Experts concerned about plan to mitigate fuel price hikes

If approved, the PLP grants the government flexibility by permitting the offset of potential revenue losses—due to tax reductions—with increased revenue resulting from oil price shocks. The Fiscal Responsibility Law (LRF) requires tax cuts to be compensated by increases in other taxes. Since the beginning of the war, Brent crude oil has risen from a range of $65 to fluctuating between $95 and over $100 per barrel.

However, economists view the measure with reservations, considering it negative for the fiscal scenario and with uncertain impacts on inflation.

According to the PLP, revenue waivers can be applied to diesel, biodiesel, gasoline, and ethanol. Until now, the government has implemented measures to prevent price increases in diesel, biodiesel, and aviation kerosene (QAV). However, gasoline and ethanol have yet to have PIS/Cofins cut to zero.

“We always view favorably measures that can be taken to lower product prices,” said James Thorp Neto, president of the National Federation of Fuel and Lubricant Trade (Fecombustíveis).

Among the federal government’s revenue sources in the oil and gas sector are royalties, special participation (on large fields), dividends, sales of oil from production-sharing in the pre-salt, and signature bonuses in area auctions.

In the case of royalties, the National Agency of Petroleum, Natural Gas and Biofuels (ANP) estimates revenue of R$89.61 billion in 2026, considering a Brent barrel price of $95.64. Of this total, the federal government is expected to retain R$36.07 billion.

This year, the ANP is expected to conduct an auction for the concession of 495 onshore and offshore oil and gas blocks. The highest bid for the signature bonus wins.

Another revenue source is the sale of pre-salt oil. Between 2018 and 2025, the federal government raised R$43.75 billion, according to Pré-Sal Petróleo (PPSA), which manages production-sharing contracts. The state-owned company estimates revenue of R$24.14 billion in 2026 from pre-salt oil sales from past and upcoming auctions this year.

PPSA is expected to auction 106.5 million barrels from six pre-salt areas in July. The expectation is that most of the load will be delivered in 2027, except for the Bacalhau field, which may occur in August this year—payments are made upon oil delivery.

According to an industry source, if the government’s proposal is approved, it will have more effects downstream but is not expected to affect oil and fuel producers. The industry’s main concern, the source says, is the inclusion of the oil export tax in this equation. The tax is under judicial discussion between foreign oil companies and the government.

“There’s no need to include an additional tax [the export tax]. Revenue from royalties and special participation is sufficient to offset tax exemptions. The export tax has a clear revenue-raising objective, which should not happen.”

Former ANP director and consultant David Zylberstajn believes the uncertainty regarding compensation lies in the National Congress’s receptivity to the measure. “In my opinion, the big question mark is what kind of amendments or discussions might arise,” he said.

He emphasizes that diesel is used in agribusiness, freight, and passenger transport. Meanwhile, there are alternatives to gasoline that can reduce price pressures for the end consumer, which is not the case with diesel, Zylberstajn noted.

Evaristo Pinheiro, president of Refina Brasil, an association of private refineries, highlighted that the measures do not directly impact refineries, but the entity has been urging the government to reduce to zero PIS/Cofins for crude oil used in refining, as it did with diesel. According to him, when oil products have taxes cut to zero and crude oil does not, there is an accumulation of tax credits.