Brazil mulls windfall fund to cushion fuel prices

Brazil's federal government is seeking to tap windfall oil revenue to establish a fund that would mitigate fuel price volatility, a government official familiar with ongoing studies tells Argus.

Importers say the proposed fund, which would be used to finance a temporary decrease in federal PIS/Cofins fuel taxes, would preserve state-controlled Petrobras' pricing independence while avoiding price spikes at the pump.

The fund could be financed by royalties in excess of price assumptions in state budgets, officials say.

Similar fuel price stabilization systems are used in other countries, including Colombia, Chile and Mexico.

"The goal is to give consumers predictability in order to avoid the recurrence of a scenario that led to the truck drivers' strike of May 2018," fuel importing consortium Abicom says of the plan it has proposed to lawmakers.

"We were already working for two months on alternative proposals and instruments to avert the effect of increased oil prices. Fuel subsidy is not the right word. Compensation may be the right word," mines and energy minister Bento Albuquerque said earlier this week of the proposal.

The idea for the fund was first floated following Petrobras' April 2019 decision to walk back a diesel price increase over concerns of riling independent truck drivers. Petrobras' October 2016 market-based pricing policy has evolved since initial adoption. The company says it retains full independence in pricing decisions despite claims the federal government, the company's controlling shareholder, has pressured the firm to keep prices in check.

Petrobras has yet to adjust wholesale fuel prices following its 3 January announcement of temporary price holds.

By Nathan Walters