Brazil has recently been facing a rise in fuel prices, which is causing widespread inflation in the economy. This has made fuel prices the centre of public debate, especially as road transport is the main form of cargo transportation in Brazil (ie, approximately 65%). In this scenario, the Administrative Council for Economic Defence (CADE) has been targeted as a potential mechanism of price control by many government agents, especially by means of antitrust investigations against Petrobras.
In reaction to this, the CADE's general superintendent, Alexandre Barreto, recently stated that the authority had no mandate to regulate Petrobras's price policy and denied that political pressure could drive the decisions of antitrust cases in this sector. This statement has been endorsed by one of Barreto's peers, who affirmed that the CADE would not impose any price reductions on fuel markets.
However, the CADE is still clearly concerned with competition in this market. In fact, since 2009 the CADE has opened 11 antitrust investigations that directly or indirectly involve Petrobras. Further, this increasing political pressure is happening shortly after Barreto (the CADE's former president) received heavy criticism by the Senate for allegedly negotiating with Petrobras on the divesture of several oil refineries as a condition to end investigations into anticompetitive practices that are ongoing against the company.
The CADE has already expressed concern about competition in the fuel sector on several occasions in the past. In 2009, the Ministry of Justice's secretary of economic law revised the guide Fighting Cartels in Fuel Resale, which provides an overview of how various authorities handle cartels and specific related cases that have been judged by the Rio Grande do Sul Court of Justice.
In 2017, the CADE released the publication Competition in the Oil Refining and Liquid Fuel Distribution Sector. It highlights the main competition problems in the sector and analyses the oil refining market with a focus on the competitive effects of Petrobras's sale of assets.
In 2018, the CADE revised the document Rethinking the Fuel Sector: Pro-Competition Measures, which suggested:
- legal reforms in the regulation, such as allowing ethanol producers to sell directly to the final reseller and ending the ban on verticalisation of the fuel retail sector;
- taxation, particularly changes in the calculation of the state VAT tax levied on fuel; and
- other measures, such as urban law changes to allow gas stations in shopping malls and supermarkets.
In May 2021, the CADE published a new guide on the national fuel sector that revisits the suggestions made in 2018 and assesses the current scenario. The CADE highlights as positive developments the authorisation of the direct sale of ethanol to gas stations and the possibility to access federal tax databases to verify information on verticalisation in the sector. The new guide also provides a retrospective of the CADE's caselaw between 2013 and 2021.
This publication could be seen as a public gesture that shows how the CADE has been dedicating its attention to fuel markets in recent years, as well as a sign of stronger enforcement in this regard. However, it remains to be seen how the CADE will deal with increasing political pressure relating to fuel markets and potential advocacy measures and institutional dialogues with regulatory agencies and Petrobras.
For further information on this topic please contact Ticiana Lima, Levi Veríssimo or Arthur Sadami at VMCA by telephone (+55 11 3939 0708) or email ([email protected], [email protected] or [email protected]). The VMCA website can be accessed at www.vmca.adv.br.