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Annual Fuel Retail Report

National Federation of Fuel and Lubrificant Commerce


MASTHEAD AND MEMBER ORGANIZATIONS

FECOMBUSTÍVEIS Federação Nacional do Comércio de Combustíveis e de Lubrificantes (National Federation of Fuel and Lubricants Trade) www.fecombustiveis.org.br Av. Rio Branco 103/13° floor. Centro-RJ. Brazil. 20.040-004 Telephone: +55 21 2221-6695 Fecombustíveis represents 34 member organizations and Abragás na-

ACRE

Delano Lima e Silva Rua Pernambuco nº 599 - Sala 4 Bairro: Bosque Rio Branco-AC Fone: (68) 3226-1500 sindepac@hotmail.com www.sindepac.com.br

DISTRITO FEDERAL

Daniel Benquerer Costa SHCGN-CR 704/705, Bloco E entrada 41, 3º andar, sala 301 Brasília-DF Fone: (61) 3274-2849 Fax: (61) 3274-4390 sindicato@sindicombustiveis-df.com.br www.sindicombustiveis-df.com.br

tionwide, defending the legitimate interests of approximately 41,000 service stations, 359 TRRs and about 65,000 LPG resellers, in addition to lubricant retailers. The Federation is affiliated with the National Confederation for Commerce of Goods, Services and Tourism (CNC) and is

ALAGOAS

part of the Latin American Fuel Business Commission (Claec).

James Thorp Neto Av. Jucá Sampaio, 2247, Barro Duro Salas 93/94 Shopping Miramar Maceió-AL Fone: (82) 3320-2902/1761 Fax: (82) 3320-2902 scvdpea@uol.com.br www.sindicombustiveis-al.com.br

Press run: 4,500 copies President: Paulo Miranda Soares President of honor: Gil Siuffo

ESPÍRITO SANTO

Nebelto Carlos dos Santos Garcia Rua Vasco Coutinho, 94 Vitória-ES Fone: (27) 3322-0104 Fax: (27) 3322-0104 sindipostos@sindipostos-es.com.br www.sindipostos-es.com.br

1st Vice President: Mario Luiz Pinheiro Melo 3rd Vice President: Adão Oliveira da Silva 4th Vice President: Walter Tannus Freitas 5th Vice President: Maria Aparecida Siuffo Schneider 6th Vice President: José Camargo Hernandes 1st Secretary: Roberto Fregonese 2st Secretary: Emílio Roberto C. Martins 3st Secretary: José Augusto Melo Costa 1st Treasurer: Ricardo Lisbôa Vianna 2nd Treasurer: Manuel Fonseca da Costa

AMAZONAS

Luiz Felipe Moura Pinto Rua Rio Içá, 26 - quadra 35 Conj. Vieiralves Manaus-AM Fone: (92) 3584-3707 Fax: (92) 3584-3728 sindcam@uol.com.br

GOIÁS

José Batista Neto 12ª Avenida, 302 Setor Leste Universitário Goiânia-GO Fone: (62) 3218-1100 Fax: (62) 3218-1100 sindiposto@sindiposto.com.br www.sindiposto.com.br

3nd Treasurer: Armando Matheussi Full Member Fiscal Council: Luiz Felipe Moura Pinto Full Member Fiscal Council: Julio Cezar Zimmermman Full Member Fiscal Council: João Victor C. R. Renault TRR Director: Álvaro Rodrigues Antunes de Faria Service Stations Director: Ricardo Hashimoto Environment Director: João Batista Porto Cursino de Moura CNG Director: Gustavo Sobral Convenience Stores Director: Paulo Tonolli Editorial Council: Emílio Martins, José Antônio Rocha, José Camargo Hernandes,

BAHIA

José Augusto Melo Costa Av. Otávio Mangabeira, 3.127 Costa Azul Salvador-BA Fone: (71) 3342-9557 Fax: (71) 3342-9557/9725 sindicombustiveis@sindicombustiveis.com.br www.sindicombustiveis.com.br

Mario Melo, Paulo Miranda Soares, Ricardo Hashimoto, Ricardo

MARANHÃO

Orlando Pereira dos Santos Av. Jeronimo de Albuquerque, 25 Ed. Pátio Jardins, 5º andar/ salas 518 e 520 Calhau - São Luís-MA Fone: (98) 98749-1700/ 984537975/ 98433-5941 sindcomb@uol.com.br www.sindcombustiveis-ma.com.br

