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

Fuel?distributors and resellers?and analysts?warned, six months before a presidential elections?that rising energy prices could?scupper?a popular Brazilian program?that?provides?free cooking gas?to around 50 million people?.

As he prepared to run for re-election in October, President Luiz inacio Lula launched his "People's Gas Program" as his main energy initiative in November.

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.

The government announced on Monday a new subsidy of 330 million real dollars for LPG imports, which it claimed would help to mitigate the effects of the war on prices. Resellers have not commented on the impact of the new subsidy.

LPG purchased in that auction was already delivered to distributors who then passed on the increased price to resellers throughout Brazil, according to 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 margin of profit is so small, many resellers end up losing money. The government predicted the program would cost $901?million this year. Congress then reduced that figure, and on Monday, the government announced that it had budgeted 4.7 billion reais (914.52 millions) for this year.

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

The Brazilian Ministry of Mines and Energy didn't 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 review their pricing methodology.

Colomer said that a special mechanism to deal with these situations should be developed.

STRUCTURAL ISSUES

Brasilia's subsidy of cooking gas to the poorest Brazilians is a long-standing tradition. But Lula's administration has tripled the reach of the program and now it reaches nearly a quarter Brazilians.

Rocha said that the program is dependent on resellers in a few 'distant corners' of the country. These resellers will be squeezed soon.

Rocha said that a reseller who joins the program has to stay in it for at least 3 months. During the contracted period, a reseller can't refuse vouchers from the program.

LPG prices have not risen alone. One source said that the cost of trucking LPG canisters has risen along with diesel prices.

A small-scale retailer in the state of Parana, located in southern Brazil, said that he could no longer afford to cover his expenses. He told a source under condition of anonymity that he plans to stop accepting vouchers.

According to a large-scale seller in Brasilia's capital city, about 10% of the volume that he sells falls under the 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)