Brazilian fuel companies urge tax relief

Santos —
A recent collapse in Brazilian fuel demand has triggered active efforts by ethanol producers and the gasoline downstream companies to urge the government to protect their market share amid an unprecedented lack of fuel demand, sources said Monday.

Ethanol producers from Center-South Brazil, which correspond to more than 90% of the total volume produced and consumed in the country, have been pushing the federal government to support the sector.

The industry association UNICA has been requesting the support from the ministries of Agriculture and Mines and Energy to guarantee that mills could survive during this consumption crisis. The three main requests have been the temporary waving of the PIS and COFINS taxes – currently at Real 130.90/cu m for mills and Real 110/cu m for distributors – a credit line which could consider the ethanol production as a guarantee, and an increase in the CIDE tax charged on gasoline.

On Friday, the Brazilian Labor Day national holiday, local media suggesting that two measures would be implemented: an increase in the CIDE tax from current Real 0.10/liter to Real 0.30/liter and an import tariff of 15%, both on gasoline. However, the Ministry of Mines and Energy later that day denied the report.

However, during the weekend, the Brazilian Association of Fuel Imports, ABICOM, released an official statement highlighting that the there was a strong concern about the reported proposal to increase import tariff and tax charged on gasoline.

“As the country is a net importer of fuels, import is a fundamental activity to guarantee national supply and contest prices charged by the dominant agent,” said Abicom. The association added that the country has a deficit in the production of refined products, having imported in 2019 about 20% of the total gasoline demanded.

Despite the absence of official news, the hydrous ethanol price in the spot market moved up Real 25/cu m on Monday, according to S&P Global Platts, hydrous ethanol ex-mill Ribeirao Preto was assessed at Real 1,730/cu m the highest price since April 18.

“The slight price increase was 100% related to the expectations of the CIDE increase in the gasoline,” the head of ethanol trading from a major distributor company said. “If the expectations of the CIDE tax does not become a reality, the price will drop again.”

Later on Monday, the National Federation of Fuels and Lubricants Trade, Fecombustiveis, and the union of fuel retails announced that an official statement was sent to the Brazilian president, Jair Bolsonaro, requesting the government to do not apply the CIDE tax or the import tariff increase, as the ethanol sector has suggested.

Fecombustiveis and the fuel-retailer union suggested that a waver of the PIS/COFINS taxes charged on ethanol could be a better way to lower the financial impact for ethanol producers.

By the end of the working day on Monday there had been no official position released by the Brazilian federal government on the waver.