Brazil to end biodiesel auctions, permit imports

Brazil's energy ministry has recommended ending biodiesel procurement auctions after concluding that the market is sufficiently mature to allow contracts to be freely negotiated among distributors and producers.

The proposal would permit foreign suppliers to participate for the first time but with a market limit of 20pc.

The ministry said the new regulation allowing direct sales between producers and distributors should be in place by 1 January 2022.

In a 145-page report, the ministry said the rigidity of the current auction model, which has struggled this year to secure sufficient biodiesel supplies to meet consumer demand, raises costs for consumers.

Brazil set up its regular procurement auctions for biodiesel in 2008. At the time, the government wanted to guarantee supplies in line with the introduction and gradual increase of a blending mandate. Most of Brazil's biodiesel is derived from domestic soybeans.

The biodiesel industry has installed capacity that is 33pc in excess of market demand under the current 12pc mandate, the report argued, adding that the mandate is only forecast to rise to 15pc by March 2023, reducing the risk of any supply disruptions.

Existing biodiesel legislation, which requires that 80pc of the biodiesel feedstock come from farms with a "social seal", could continue under the new model. This would mean that producers that do not have the social seal could compete with imports.

Under the ministry proposal, hydrocarbons regulator ANP would sign off on contracts.

The Brazilian fuel distributors association Brasilcom told Argus that it opposes the 20pc limit on imports, arguing that this would thwart competition.

This year the ANP was forced to temporarily reduce the mandate to 10pc from 12pc on two occasions, once from 16-21 June and again in September and October, because of insufficient supplies in the auctions.

Brazil already allows direct sales of anhydrous ethanol between mills and fuel distributors. Brazil currently mandates a 27pc blend of the biofuel in all commercial gasoline.

The biodiesel market is projected to develop in a similar fashion, with the introduction of greater transactional flexibility between producers and distributors, the report concluded.

The ministry's recommendations grew out of extensive public hearings and domestic market trends. Brazil's state-controlled Petrobras, the traditional dominant market actor and manager of the biodiesel auctions, is selling half of its refining capacity, a process requiring a more open regulatory structure.