Oil & Gas - Brazil - Petrobras' US$2.4bn fuel tax cut only short-term fix, says analyst

By Michael Place?/?Business News Americas

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Federal government plans for a fuel tax cut will inject more than US$2.4bn annually into the coffers of Brazil's Petrobras (NYSE: PBR), according to energy consultancy Centro Brasileiro de Infraestrutura (CBIE).

Local reports said on Friday (Jun 22) that Brazil's President Dilma Rousseff has agreed to abolish the Cide liquid fuel tax from July 1.

The move will make gasoline 7% cheaper at Petrobras refineries, allowing the company to raise prices without impacting inflation. The readjustment will also allow Petrobras to make 3-4% gains on diesel sales.

"The government is effectively conceding its fiscal benefits to Petrobras," CBIE director Adriano Pires told BNamericas.

The move comes amid growing concerns about Petrobras' falling output, rising production costs and continued offshore supply delays.

According to Credit Suisse, Petrobras has lost 25% of its value this year and is the third worst performing global oil stock behind Argentina's YPF and Spain's Repsol (NYSE: REP).

"This is going to give the company some oxygen but it's not going to help in the long term," Pires said.

"When the Cide tax was introduced by the Lula government in 2003, it constituted 50 centavos (US$0.24) per liter of gasoline. The government has since been slowly chipping away at that.

"Now it is US$0.09 and from July there won't be any scope left at all. The only option for the government will be to raise prices at the pump."

Wary of inflationary pressures associated with volatile international oil prices, Brazil's federal government has not raised the price of gasoline since 2005.

Pires said the policy had handicapped ethanol and provided incentives to carbon-emitting fossil fuels. Brazil's demand for gasoline rose 19% last year while ethanol fell 28%, he added.

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