Energy prices spiked ahead of the election, threatening Brazil's free gas for cooking program

Fuel distributors and resellers warned that rising energy prices could end a popular Brazilian cooking gas program, which provides free gas to around 50 million people. This warning comes six months before a presidential election.

As he prepared to run for re-election in October, President Luiz Inacio Lula launched his "People's Gas Program" as the flagship of his energy initiative.

The U.S. and Israel war against Iran has pushed up the price of liquefied gas in Brazil. Lula was furious after a Petrobras auction drew premiums up to twice the reference price.

LPG purchased at the?auction was already delivered to distributors who then passed on the increased price to resellers in Brazil, said resellers. Jose Luiz Rocha of the Abragas Gas resellers' association said that the rules of the 'People's Gas' program don't allow them to charge more because of higher costs.

Rocha said that because the profit margin was so small, many resellers were losing money. The government had predicted the program would cost $991 million this year.

Rocha stated that gas retailers are in discussions with the government about price adjustments.

Brazil's Ministry of Mines and energy did not immediately respond to a comment request.

Marcelo Colomer is an energy expert from the Brazilian UFRJ University. He said that a delay in price adjustment was natural. He said that the extreme volatility in the industry since the beginning of the war has led to players saying the government should re-evaluate its pricing methodology.

Colomer said that "an extraordinary mechanism to alleviate these situations, perhaps in conjunction with the program," should be considered.

STRUCTURAL ISSUES

Brasilia is known for subsidizing gas to cook food, but Lula's administration has tripled the reach of the program.

Rocha said that the program is dependent on resellers in remote corners of the nation, who are soon to be squeezed out.

Rocha said that a?reseller must be in the program for at least 3 months and cannot refuse vouchers during a contractual?time.

LPG prices have not risen alone. One source close to distributors said that the cost of trucking LPG has also increased with the diesel price.

A small-scale retailer in the southern state Parana has said that he cannot cover his costs. On condition of anonymity, he said that he plans to stop accepting vouchers.

According to a large-scale retailer in Brasilia, about 10% of his?volume is sold under this program. He said that if the price is not adjusted, he will 'boycott' it.

Rocha said that "the beneficiaries will complain about not being able to find gas." Then, it'll become a big problem for the government. We are willing to assist, but at a reasonable price.

(source: Reuters)