MercoPress. South Atlantic News Agency

Brazil adapts to weaker Real: cuts fuel tax to prop Petrobrás and contain inflation

The 16% reduction should help prices at the pump

Brazil cut a tax on fuel sold by Petrobras by 16% helping prevent surging import costs from squeezing profit margins at the state-run company and reducing the need for price increases as inflation quickens.

The so-called Cide tax, charged on gasoline sold by Petrobras to distributors at regulated prices, was reduced to 192.60 Real (106.90 dollars) per cubic meter from 230 Real, according to a presidential decree published in the official gazette today.

The Brazilian Real tumbled 12% against the dollar this month, the biggest drop among the 16 most traded currencies, increasing the cost of fuel imports. The tax break reduces pressure to raise fuel prices to ensure margins after inflation quickened to a six-year high of 7.33% in the 12 months through mid-September.

“It’s a tax announcement that favors Petrobras so that their cash flow improves,” Adriano Pires, head of the Brazilian Center for Infrastructure, said from Rio de Janeiro. “It’s importing 30,000 bpd on average in 2011 and selling it for less than they pay abroad.”

The tax cut will reduce Petrobras’s costs by 4 centavos for each liter of gasoline, Pires said.

Petrobras, which is controlled by the government through a majority voting stake, hasn’t raised wholesale fuel prices to distributors since May 2008 even after oil jumped 61% in the past two years.

Brazil’s decision to cut the tax was aimed at preventing a rise of gasoline prices and didn’t take into consideration imports by Petrobras, Antonio Henrique Silveira head of the Finance Ministry’s antitrust arm, told reporters Tuesday in Brasilia.