Petrobras Lowers Gasoline Prices 6% as Brazil Seeks to Rein in Inflation

Petroleo Brasileiro SA (PETR4), the Brazilian state-owned oil company, said its fuel distribution unit will cut gasoline prices by 6 percent as the government battles to slow inflation from its fastest pace in more than five years.

Gasoline prices will be cut because the country’s sugar harvest will reduce costs for ethanol, which accounts for 25 percent of blended gasoline, a spokesman for BR Distribuidora, who can’t be named under company policy, said by telephone.

President Dilma Rousseff is pursuing “populist” policies to keep consumer prices in check, Adriano Pires, head of the Rio de Janeiro-based Brazilian Center for Infrastructure, a research group, said today. Annual consumer price inflation accelerated to 6.51 percent in the year through April, breaking the 6.5 percent upper limit of the target for the first time since 2005.

“The government is intervening in BR Distribuidora for the first time, and this is very serious,” Pires said in a telephone interview. “If BR Distribuidora reduces prices, other companies will be forced to reduce as well,” he said.

Petrobras fell 2.21 percent to 23.48 reais at 10:08 New York time. The stock has dropped about 13 percent this year, compared with an 8 percent decline for Brazil’s benchmark Bovespa Index.

“Government’s Influence”

Companies including Royal Dutch Shell Plc (RDSA), Cosan Ltd and Ultrapar Participacoes SA have gasoline stations in Brazil. The price cut will hurt Ultrapar because fuel distribution accounts for 70 percent to 75 percent of its sales, JPMorgan Chase & Co. analyst Sergio Torres said today in a note to clients.

“It shows the government’s influence in the company, which will be viewed as very negative,” Torres wrote.

Petrobras hasn’t changed the prices its refineries charge fuel distributors since mid-2009, when it cut gasoline prices 4.5 percent and diesel by 15 percent. Those price caps at refineries hurt profits more than today’s gasoline cuts because BR Distribuidora is a small division of the world’s fourth largest oil company by market capital, Pires said.

BR Distribuidora accounts for less than 4 percent of Petrobras’s earnings before interest taxes and amortization, and the price reductions will have a “very small” impact on the company’s profits, Torres wrote.

The antitrust arm of Brazil’s Justice Ministry opened an investigation into BR Distribuidora for alleged abuse of its dominant market position in the federal district.

SDE, as the antitrust body is known, saw evidence that BR Distribuidora may have harmed competition in the country’s capital by providing benefits to the Gasol chain and not others, according to an e-mailed statement from the Justice Ministry.

To contact the reporter on this story: Peter Millard in Rio De Janeiro at pmillard1@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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