Brazil to adopt new biodiesel procurement process

Brazil plans to adapt its biodiesel procurement to new downstream conditions by 2022 as state-controlled Petrobras gradually loses its downstream monopoly.

The mines and energy ministry said it will work to establish a regulatory framework to substitute the current auction format, which is managed by Petrobras.

"Petrobras is going to reduce its refining capacity by 50pc with the sale of eight refineries," said the ministry's oil, gas and biofuels director, Jose Mauro Coelho. "It is not reasonable to expect Petrobras to continue to play the same role" in the biodiesel market.

The ministry has started a broad debate about changes to the auction model and expects to present a new model to the national energy policy council (CNPE) by December. The inter-ministerial committee that is responsible for presenting the new directives will present its preliminary recommendations in September. The committee is analyzing models with and without auctions.

"We are not going to have an abrupt shift to a new model in the short term," Coelho added. The current goal is to adopt the new model in 2022, using 2021 as a transition period.

Petrobras, which buys and sells all of the biodiesel that is blended into commercial diesel and also manages the current auction platform, agreed that changes are needed.

"We are at a moment of significant change in domestic fuels markets, and biodiesel will be affected by these changes," Petrobras marketing manager Sandro Barreto said in a webinar today.

Barreto added that Petrobras has conducted internal studies, which concluded that the biodiesel market has the "scale and maturity" to be treated like anhydrous ethanol, which is bought and sold on the open market and is blended into gasoline at a rate of 27pc without the need for auctions.

Despite the consensus for change, there is recognition that adjustments need to take place gradually to forestall supply disruptions and offer clarity to biodiesel investors.

Key outstanding issues include the current biodiesel tax structure, treatment of imports, and the management of plants with the so-called "social seal," which guarantees that feedstock is purchased from small farmers.