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The new measure by the Lula government provides for a subsidy of up to R$ 0.8925 per liter of gasoline and R$ 0.3515 per liter of diesel. The text was formalized amid international oil pressure following the war in the Middle East, and the transfer depends on the decision of producers and importers.
The government of President Luiz Inácio Lula da Silva published this Wednesday (May 13) a Provisional Measure that could reduce the price of gasoline by up to R$ 0.89 per liter at gas stations in Brazil. The measure creates a subsidy, a type of subsidy paid directly by the federal government, aiming to contain the impact of the international oil crisis on the Brazilian consumer’s pocket.
The proposed subsidy can reach R$ 0.8925 per liter of gasoline and R$ 0.3515 per liter of diesel. The text of the PM was formalized amid the pressure caused by the international rise in oil following the war involving Iran and allies in the Middle East, with the declared aim of preventing new fuel increases at the pumps. However, the effective transfer of this amount to the final price depends on the decision of producers and importers who receive the subsidy.
How the subsidy created by the government will work
The functioning model of the subsidy will be regulated by a specific ordinance from the Ministry of Finance, according to information released by the federal government. The payment method is direct and targets companies that produce and import fuel in the country.
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In the case of gasoline, the subsidy will be paid directly to producers and importers through the ANP, acronym for the National Agency of Petroleum, Natural Gas, and Biofuels. The logic is to compensate these companies’ high costs so that they do not need to pass on the international oil increase to the price charged at Brazilian gas stations.
For diesel, the design is different. The new support functions as a complement to the subsidy programs that have been in place since March, expanding the support that this fuel has been receiving from the federal government in the months preceding the worsening of the international oil crisis.
The detail that may empty the reduction: the transfer depends on the companies
Despite the formal announcement by the government, there is a critical point that needs to be observed by the consumer. The fact that the subsidy reaches R$ 0.89 per liter of gasoline does not automatically guarantee this discount at the pump.
This is because the subsidy is paid to producers and importers, and the transfer of this amount to the final price charged by the stations is a decision of these companies. If producers and importers absorb the amount to compensate for reduced margins in other stages of the chain, the consumer will not see the full discount reflected in the price of gasoline.
This is a point that usually generates debate in any measure of this type. The federal government sets a subsidy cap, but the decision on how much of this reaches the end depends on factors such as competition among distributors, logistical costs, and the commercial strategy of each fuel market agent.
What motivated the action of the Lula government this Wednesday
The international crisis involving Iran and allies in the Middle East has been putting pressure on oil prices in global markets. The increase is transferred almost automatically to the production costs of derivative fuels, including gasoline and diesel.
The Minister of Mines and Energy, Alexandre Silveira, highlighted that diesel had already been receiving previous support measures from the government, but gasoline had not received similar incentives since the beginning of the international crisis. The new MP corrects this difference and extends the subsidy to the fuel most used by passenger vehicles in Brazil.
“Diesel had already been receiving previous measures, but now gasoline also receives this support,” stated Minister Alexandre Silveira in a statement released by the government.
The initial expectation of the Planalto was to approve new measures for the fuel sector only next week, within Congress. The fear of an imminent price adjustment at Petrobras, however, accelerated the announcement and led the government to resort to the Provisional Measure, an instrument that has immediate effect without needing to pass through the Legislature first.
How much the subsidy will cost the public coffers
The government released calculations on the monthly cost of the new measures. The numbers show the dimension of the fiscal effort involved in trying to hold down fuel prices in the short term.
- Each R$ 0.10 of subsidy on gasoline is expected to cost about R$ 272 million per month to the public coffers.
- For diesel, the estimated cost is R$ 492 million monthly for each R$ 0.10 of aid granted.
The Lula government argues that there will be fiscal neutrality due to the increase in revenues related to oil. The justification is that the same high international prices that pressure fuels also increase the collection of royalties, dividends, and participations that the government receives from oil exploration in the country.
Fiscal neutrality, however, is a topic that usually generates technical discussion among economists. The correspondence between increased revenue and subsidy cost needs to be proven with consolidated data, which generally only happens months after the effective application of the government’s measure.
The third round of government actions on fuels
The announcement this Wednesday is the third round of actions by the Lula government to try to curb the rise in fuel prices since the worsening of the international crisis. The previous measures also tackled the problem from different fronts.
In previous rounds, the federal government:
- Eliminated the PIS/Cofins on diesel
- Created temporary subsidies for specific fuels
- Increased taxes on fuel exports
- Sent a project to Congress to allow the use of oil revenues to reduce fuel taxes
The new MP complements these actions, specifically targeting gasoline, which had not yet been covered by this specific type of support. The sequence of measures shows a government trying to combine fiscal, regulatory, and direct subsidy instruments to contain fuel inflation in Brazil.
The international oil scenario remains tense
The international context remains the main pressure factor on fuels in Brazil. The war involving Iran and allies in the Middle East keeps oil prices at high levels in global markets, and any escalation of the conflict could push values even higher.
Brazil is, at the same time, a significant producer and consumer of oil. This dual condition causes the international rise to generate contradictory effects: it increases government revenues with royalties and participations, but also raises costs for companies and consumers dependent on derived fuel.
The Lula government’s bet with the MP is precisely to use part of the gain from the rise to subsidize the other part of the cost. The effectiveness of this strategy will depend on the duration of the crisis in the Middle East and the speed of passing the subsidy to the final price practiced by the stations.
What to expect in the coming days after the publication of the MP
The publication of the Provisional Measure does not mean, by itself, an immediate reduction in gasoline at the station. The next steps involve regulation by ordinance of the Ministry of Finance, the operationalization of the transfer by ANP, and the commercial decision of producers and importers on how the discount will reach the final consumer.
In parallel, Congress will still need to consider the MP within the deadlines provided by Brazilian legislation. A Provisional Measure has immediate effect but needs to be converted into law within the constitutional deadline to remain valid, which gives the Lula government the additional task of articulating political support for the measure.
For the consumer, the practical recommendation is to monitor prices at gas stations in your city in the coming days. The drop may appear gradually, and the size of the effective discount will depend both on the companies’ decision and the government’s oversight of the subsidy transfer.
The new measure by the Lula government attempts to hold the price of gasoline at a time of intense international pressure on oil. The potential reduction of up to R$ 0.89 per liter is significant, but it depends on a chain of commercial decisions that go beyond the direct reach of the federal government.
And you, what do you think about this measure? Do you believe you will feel this reduction at the gas station where you fill up? Do you think the government has done enough to contain fuel prices, or should it adopt more aggressive measures? Leave your comment, share your opinion, and tag someone who will want to know about this news.
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