Exclusive: Brazil studies subsidizing domestic fuel with oil auction proceeds -source

(Reuters) – Brazil’s government is considering using some of the proceeds from an upcoming oil auction to create a fund that would protect domestic consumers from swings in fuel prices, a source with direct knowledge of the matter told Reuters.

The proceeds would come from the planned November auction of the Atapu and Sepia deepwater oil fields off Brazil’s southeastern coast, the source, who requested anonymity because the discussions are still private, said on Monday.

While it is not yet known how much money the auction will raise, the government believes it could bring in between 20 billion and 30 billion reais ($3.5 billion to $5.23 billion), the source said.

Brazil’s Mines and Energy Ministry told Reuters it was unaware of the proposal. Petrobras did not immediately comment on the matter.

At present, state-run oil company Petrobras, formally known as Petroleo Brasileiro SA, has a virtual monopoly on refining and is by far the most important supplier of fuel. According to company policy, Petrobras sells fuel domestically at prices that are in line with international prices, though the company has acknowledged that international and domestic prices can decouple in the short term.

That policy is at the center of ongoing turmoil at the company. On Monday, Roberto Castello Branco was formally removed from his post as chief executive after a series of fuel price hikes earlier in the year angered President Jair Bolsonaro.

Officials in Brazil have since floated the idea of creating a fund which would shield consumers from fuel price volatility. The company would refrain from hiking fuel prices in certain situations, and would then be compensated, officials have said.

While the possible creation of such a fund had been known, the fact that it could be funded by the proceeds of the Sepia and Atapu auction was not.

The total size of the potential fund has not yet been determined, the source said.

The government tried to auction off the rights to Atapu and Sepia in 2019 as part of a larger oilfield offer, but complex legal issues surrounding the sale depressed demand. The government published a new set of rules governing the Atapu and Sepia sale last week.

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