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Financial News: BRAZIL: Maintenance Of Fuel Pricing Policy Creates Market

BRAZIL: Maintenance Of Fuel Pricing Policy Creates Market Uncertainties

06/06/2018 - 18:39:00 (RTTNews)

(RTTNews) - The crisis triggered by the truck drivers' strike in Brazil, which paralyzed the South American country for nine days in protest against rising fuel prices, has raised questions about the viability of the methodology adopted by Petrobras since 2017, in which the state-owned oil company rebalances diesel and gasoline prices on a daily basis, tracking foreign exchange and oil prices fluctuations in the international market.

The Brazilian government and Petrobras deny that there would be changes in the way the company defines fuels prices in the refineries. However, even market agents see it as unlikely that the company could sustain the logic of keeping the cost of gasoline and diesel oil exclusively tied to external factors.

According to Terra Investimentos analyst, Regis Chinchila, the government is likely to make changes only in the frequency through which prices are remarked, keeping the so-called dollarization of products, considered essential to the company's current strategy, to take advantage of the commodity's rise in the international market.

"The way it is happening, with daily adjustments, I find it difficult to maintain. But what can change is the periodicity, and if the readjustment based on the dollar and oil prices is kept, the company would not lose anything," Chinchila said.

The first move taken by the Brazilian government, agreed with Petrobras, was the setting of a R$ 0.46 subsidy, mainly a tax reduction, to temporarily reduce diesel oil prices. That move, coupled with the prospect that the state's calculations should be revised, led Pedro Parente to resign as Petrobras' CEO.

However, for the deputy director of the Energy and Environment Institute of the University of S?o Paulo (IEE/USP), Ildo Luis Sauer, both the way the company determines the cost of fuels and the subsidy proposed by the government, are not feasible, since the oil prices abroad and the foreign exchange quoting are outside the control of the government and that of Petrobras itself.

"We do not know how these variables will behave. Ideally, the government should assume that Petrobras is a strategic company and that it could adjust its finances in another way because what we have today is a policy that favors investors and breaks the National Treasury."

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