Brazil suspends diesel tax, Petrobras in play: Update

Updates throughout.

Brazil suspended a federal tax on diesel for a two-month period in response to pressure from trucking unions, the latest sign of government willingness to adjust fuel pricing terms despite revenue loss and potential consequences for downstream investment.

During his weekly social media broadcast yesterday, President Jair Bolsonaro said the suspension of the PIS/Cofins tax would begin on 1 March, giving time to find a "permanent" solution to the federal levy.

The move is aimed at appeasing truck drivers who had launched a strike in early February. The labor action fizzled out in anticipation of the tax cut, but groups that sat out of the protest earlier in the month have been pressuring Bolsonaro to deliver on pledges to help.

Brasilia has also presented a legislative proposal to simplify a VAT-like state-level tax, on top of a promised decree that would obligate distributors to divulge price composition.

Last night Bolsonaro took aim at Petrobras chief executive Roberto Castello Branco, who recently shrugged off complaints by the truck drivers.

The president warned of consequences, and today he confirmed a "change" at Petrobras, prompting a slide in the company's share price as investors recoil at the potential for another managerial overhaul.

"We will never interfere in this great company, in its price policy. But the people cannot be surprised by certain adjustments. Do them, but with predictability. That's what we want," he told journalists today in the northeastern state of Pernambuco.

Bolsonaro's new remarks are reminiscent of the abrupt departure of Petrobras chief executive Pedro Parente after a May 2018 truckers' strike.

Petrobras declined to comment.

The company instituted a market-based fuel pricing policy in 2016. Despite some adjustments, the largely stable mechanism is seen as critical for investors eyeing the sale of eight Petrobras refineries.

Bolsonaro described Petrobras' latest diesel price increase this week as "excessive". The firm says market alignment is vital to ensuring supplies.

An opaque pricing policy and government interference resulted in massive downstream losses for Petrobras prior to the 2016 policy change.

On another labor front, unions in Bahia state suspended a strike after Petrobras agreed to open wage negotiations. The workers were protesting the company's planned $1.65bn sale of the 333,000 b/d Landulpho Alves refinery (RLAM) to Abu Dhabi's state-owned investment fund Mubadala, the first of the major downstream divestments.

By Nathan Walters