Lisbôa Vianna and Roberto Fregonese. Editor: Mônica Serrano Assistant Editor: Gisele de Oliveira Reporters: Adriana Cardoso and Rosemeire Guidoni Economist: Isalice Galvão Visual programming: Girasoli Soluções Illustrations: Alexandre Bersot Printer: Edigráfica

2 Annual Fuel Retail Report 2017

CEARÁ

Manuel Novais Neto Av. Engenheiro Santana Junior, 3000/6º andar - Parque Cocó Fortaleza-CE Fone: (85) 3244-1147 sindipostos@sindipostos-ce.com.br www.sindipostos-ce.com.br

MATO GROSSO

Aldo Locatelli R. Manoel Leopoldino, 414, Araés Cuiabá-MT Fone/Fax: (65) 3621-6623 contato@sindipetroleo.com.br www.sindipetroleo.com.br


MATO GROSSO DO SUL

Edemir Jardim Melo Rua Bariri, 133 Campo Grande-MS Fone: (67) 3325-9988 / 9989 Fax: (67) 3321-2251 sinpetro@sinpetro.com.br www.sinpetro.com.br

PIAUÍ

Robert Athayde de Moraes Mendes Av. Jockey Club, 299, Edificio Eurobusines 12º, sala 1212 Teresina-PI Fone: (86) 3233-1271 Fax: (86) 3233-1271 sindpetropi@gmail.com www.sindipetropi.org.br

RONDÔNIA

Rafael Alexandre Figueiredo Gomes Travessa Guaporé, Ed. Rio Madeira, 3º andar, salas 307/308 Porto Velho-RO Fone: (69) 3229-6987 Fax: (69) 3229-2795 sindipetrorondonia@gmail.com www.sindipetro-ro.com.br

SÃO PAULO - CAMPINAS

Flávio Martini de Souza Campos Rua José Augusto César, 233 Jardim Chapadão - Campinas-SP Fone: (19) 3284-2450 recap@recap.com.br www.recap.com.br

SÃO PAULO - SANTOS RORAIMA MINAS GERAIS

Carlos Eduardo Mendes Guimarães Júnior Rua Amoroso Costa, 144 Bairro Santa Lúcia Belo Horizonte-MG Fone/Fax: (31) 2108- 6500/ 2108-6530 minaspetro@minaspetro.com.br www.minaspetro.com.br

RIO DE JANEIRO

Ricardo Lisbôa Vianna Av. Presidente Franklin Roosevelt, 296 São Francisco Niterói–RJ Fone/Fax: (21) 2704-9400 sindestado@sindestado.com.br www.sindestado.com.br

José Pereira Barbosa Neto Av. Major Williams, 436 - sala 01 São Pedro - Boa Vista-RR Fone: (95) 3623-9368 sindipostos.rr@hotmail.com

SERGIPE SANTA CATARINA

PARÁ

Ovidio da Silveira Gasparetto Av. Duque de Caxias, 1.337 Bairro Marco Perímetro: Trav. Mariz e Barros/Trav. Timbó - Belém-PA Fone: (91) 3224-5742/ 3241-4473 secretaria@sindicombustiveis-pa.com.br www.sindicombustiveis-pa.com.br

RIO DE JANEIRO - MUNICÍPIO

Maria Aparecida Siuffo Pereira Schneider Rua Alfredo Pinto, 76 - Tijuca Rio de Janeiro-RJ Fone: (21) 3544-6444 secretaria@sindcomb.org.br www.sindcomb.org.br

Reinaldo Francisco Geraldi Rua Porto União, 606 Bairro Anita Garibaldi Joinville-SC Fone: (47) 3433-0932 / 0875 Fax: (47) 3433-0932 sindipetro@sindipetro.com.br www.sindipetro.com.br

SANTA CATARINA - BLUMENAU PARAÍBA

Omar Aristides Hamad Filho Av. Minas Gerais, 104 Bairro dos Estados João Pessoa-PB Fone: (83) 3324-1600 Fax: (83) 3221-0762 sindipet@hotmail.com www.sindipetropb.com.br

RIO GRANDE DO NORTE

Antônio Cardoso Sales Rua Raposo Câmara, 3588 Candelária - Natal-RN Fone: (84) 3217-6076 Fax (84) 3217-6577 sindipostosrn@sindipostosrn.com.br www.sindipostosrn.com.br

José Camargo Hernandes Rua Dr. Manoel Tourinho, 269 Bairro Macuco - Santos-SP Fone: (13) 3229-3535 Fax: (13) 3229-3535 secretaria@resan.com.br www.resan.com.br

Julio César Zimmermann Rua Quinze de Novembro, 550/4º andar Blumenau-SC Fone: (47) 3326-4249 Fax: (47) 3326-6526 sinpeb@bnu.matrix.com.br www.sinpeb.com.br

