Federal People’s Gas Program is threatened by the rise in cooking gas in an election year

Rising fuel prices could compromise the federal Gás do Povo program, which provides liquefied petroleum gas (LPG), cooking gas, free of charge to around 50 million people, warned distributors, resellers and sector analysts, six months before the presidential elections.

In November, President Luiz Inácio Lula da Silva launched the program as his main energy initiative, as he prepares to run for re-election in October.

The war involving the United States, Israel and Iran put pressure on LPG prices in Brazil. After a Petrobras auction at the end of March, for delivery in April, registered premiums of up to double the values ​​practiced in traditional contracts, Lula promised last week to cancel the bid.

The LPG from this auction, however, has already been delivered to distributors, who passed on the increase to resellers across the country, sector representatives told Reuters. Gás do Povo rules, however, do not allow readjusting the amount charged to beneficiaries based on rising costs, said José Luiz Rocha, president of Abragás, which represents LPG resellers.

“As the margin is small, the reseller ends up at a loss,” said Rocha, adding that many are threatening to abandon the program, estimated by the government to cost around R$5.1 billion (US$991 million) this year.

According to him, resellers are negotiating with the government to adjust the program’s reference prices.

The Ministry of Mines and Energy did not immediately respond to a request for comment.

Faced with concerns about soaring prices, the government announced this Monday a subsidy for imported LPG, for two months, extendable for another two, to try to reduce the impact of the war on the most vulnerable population.

A delay in reviewing People’s Gas prices is “natural”, as adjustments need to go through the government’s internal approval process, says Marcelo Colomer, professor at the UFRJ Institute of Economics and coordinator of the Energy Economics Group. But the extreme volatility since the beginning of the conflict has led industry players to advocate that the government review the pricing methodology, he adds.

“It may be necessary to think of an extraordinary mechanism associated with the program, to cushion this type of situation at specific moments in the international market and prevent it from happening again,” said Colomer.

Structural issues

Brazil has a history of subsidizing cooking gas for the low-income population, but the Lula government expanded the reach of the program, which today reaches almost a quarter of Brazilians.

In remote regions, Gás do Povo depends on small resellers, whose margin is even more under pressure, says Rocha.

A reseller who joins the program must remain in it for at least three months and, during this period, cannot refuse the vouchers presented by beneficiaries, he explained.

The price of LPG sold by Petrobras was not the only factor that squeezed margins. The cost of freight to transport cylinders by truck also soared with the rise in diesel prices, said sources linked to the distributors. Additionally, private companies that also supply cooking gas have raised their prices.

A small retailer in Paraná told Reuters, on condition of anonymity, that it can no longer cover its costs and plans to stop accepting vouchers from the program.

A large reseller in Brasília said that around 10% of its sales volume is linked to Gás do Povo. Without adjustment, he stated that he intends to “boycott the program”.

“The beneficiary will complain that they are looking and can’t find where to get the gas,” said Rocha. “That becomes a big government problem. We want to help, but it needs to be at a fair price.”