international market, but without passing on external volatility.

“This condition is essential for the Brazilian market to continue being supplied, without the risk of shortages”, he says.

Understand the criticism of Petrobras’ pricing policy

1 – What is Petrobras’ pricing policy like?

The PPI (import parity price) methodology takes into account the reference price of fuel in the global market, the price of freight to bring it to Brazil, cargo insurance and even a tax levied on shipping.

2 – What are the criticisms of the Ministry of Economy?

The incorporation of import costs, while a large part of Petrobras’ fuel supply comes from refineries in Brazil

3 – What is the investigation at CADE about?

Possible abuse of dominant power in the fuel market. The state-owned company’s pricing policy, the restriction of access to means of transport and cross-subsidies in sales and strategies to prevent the product from being sold to certain companies are mentioned.

4 – What does the economic team expect from Cade’s process?

That Cade investigate and alert the company about possible abuses. The antitrust agency will speed up the investigations, but even so, a result should not be released before four months.