Competitive pricing for LPG is critical to ensuring market supplies as state-controlled Petrobras slowly relinquishes its downstream monopoly, LPG sector executives say.
"Petrobras has a 100pc view of the downstream market, but this is not going to be the case over the next few years. We are going to have several groups active in this market, which creates new challenges," Jose Mauro Coelho, the oil, gas and biofuels secretary at the mines and energy ministry said in a webinar last week.
The ministry is working with the hydrocarbons regulator (ANP) to develop a system to monitor LPG supplies in real time.
"It is fundamental that we guarantee LPG supplies in this new environment," Coelho said.
This new competitive landscape will require clear pricing policies, says former ANP director general Helder Queiroz.
"There is a lot of confusion about prices – Petrobras has its own price policies, which is not the same as a government pricing policy," he said, adding that it is "legitimate for Petrobras to have a policy, but it's also legitimate to have a government policy to smooth out price fluctuations."
Recent fuel price increases have sparked a political uproar because the increases coincided with currency depreciation, accentuating the volatility, Queiroz said.
In response, the government permanently cut the federal PIS/Cofins social security tax on LPG, along with diesel. The tax cut will result in a modest, R2.18 ($0.39) reduction in the price of a 13kg propane cylinder, which most Brazilians use for cooking. The average price of the cylinder is R81, according to Coelho.
"The LPG price is not the problem. The problem is the cost of LPG for low-income families and this is why LPG prices need to be seen as a social issue," Coelho said.
The government is considering options to reduce fuel-price volatility, including a stabilization fund, or a sliding-scale fuel tax which fluctuates in response to oil price movements, as currently applied in Mexico.
Some lawmakers are calling for outright price controls.
"Measures like freezing prices would send the wrong message at a moment when Brazil needs to invest in LPG infrastructure," said Sergio Bandeira de Mello, president of LPG distributors association Sindigas.
"Even with increased domestic LPG production in the future, imports will play an important market role," Coelho said, adding that Brazil needs to have a business environment that will allow other agents to import LPG and to invest in import infrastructure. "For this to happen, we need market prices."
