An attendant washes a car at a Petroleo Brasileiro SA (Petrobras) gas station in Rio de Janeiro, Brazil. (Photographer: Dado Galdieri/Bloomberg)

Petrobras Slashes Diesel Prices in Hopes of Ending Strike

(Bloomberg) -- Brazil’s state-owned oil company Petroleo Brasileiro SA announced a 10 percent cut in the price of diesel, in an effort to end a three-day nationwide truckers’ strike that has wrought havoc on Latin America’s largest economy.

Petrobras Chief Executive Officer Pedro Parente disclosed the last-minute decision at a press conference in Rio de Janeiro Wednesday night, saying the prices would be kept unchanged for 15 days to allow the government some time for a resolution to the dispute over fuel prices. Union representatives had earlier rejected as insufficient the administration’s promise to scrap one of the taxes on diesel.

Blockades in almost every Brazilian state over the past few days have halted assembly lines, caused delays in grain shipment and led to shortages of food and fuel. The strike reflects more widespread anger over soaring fuel prices in a nation just barely recovering from its worst recession on record. In the capital city Brasilia, politicians concerned with their re-election in October were jolted into action, scrambling for solutions neither the government nor Petrobras can afford. Reports of a shortage of fuel in the city’s airport will likely boost pressure on the government.

While Parente said Petrobras isn’t bowing to pressure and that the measure doesn’t mean a change in its pricing policy, the oil company’s American depositary receipts fell to $14.25 in late trading in New York following the announcement.

The pro-market tone that had dominated the election campaign so far now seems tarnished, says Elena Landau, a liberal economist who has consulted politicians for over two decades.

"It shows Brazilians aren’t ready for freedom of markets," she said in an interview at her Rio de Janeiro office this week.

While several presidential candidates have proposed privatizing state companies, citing a massive corruption scandal that emerged four years ago, front-runner Jair Bolsonaro, of the right-wing Social Liberal Party, has been more cautious on the issue, suggesting prices shouldn’t be left entirely unchecked.

Supply Shortages

With less than one-third of the normal number of lorries reaching Sao Paulo’s wholesale market with potatoes, their price jumped as much as 30 percent on Wednesday. Also stranded on roads along with watermelon and mangoes were Argentine apples.

Beef producer JBS SA, as well as nearly 80 pork and poultry plants have halted production due to the strike, which is affecting 50,000 tones of meat exports according to the trade group ABPA.

Automakers too are beginning to feel the impact. Among others General Motors, Honda, and Toyota said they have had to halt production for a lack of parts and faced difficulty in the distribution of vehicles to dealerships. The automakers association said that if the strike continues all manufacturers will shut down operations.

Both Brazil airport-management company Infraero and civil aviation regulator Anac advised passengers to contact the airlines to check their flight status. The Sao Paulo city government said in an email that the strike is affecting supply for the municipal transportation system and about 40 percent of the megacity’s bus fleet won’t circulate on Thursday, adding that garbage collection may be compromised as of Friday.

Essential Services

Finance Minister Eduardo Guardia said late on Tuesday that an agreement was reached with congressional leaders to eliminate a tax on diesel as soon as Congress approves a separate payroll tax increase that would compensate for the lost revenue. The truckers, however, say the move is insufficient, as the so-called Cide only accounts for a minimal part of the taxes that impact fuel prices. Lower House Speaker Rodrigo Maia said Wednesday he was in talks with the government to cut other levies on fuels.

Fuel distributors are prioritizing delivery to essential services, including hospitals, airports, as well as security and rescue forces, according to Leandro Silva, supply director at fuel distributors association Plural.

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