BRASILIA, June 18 The Brazilian government plans to conduct tests over the next two months on the use of a higher percentage of ethanol in commercial gasoline, a government source told Reuters on Wednesday.
The test period will be used to determine the viability of increasing the mandatory blend of the biofuel in gasoline at the pump, the source said, adding that the trial will begin "as soon as possible."
Brazil is currently blending ethanol into gasoline at the maximum of 25 percent. The source did not stipulate what higher blends were being tested but the cane industry is seeking a 27.5-percent maximum and lawmakers in Congress recently pushed unsuccessfully for a 30-percent blend ceiling.
Raising the blend requirement would favor the Brazilian cane industry, the world's largest, as well as state-run oil company Petroleo Brasileiro SA, but the measure has faced government resistance in the past due to fears that a greater demand for sugarcane could spur inflation.
The local automotive industry also came out against the increase in the blend saying it would hurt motor performance.
Brazil's government decided to increase the amount of biodiesel, mostly made from soy oil, used in diesel fuel to 6 percent from the current 5 percent starting in July. A second increase to 7 percent is scheduled for November.
Debt-ridden Petrobras would benefit from a higher ethanol blend requirement because it would enable it to reduce the amount of gasoline it imports and sells at a loss in the domestic market.
President Dilma Rousseff's government strictly controls fuel prices as a means to control inflation, and her Finance Minister Guido Mantega is on Petrobras' board.
Despite support for the increased blend from the agriculture, environmental, energy and trade ministries as well as the oil and gas regulator ANP, Mantega has so far opposed the increase in the blend. (Writing by Caroline Stauffer; Editing by Nick Zieminski)