Brazilian government considers measures to help Petrobras

The Brazilian daily newspaper Folha de S. Paulo reported that the Brazilian government may cut back taxes on fuel-ethanol to boost the national production and help state-owned Petrobras reduce losses. The company has been incurring heavy losses at its refining units because it has to import large amounts of gasoline to make up for the shortage in ethanol production. A government policy that restrains gasoline prices at the pump has prevented Petrobras from the high cost of importing gasoline to its customers The Brazilian government is considering several options to help Petrobras; among these are reductions of the PIS (Social Integration Program) COFINS (Social Contribution Tax) taxes on fuel-ethanol at the retail level, so that producers can raise wholesale prices without affecting pump prices. Aside from this, the government is expected to issue a decree that would provide bigger credit lines for sugarcane plantations. The country has been experiencing low-ethanol production due to severe weather conditions which have affected the productivity of sugarcane plantations. Furthermore, the country’s aging sugarcane mills cannot keep up with local demand because the millers failed to expand the plantations. Brazil’s sugarcane industry group UNICA has said that the heavy-tax burden on ethanol squeezes production margins and discourages new investments. UNICA also said that ethanol producers are under pressure from increased land lease costs, mechanization and labor costs. Currently, gasoline sold in Brazil comes with a 20% ethanol mix. The government plans to increase the mix to 25%. As a way to reduce costs for Petrobras, it will cut taxes on ethanol producers, said the newspaper, which didn’t reveal its source for the information.
Brazil could increase content of ethanol in gasoline
To further help Petrobras, Brazil is considering an increase in the ethanol mix in gasoline, so that Petrobras would have to import less gasoline to meet domestic demand. Mines and Energy Minister Edison Lobao said that if sugar cane production sufficiently increases, the government may consider increasing the percentage of ethanol mix from 20% to 25%. Brazil uses sugarcane as raw material for ethanol. An ethanol shortage in October 2011 led to the reduction of the ethanol mix in gasoline from 25% to 20%. The poor sugarcane harvest that followed further reduced the country’s ethanol output and caused the price of the alternative biofuel to rise, making it less competitive against fossil fuel. (July 11, 2012)