Mozart Augusto Oliveira Rua Dep. Euclides Paes Mendonça, 871 Bairro Salgado Filho - Aracaju-SE Fone: (79) 3214-4708 Fax: (79) 3214-4708 sindpese@infonet.com.br www.sindpese.com.br

SINDILUB

Laércio dos Santos Kalauskas Rua Trípoli, 92, conj. 82 Vila Leopoldina São Paulo-SP Fone: (11) 3644-3440/ 3645-2640 sindilub@sindilub.org.br www.sindilub.org.br

TOCANTINS

Wilber Silvano de Sousa Filho Quadra 303 Sul Av. LO 09 lote 21 salas 4 e 5 - Palmas-TO Fone: (63) 3215-5737 sindiposto-to@sindiposto-to.com.br www.sindiposto-to.com.br

SANTA CATARINA FLORIANÓPOLIS PARANÁ

Rui Cichella Rua Vinte e Quatro de Maio, 2.522 Curitiba-PR Fone/Fax: (41) 3021-7600 diretoria.sindi@sindicombustiveis-pr.com.br www.sindicombustiveis-pr.com.br

RIO GRANDE DO SUL

Adão Oliveira Rua Cel. Genuíno, 210 - Centro Porto Alegre-RS Fone: (51) 3930-3800 Fax: (51) 3228-3261 presidencia@sulpetro.org.br www.sulpetro.org.br

Paulo Roberto Ávila Av. Presidente Kennedy, 222 - 2º andar Campinas São José Florianópolis-SC Fone: (48) 3241-3908 sindopolis@gmail.com

TRR

Álvaro Rodrigues Antunes de Faria Rua Lord Cockrane, 616 8º andar, salas 801/804 e 810 Ipiranga-SP Fone: (11) 2914-2441 Fax: (11) 2914-4924 info@sindtrr.com.br www.sindtrr.com.br Entidade associada

PERNAMBUCO

Alfredo Pinheiro Ramos Rua Astorga, 120 - Bom Retiro Recife-PE Fone: (81) 3227-1035 Fax: (81) 3445-2328 recepcao@sindicombustiveis-pe.org.br www.sindicombustiveis-pe.org.br

RIO GRANDE DO SUL – SERRA GAÚCHA

Luiz Henrique Martiningui Rua Ítalo Victor Berssani, 1.134 Caxias do Sul-RS Fone/Fax: (54) 3222-0888 sindipetro@sindipetroserra.com.br www.sindipetroserra.com.br

SANTA CATARINA - LITORAL CATARINENSE E REGIÃO

Giovani Alberto Testoni Rua José Ferreira da Silva, 43 Itajaí-SC Fone: (47) 3241-0321 Fax: (47) 3241-0322 sincombustiveis@sincombustiveis.com.br www.sincombustiveis.com.br

ABRAGÁS (GLP)

José Luiz Rocha Fone: (41) 8897-9797 abragas.presidente@gmail.com www.abragas.com.br

Annual Fuel Retail Report 2017

3


TABLE OF CONTENTS

05 • Letter from the president 06 • UNITED STATES Pace slows down 10 • SCENARIOS The crisis continues 18 • GASOLINE Sales rise 26 • ETHANOL In decline 36 • DIESEL Another year of contraction 44 • BIODIESEL Weak performance 50 • CNG The year of the turnaround 58 • LPG Sales on the rise 64 • LUBRICANTS Challenges persist 70 • ENVIRONMENT Compromised quality 76 • LEGISLATION A bitter flavor 82 • CONVENIENCE In search of trends 86 • FECOMBUSTÍVEIS Eyes wide open 94 • Supply chain 95 • Acronyms 96 • List of Tables 98 • Glossary 100 • Research Sources and Acknowledgments

