Study: Brazilian industry overpaying for fuels

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Thursday, July 12, 2018

Energy-intensive Brazilian industry spent 7.38bn reais (US$1.9bn) more than peers in other countries on natural gas, LPG and fuel oils in 2017, according to a study presented by industry federation CNI to presidential candidates.

CNI said the main cause of the high cost is the lack of competition in the energy segment.

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"We are in a free price market, but with characteristics of a monopolistic one, since most of it is still in the hands of Petrobras. This brings inefficiencies that have a high cost for industry. Brazil needs to update its regulations in a way to promote competition," Rodrigo Garcia, an energy analyst at CNI, told BNamericas.

Garcia says the country's fuel prices are among the most expensive in the world, which led Brazilian industry to spend 615mn reais more than its peers in other countries on fuel oil last year. The study shows Petrobras sold fuels in the internal market at prices above the ones for export. The state-run oil company currently owns 14 of the 18 refineries in the country and is responsible for almost 89% of the distribution market.

The analyst believes Brazil needs new producers in order to lower prices in the long term.

"Taxes also have a high burden [on final fuel prices] but the entire market needs to be improved, aligned with international prices. Brazil fell in the trap of believing that subsidies would be the answer, but the only firms that want to invest in this kind of market are the state ones," he added.

However, the specialist says the country needs to ensure there is legal security to attract new players. Garcia said he is concerned about the recent decision by a supreme court judge who ruled that all privatizations must be approved by legislators, which led Petrobras to interrupt its assets sale program.

"We are in a moment of instability. Decisions that once were to be taken by companies now are ending up in court cases and this is very bad," he said.