Ethanol ICMS reduction: size of discount at pumps uncertain – Economy

Gas station on Avenida do Contorno, in BH: Minaspetro expects the average price of alcohol to fall to between R$4.20 and R$4.50
(photo: Photos: Jair Amaral/EM/DA Press)
The decision to reduce the rate of the Tax on the Circulation of Goods and Provision of Services (ICMS) on ethanol promises to represent yet another relief in the pockets of Minas Gerais consumers. Announced by the government of Minas, the measure aims to reduce the percentage charged per liter of the product from 16% to 9%, and it came into effect yesterday at several gas stations in Belo Horizonte.
Since the beginning of the month, drivers have already observed a significant drop in the price of gasoline, after the reduction of the tax rate from 21% to 18% in the state. The fuel is well below R$ 6 in the capital and it has become more advantageous for consumers in recent days compared to ethanol. Despite the expectation of a drop in alcohol prices at the pump, the full transfer of the tax cut in the form of a discount to consumers is uncertain, according to representatives of the trade and distributors.
According to a study by the State Department of Finance, the reduction in ICMS should reduce the price of ethanol by R$ 0.47 per liter. The state’s annual revenue is expected to fall by around R$900 million. But the impact of reducing ethanol at pumps will be around R$0.35, according to a survey by the Minas Gerais State Petroleum Derivatives Retail Trade Union (Minaspetro). As a result, the average liter price tends to be between R$4.20 and R$4.25. According to the entity, the total decrease in price depends on how the distributors will pass the drop on to the stations which, in turn, will transmit the reduction to the final price of the pump.
“You have several factors that impact the price. Today, there is a great variety of mills in Minas. Large plants and distributors buy ethanol from smaller plants and this affects the final price. In this sense, there is less ethanol on the market for other smaller distributors or for other resellers to buy directly from the plant. Plant owners can produce sugar or ethanol and they can often opt for sugar. As a result, the price of fuel becomes more expensive”, emphasizes Rodrigo Zingales, executive director of the Brazilian Association of Independent and Free Fuel Dealers (Abrilivre).

Clemente Ferreira n
Clemente Ferreira does not have much hope of a price reduction
He understands that consumers will hardly be entitled to a total discount equivalent to a drop in the ICMS rate: “We have historically seen that, when there is a drop in the price of the refinery, it is hardly passed on in full to the gas stations. Normally, half of the amount is transferred. What we don’t want, but it may happen, is that distributors take advantage of the fall to increase their margins and spend less on gas stations. When less is transferred, the gas station charges more than it should.”
Ethanol was already showing a price drop in June. According to the IBGE’s Broad Consumer Price Index (IPCA) survey, the product had a negative variation of 7.68% in the last month, with an accumulated drop of 4.61% in 2022. However, if the variation in In the last 12 months, ethanol has increased by 14.96%, due to the unfavorable weather effects last year.

“It is important that ethanol-producing plants understand the good moment experienced by the taxation of fuels in Minas and have the sensitivity to perceive the excellent opportunity to make sugarcane fuel more competitive at the pump, in view of the reduction in the ICMS on gasoline, announced at the beginning of the ms”, says Minaspetro.

MAJOR PRODUCT

The increase in alcohol production this year can also boost the price reduction at pumps. According to the Minas Gerais Sugar-Energy Industries Association (Siamig), total ethanol production will be 2.95 billion liters in 2022/2023, which represents an increase of 5% compared to the previous harvest. Among biofuels, the largest production will be hydrous ethanol, 1.7 billion liters, which represents a 10% increase over the previous harvest.
“The prices of hydrous ethanol will fall at the pumps at gas stations throughout the state, maintaining the competitiveness of a clean and renewable fuel, but mainly favoring the consumer”, says Siamig.
Even with the announcement by the state government, carpenter Clemente Ferreira, 56, suspects that the reduction will in fact reach the bombs: “I have always supplied more ethanol, because it is worth it. We always look for the cheapest fuel, but in recent days everything is expensive. Reductions are announced, but no one sees it,” he says.