4 Annual Fuel Retail Report 2017


LETTER FROM THE PRESIDENT

The country’s adverse economic moment extended over another year. Without a doubt, in 2016 resellers suffered more intense effects of the crisis, and there were many. The 3.3% drop in fuel sales in the 2015/2016 period was just the tip of the iceberg that resellers experienced. Due to the recession, a window of opportunity opened up for disreputable agents practicing unfair competition. The fraudulently rigged pump, when a chip is installed to disguise the fuel volume sold, was one of the most practiced scams. The consumer pays to fill up his tank — and gets less gasoline. Another common fraud was adulteration in terms of the fuel quality. In 2016, one of the largest frauds the ANP ever uncovered was detected, involving contamination of ethanol by methanol. The episode was in Rio de Janeiro, where about 16 million of liters deriving from the three main distributors were delivered to their service station chain outlets. At first, trust in the reseller network was shaken. Many times, the retailer confides in the quality of the fuel supplied by its partners and does not collect a fuel sample, which would be his only defense. In this particular case, the three distributors purchased the fuel from the same ethanol plant. Although the distribution and resellers were victims, in the eyes of the consumer the blame for such fraud is always placed on the service stations, mainly because they were the ones that were closed down for a week — until it was realized that the fuel already was not in compliance at the distributors’ bases, as required by the ANP’s procedures. This intangible damage, which affects the resellers’ image, is only perceived by the station owners through the loss of their clients, as if the financial difficulties caused by the recession were not enough. To combat irregularities, Sindicom led the introduction of the Legal Fuel program, which had the support of Fecombustíveis and other organizations. The program organized a number of events to discuss the main irregularities. At the end of 2016, among actions to combat the problem, a commitment was signed by the governor of Paraná, Beto Richa, and of São Paulo, Geraldo Alckmin, to create a law to suspend the registration of service stations that rig their fuel pumps with electronic devices. This was one of the first

advances, which resulted from a joint action of the sector towards a competitive and healthy environment. The Fuel Resellers Annual Report - 2017 presents a full X-ray of the fuel industry in 2016 amid the backdrop of economic slowdown, when Brazil’s GDP shrank 3.6% percent compared to 2015. Because the sector is extremely dynamic, consumer behavior reversed itself compared to what we reported in the 2015 edition. In 2016, gasoline was big highlight, with growth of 4.6% over the previous year. Ethanol, which posted record sales in 2015, declined 18.3% over the period. CNG rebounded in the year, turning in growth of 3% after years of depressed sales. Diesel sales revenues, in step with the performance of the economy, continued to fall, this time off 5.1% (2015/2016); however, its sales volume totaled 54.3 million cubic meters and remained at the top of the national vehicle sales matrix, with 45% of the total market. In 2016, we saw occurrences that shook up the entire country. The main one was the change of government deriving from the impeachment of President Dilma Rousseff, who turned over the command to Michel Temer. Under new management, Pedro Parente became president of Petrobras, who faces a big challenge in terms of balancing the state-run oil company’s finances. Parente implemented deep changes in his first year of management, introducing two main measures: a disinvestment plan calling for the selloff of a number of its assets, including BR Distribuidora (fuel distribution) and Liquigas (liquefied natural gas distribution); and a change in fuel pricing policy, accompanying the international market as of October 2016. This is a short summary of the content of this Report. This document is essential reading for anyone who works in the sector. We must stay informed about what is happening in our country and how it reverberates in our segment. We also present rule changes, updates of ANP resolutions, new laws and obligations, which require constant updating. Our Report centralizes a piece of our history in a single place. It’s worth checking out! Enjoy your reading! Paulo Miranda Soares President of Fecombustíveis Annual Fuel Retail Report 2017

5


S E

D E

U

T I N

T A T S


Pace slows down The strength of the growth of the U.S. economy declined compared to recent years, but remained 1.6% higher in 2016 compared to the previous year. This result was considered the worst since 2011. In 2015, the performance of the economy was more positive, with an increase of 2.4%. Despite the reduction in the pace of the growth, the country’s job creation continued expanding, to 2.16 million. Just in December, 156,000 new vacancies were filled in the labor market. The unemployment rate ended the year at 4.7%, considered a extremely low level. Last year, the Federal Reserve (FED) boosted the interest rate 0.25 percentage point, with government securities going from between zero and 0.25%, to between 0.25% and 0.5%. Internally, economic indicators showed that the American economy got off to a good start in 2017. The Federal Reserve announced the first increase of interest rates on March 15, by 0.25 percentage point, raising the interval from 0.75% and 1%. The reason was that jobs data were positive and there was confidence inflation was heading towards the target. The FED is expected to announce two more interest rate increases before the end of 2017. Among the highlights of 2016, the U.S. elections surprised the world with the victory of Donald Trump. One of his campaign promises was to raise economic growth by 3% to 4% per year during his term of office, which began on January 20, 2017. The expansionary policy aimed to increase investments in infrastructure, conduct tax reform and implement protectionist measures related to international trade. Considered unstable and controversial, Trump could introduce risk to Consumption of fossil fuels international political and economic Americans fill up their cars’ tanks four to five times a relations. month in about 150,000 service stations, of which 123,807 are resellers with convenience stores, which are responsible for 80% of the total volume of fuel sold in the country. 1.1 SALES OF GASOLINE AND DIESEL In relation to consumption, just as seen in 2015, gaso(M million) line sales continued to grow, going from 499 million cubic 2015 499 meters in 2015, to 515 million cubic meters, in 2016, that GASOLINE 2016 515 represented a 3% increase. Diesel sales for their part saw an end to the growth cycle and registered a 2% decline, from 2015 212 DIESEL 2016 212 million cubic meters in 2015, to 208 million cubic 208 Source: EIA meters in 2016. Note: Diesel data refers to Ultra Low Sulfur because 3

