May 23, 2018 / 7:58 PM / in a month

Petrobras slashes diesel prices to ease Brazil trucker protest

RIO DE JANEIRO/BRASILIA (Reuters) - Brazil’s state-led oil company Petrobras on Wednesday temporarily cut diesel prices by 10 percent in order to help the government and truck drivers resolve a protest crippling highways.

Truck owners block the BR-324 highway during a protest against high diesel prices in Simoes Filho near Salvador, Brazil May 23, 2018. REUTERS/Ueslei Marcelino

The surprise decision, aimed at resolving a standoff threatening grains exports, industrial output and even fuel supply at airports and gas stations, will bring immediate relief for angry truckers but raise investor concerns about government interference at Petroleo Brasileiro SA.

New York-listed shares of Petrobras fell as much as 7.5 percent in after-market trading, after closing 3.8 percent lower on Wednesday.

Petrobras Chief Executive Officer Pedro Parente said the price cut, which will only remain in place for 15 days and cost the company about 350 million reais ($96 million), had not been demanded by the government.

“The independence of Petrobras has not been damaged,” Parente said at a news conference explaining the decision. “It was an exceptional measure and does not represent a change to our pricing policy.”

Near-daily price adjustments at Petrobras have let the company track global prices and turn a profit on fuel sales after losing money for years at the government’s insistence — part of a turnaround that lifted shares nearly 90 percent since the pricing policy started last July.

While Petrobras’ price cut brings momentary relief to truckers, policymakers struggled to reach a more lasting accord during talks with the drivers’ representatives in Brasilia, who threatened to extend their protests into a fourth day.

A group representing the truckers did not immediately respond to requests for comment on the price cut.

Truck owners block the BR-116 during a protest against high diesel prices in Guapimirim near Rio de Janeiro, Brazil May 23, 2018. REUTERS/Ricardo Moraes

Late on Wednesday, Brazil’s lower house of Congress approved the main text of a bill aimed at resolving the protest, with the measure now passing to the Senate. In addition to eliminating the CIDE tax on diesel, it cut the PIS/Cofins tax on the fuel to zero.

Before the bill’s passage, congressman and rapporteur for the bill, Orlando Silva, said it would reduce the final cost of diesel by 14 percent.

Earlier in the day, the government and truckers groups met at the office of Eliseu Padilha, President Michel Temer’s chief of staff, but failed to reach an accord after the government did not present a plan to reduce diesel costs, a spokesman for ABCAM, which represents the protesters, told reporters after the meeting.

Padilha, calling the meeting tense but fruitful, said there would be another meeting on Thursday. He said lost tax revenue would be offset with additional payroll taxes.

It was the first such meeting between the government and truckers since they began partially blocking roads in several states on Monday to protest surging diesel prices.

Temer had called for “a type of truce for two or three days at most for us to find a satisfactory solution for Brazilians and for the truckers.”

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However, ABCAM said the strike would continue.

SOY EXPORTS AT RISK

Brazil is a key global supplier of grains, meat, coffee and sugar, most of which reach ports by road.

Concerns that the protest could halt shipments of Brazil’s record soy crop have contributed to the steepest rally in soy futures in 10 months in Chicago trading, with prices up 4.5 percent in four consecutive days of increases.

Oilseed trade group Abiove said some soybean crushers were suspending operations due to the protest. Sugarcane industry group Unica said certain mills had reduced harvesting work due to short fuel supplies.

Meat processor Marfrig Global Foods SA said on Wednesday some of its plants are reducing or suspending output due to lack of deliveries during the protest.

State airport operator Infraero suggested that passengers check with airlines on the status of their flights and warned carriers to check that there is enough jet fuel to refuel planes at airports before clearing flights.

According to Petrobras, state and federal taxes make up 29 percent of the final price of diesel paid by consumers. The average retail price of diesel is now 3.595 reais per liter.

Padilha said policymakers had already determined how to offset the elimination of the CIDE fuel tax, which represents about 1 percent of diesel costs. However, he said congressional leaders still had to find about 12.5 billion reais ($3.5 billion) in new revenue in order to halve for six months the PIS/Cofins tax, which makes up about 10 percent of diesel costs.

He said the Finance Ministry would also discuss with states a possible reduction of the ICMS state tax burden on diesel.

Reporting by Alexandra Alper and Rodrigo Viga Gaier in Rio de Janeiro, Maria Carolina Marcello, Lisandra Paraguassu and Mateus Maia in Brasilia, Pedro Fonseca in Rio de Janeiro, Alberto Alerigi and Roberto Samora in Sao Paulo, and Karl Plume in Chicago; Writing by Ana Mano and Jake Spring; Editing by Diane Craft and Grant McCool

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