Brazil’s Lula cuts gasoline taxes, creates additional diesel subsidy weeks before election

Brazilian President Luiz Inacio Lula da Silva has signed a decree cutting gasoline taxes and a provisional measure creating an additional diesel subsidy. This comes as the government moved to shield consumers from rising oil prices weeks before October's presidential election, Globo reported.

The decree increases the gasoline subsidy by BRL0.44 ($0.08) per litre through a tax reduction and eliminates taxes on hydrated ethanol, cutting its cost by BRL0.19 ($0.03) per litre, according to the report.

Together with a previous BRL0.19 increase, the gasoline subsidy now totals BRL0.63 ($0.12) per litre, replacing the earlier support measure.

Lula also signed a provisional measure authorising a new diesel subsidy of BRL1 ($0.19) per litre, in addition to an existing BRL1.12 ($0.21) subsidy valid until September 26, bringing combined diesel support to BRL2.12 ($0.41) per litre, the report said.

The diesel subsidy will go to producers and importers who join the programme, with the value subject to change according to market conditions.

The measures come after the price of Brent crude, the international benchmark, surpassed $100 per barrel in early September amid escalating conflicts in the Middle East. It has since risen even further, sitting above $105 per barrel on September 17.

The Brazilian government expects to collect more than BRL10bn ($1.9bn) in extra oil revenue this month. Brazilian Executive Secretary of the Ministry of Finance Rogerio Ceron said this would more than offset an estimated BRL2bn ($388mn) in lost revenue from the gasoline and ethanol measures, according to the report.

Ceron added that additional diesel subsidy spending could prompt budget cuts if needed to meet the primary surplus target, Globo said.

The fuel price measures have cost BRL25bn ($4.9bn) in total since they were first announced, according to government ministers cited in the report.

Meanwhile, Brazilian state-owned oil company Petrobras (PETR4.SA, PBR.N) reported that it had received BRL2.6bn ($500mn) from the federal government under the existing diesel fuel sales subsidy programme, according to El Periodico de la Energia.

The company said the amount comprised BRL643.8mn ($124.9mn) for the period between June 1 and 15, and a further BRL1.924bn ($373.4mn) for the second half of that month.

Petrobras, 35.45% owned by the Brazilian state, said it had received total remuneration of BRL9.5bn ($1.8bn) since the scheme's launch.

In results published in August, Petrobras reported first-half profit of $16.627bn, up 55.3% year-on-year (y/y), on sales of $57.142bn, representing an increase of 35.7%.