LatAm Oil & Gas – Colombia as benchmark to estimate impact of a fuel fund in Brazil

Following recent discussions in Brazil about potentially creating a stabilization fund to smooth out fuel prices across the country, we estimate such a mechanism would have created a deficit of US$42bn between 2015-21. Looking only at 2022, we estimate the deficit would have been US$44bn, compared with US$9.1bn est. in Colombia, our benchmark in this analysis. For the 2023-2027 period, total amount could be between US$46-175bn. Such amounts would be quite significant compared with the annual US$26-35bn expected to be received by the Federal Administration from the upstream business, implying that the government would most likely need to raise additional resources, further deteriorating its fiscal balance.

All our assumptions are based on the Fondo de Estabilización de Precios de los Combustibles (FEPC) in Colombia, which was initially meant to be a self-sustaining mechanism in the medium term, with no success, reflected in the: 1) constant deficit accrued since its establishment; and 2) several changes and new laws/ decrees in trying to match theory with practice. Since 2009, the FEPC has not reported a surplus in any year, highlighting that Brent was below or at cUS$50/bbl during some of that period, indicating the difficulty of balancing the FEPC.

In Brazil, there are independent refineries and other importers, which, along with the large geographic area and logistical issues (causing pricing differentials), may increase the complexity of a fund's operating mechanism. In Colombia, the challenging social situation, increased inflation and the need to preserve the process of economic reactivation have created a significant challenge for the government, hindering implementation of several measures promoted by the National Development Plan (PND). If implemented in Brazil, such a mechanism may increase the difficulty for the government to promote its expected investments and social agenda.