Brazil experiencing wave of energy price hikes

While Brazil’s central bank tries to contain inflation by raising the basic interest rate, energy prices will continue to pressure the economy. 

Aside from recent hikes in gasoline, diesel and aviation kerosene prices, natural gas and electric power prices are now also expected to increase.

On Saturday, Petrobras announced a 19% increase in the price of piped natural gas starting May 1. 

According to the state-run firm, which still dominates national supply, its gas price range, without transport, will be between US$12.30/MMBTU (million British thermal units) and US$17.70/MMBTU. 

“The update of Petrobras' natural gas prices followed the readjustment parameters used by other companies operating in this segment with a profile similar to that of Petrobras, which ranged from 18% to 28% in contracts linked to Brent oil,” the company said in a statement. 

Gas Energy CEO Rivaldo Moreira Neto said the Brazilian states that have signed contracts with other suppliers will be able to smooth the price readjustment for consumers. 

Included in this group are Alagoas, Bahia, Ceará, Rio Grande do Norte and Sergipe, which have inked deals with companies like Alvopetro, Galp, Equinor, PetroRecôncavo and Shell.

“But the fact is that, as oil rose a lot in the first quarter, there is a very strong pass-through of this volatility,” Moreira Neto told BNamericas. 

Potigás, from Rio Grande do Norte, said in a statement that the rise in Petrobras’ price will not affect the state because its supplier is Potiguar E&P, a subsidiary of local oil and gas producer PetroReconcavo that is not subject to oil price variations in the international market.

The contracts of Petrobras and private producers are mostly linked to Brent. A few are beginning to appear indexed to the Henry Hub benchmark.  

“Oil prices are not expected to rise substantially in the coming months, so gas prices should remain constant, with a small drop starting in November,” Moreira Neto added. 

Piped gas distributor association Abegás said in a statement that a lack of regulatory rules to facilitate the entry of new suppliers and of stimulus to expand the essential infrastructure to bring pre-salt gas to the market still impact the competitiveness of natural gas.

Meanwhile, average gasoline and diesel prices at the pump reached record levels of 7.28 reais (US$1.46)/l and 6.61 reais/l, respectively, in the last week of April. 

And, on May 2, Petrobras announced a 6.7% rise for aviation kerosene. According to air transport association Abear, the accumulated increase since January totals 48.7%. 

“Once again the readjustment announced by Petrobras proves how the airlines face the daily rise of structural costs, especially with the current scenario of war in Ukraine that brings a lot of pressure on the price of oil and the dollar rate,” Abear president Eduardo Sanovicz said in a statement. 

Think tank IBP said in a statement that the fuel challenge must be addressed by strengthening the economy, and other measures that lead to currency appreciation and rising purchasing power. 

“In parallel, the simplification of rules, the reduction of inefficiencies associated with tax complexity, the reduction of the possibilities for evasion and fraud and, above all, the increase in transparency for the final consumer, especially with regard to the tax burden, take great importance,” according to the statement.  

ELECTRICITY

In the electric power sector, watchdog Aneel has approved annual tariff adjustments in several states.

In Ceará, the increase for Enel Distribuição, which serves about 3.8mn consumer units, was 24.9%, on average. In Bahia, Neoenergia Coelba was granted a 20.7% increase for residential consumers. The company serves about 6.3mn units in the state.

Aneel also approved adjustments for Neoenergia Cosern (19.9%), in Rio Grande do Norte, Energisa Sergipe (16.5%), Neoenergia Pernambuco (18.5%), Equatorial Alagoas (19.9%), and Energisa Mato Grosso (20.4%).

The increases were partially offset by the interruption of the water scarcity flag, which imposed an extra fee on consumers between September 2021 and April 16 due to costs related to the use of expensive thermal plants amid last year’s drought. 

CONGRESSIONAL INITIATIVES

On Tuesday, Brazil’s lower house approved an urgency request for a legislative bill, which nullifies Aneel’s tariff adjustment authorization in Ceará. The project may be voted in the next plenary sessions.

The author of the proposal, Domingos Neto, of PSD party in Ceará, said the goal is to amend the text in the plenary to stop Aneel authorizations in several states. 

“There was an abusive readjustment of 20% in Alagoas, 21% in Bahia, 17% in Mato Grosso do Sul, around 20% in Rio Grande do Norte, almost 25% of average energy readjustment in Ceará, and I’m warning the people of Minas Gerais state that there will be an increase on May 22,” he said in a statement.

The proposal was supported by all parties except Partido Novo.

"We warn systematically, but this house approves populist measures and, at some point, the bill arrives. Now we’re here prohibiting increases in the electricity bill, disrespecting contracts and disrespecting the law," Paulo Ganime, a Partido Novo lawmaker from Rio de Janeiro, told public news outlet Agência Brasil.

Energy consumer association Anace deems bills to suspend distributor readjustments an affront.

“Consumers are the main stakeholders in reducing energy costs. But this cannot be done by means of a pen, much less by congress interfering in the work of a regulatory agency, such as Aneel,” Anace CEO Carlos Faria said in a statement.

At the end of April, congress approved a bill that allows reducing fuel taxes without the need to compensate for the revenue lost. Normally, whenever a federal entity agrees to lose revenue, through a tax reduction or exemption, it must provide another income source to make up for the loss.

Lawmakers are also analyzing a bill that entails measures to reduce fuel price volatility, including taxation of oil exports.