Sadia is one of the world’s leading producers of chilled and frozen foods. Established in Brazil in 194...
Cyrela Brazil Realty is the largest residential real estate developer in Brazil. Considered one of the m...
Today, Banco do Brasil is the largest financial institution in the Country with 24.4 million clients and ...
CPFL Energia is a holding company in Brazilian electricity sector, operating through its subsidiaries in ...
Copersucar S.A. is the largest Brazilian sugar, ethanol and bioenergy company and a significant player in...

SEAE Competition Advocacy Initiative Favored Kitchen Gas Consumer

Competition Advocacy

Measure defended by SEAE and approved by CNPE aims to lower the price of cooking gas to the final consumer

July publication by the Competition and Competitiveness Advocacy Secretariat (Seae) contributed to the government's recent decision-making in regulating the liquefied petroleum gas (LPG) market, better known as cooking gas. The National Energy Policy Council (CNPE), which brings together several portfolios and is chaired by the Minister of Mines and Energy (MME), approved the end of cross-subsidization in the sector at the extraordinary meeting held on August 29, 2019. 

The subsidy is basically due to the possibility of large consumers, such as industrialists, to bear part of the costs of LPG for domestic use (in can of up to 13 kg). The policy increases investor uncertainty and consequently compromises the expansion of supply and the possibility of more affordable prices to the end consumer. For the sake of predictability, the subsidy will not be terminated immediately, but from March 2020. 

Technical analysis

The Technical Note SEI No. 12/2019 / SUREG / SEAE / SEPEC ME , of July 22, 2019, explains the adverse economic effects of the subsidy, as to the fact of not being focused, reaching all kinds of consumer alike and therefore , decreasing potential benefits for lower income families. The implementation of cross-subsidy at wholesale price rather than end consumer price is another factor limiting these benefits. 

The note also points to several implications for competition. This is the case of the detachment of the domestic market pricing with international references, increasing the uncertainty of the import activity or the creation of new production units and, thus, discouraging investments and the entry of more agents in the sector. In the distribution segment, LPG's differentiated pricing policy favors the maintenance of market share , creating obstacles to competition in this link. 

The potential loss of consumer welfare was estimated at around R $ 695 million between January and May this year, with the detachment of domestic and foreign prices favored by the policy in question. This circumstance and others were commented in the note to indicate the opportunity at the present time for the elimination of the subsidy that has been in force for almost fifteen years, under CNPE Resolution No. 4, of November 24, 2005. One of them was the increase in the price of gas. well above the inflation rate, around 86% between 2017 and May 2019. 

The current disparity with the international quotation (Monte Belvieu) was also mentioned, also around 80% in May this year, according to the MME report.