Brazilian President Fernando Henrique Cardoso has ordered the country's National Petroleum Agency (ANP) to curb hikes in oil products prices.
Last Jan. 1, the government had opened the market to refined products imports and linked domestic prices to the fluctuation of international oil prices through a price trigger mechanism.
Now, with the government's promarket candidate Sen. Jose Serra trailing behind leftist Luis Inacio Lula da Silva and center-left presidential candidate Ciro Gomes for next October's general elections, Cardoso has decided to index prices.
The government's biggest concern is with LPG, used mainly in Brazil for cooking.
LPG prices rose 32% during the first half of the year and may rise a further 42% by yearend 2002, according to Central Bank projections.
Repercussions
Civilian Chief of Staff Minister Pedro Parente denied that the presidential measure was to benefit Serra's candidacy, but Serra's aides were exultant. Sen. Serra said late last month that "the oil product prices are abusive, because around 80% of Brazil's oil output is produced domestically."
A local analyst told OGJ that Cardoso's decision bodes ill for Brazil's oil markets and for foreign investors in those markets, "because it could mean a return to price controls and the end of a free market for oil products."
David Zylbersztajn, a former ANP executive director and now a prominent oil consultant, said, "If President Cardoso wants to determine that the ANP intervene in oil product prices, he will have to present a bill in Congress to change the Petroleum Law enacted in 1997."
According to Zylbersztajn, "The ANP does not have the legal right nor the technical capabilities to monitor oil product prices in Brazil."
On the other hand, current ANP Pres. Sebastiao de Rego Barros released a note saying that the ANP is "studying ways to abide by the president's decision."
Petroleo Brasileiro SA (Petrobras) Pres. Francisco Gros refused to comment on Cardoso's decision. He said, "This is politics, and Petrobras does not involve itself with politics."
However, sources close to Gros told OGJ that, as a former banker and a firm believer in the free market, he is "appalled" by Cardoso's decision.
Petrobras produces 99% of oil products consumed in Brazil, estimated at 1.8 million b/d.