there is no data available for Low Sulfur and High Sulfur

Annual Fuel Retail Report 2017

7


UNITED STATES

Consumption of renewable fuels In the context of biofuels, 2016’s highlight was biodiesel sales, which rose 1.2 BIODIESEL by 40%, to 7.8 million cubic meters. Biodiesel production also increased 23% (M million) in comparison to 2015, reaching 5.9 million cubic meters. 2015 PRODUCTION Like in Brazil, the American biodiesel production makes use of a varie2016 ty of raw materials, such as soybeans and animal fat. The product is used as 2015 fuel in trucks, tractors, school buses, snowplow vehicles, boats and domestic CONSUMPTION 2016 heating systems. Source: EIA Ethanol production rose 3.3% in the 2015-2016 period, with total sales of 54.5 million cubic meters. It increased by 3.5%, from 56 million cubic me1.3 ETANOL ters in 2015, to 58 million cubic meters in 2016. (M million) At the end of 2016, the Environmental Protection Agency announced 2015 the goals for using biofuels in 2017, requiring that energy companies mix 19.3 PRODUCTION 2016 billion gallons of biofuels in gasoline and diesel. Over the past four years, approximately 4.5 million cubic meters of Bra- CONSUMPTION 2015 2016 zilian ethanol fueled vehicles in the U.S. The agency is required to establish targets for the Renewable Fuel Stan- Source: EIA dard regarding the amount of ethanol and biodiesel that must be mixed with gasoline and diesel. The program’s goal is to reduce greenhouse gas emissions, foster energy independence and stimulate rural economies. 3

4.78 5.89 5.59 7.80

3

56.0 58.0 52.8 54.5

Hypermarkets

The power of the small resellers

The resale market in the United States also includes the participation of hypermarkets. EIA data from May 2016 highlighted the five major chains that sold fuel in United States: Kroger, with 1,354 stations; Walmart, with 1,323 stations; Sam’s Club with 535 stations; Costco, with 430 stations; and Safeway, with 341.

More than 70,000 convenience stores, or 58.8% of the total market, are represented by entrepreneurs that have only a single unit. Owners who have between two and ten establishments represent 4% of the market, while the resellers that have 11 to 50 stores account for 8.7%. Owners who have 51 to 200 stores correspond to 5.5%, while the group with 201 to 500 shops represents 5.6%. Those with large chains — more than 500 establishments — account for 17.2%.

8 Annual Fuel Retail Report 2017


Lower share

Prices The composition of both prices of gasoline and diesel took into account crude oil costs, refining margins and taxes. Taxes in the United States have cost variations according to the region in which the business is located. In 2016, the share of taxes increased two percentage points compared to 2015 for gasoline and three percentage points for diesel. Regarding the formation of gasoline prices, oil fell 3 percentage points between 2015 and 2016. Regarding consumer price, gasoline was 11.4% less expensive compared to 2015, being sold on average at R$ 0.56 per liter. For its part, the average price of diesel fell 14.8%, from US$ 0.71 per liter in 2015, to US$ 0.60 per liter in 2016.

Large oil companies have

been exiting the fuel retail market since 2007 and currently

only Chevron and Shell, which

together have 316 fuel stations, account for less than 1% of

the total market. ExxonMobil, BP and ConocoPhillips have

ceased operating directly in fuel retailing over the years.

Despite this scenario,

their brands or flags remain

on the market. More than half of the U.S. resellers carry

the brands of the 15 largest

oil producers and refineries, 1.4 COMPOSITION OF RETAIL GASOLINE PRICES OIL

REFINING

MARGINS

TAXES

PRICE (US$ per liter)

Source: EIA

2015 2016

2015 2016 2015 2016

2015 2016 2015 2016

1.5 COMPOSITION OF RETAIL DIESEL PRICES

48% 45%

OIL

19% 18%

REFINING

14% 16%

MARGINS

19% 21%

TAXES

0.640 0.567

2015 2016

2015 2016

2015 2016

2015 2016

PRICE

2015

(US$ per liter)

2016

Source: EIA

with stations operated by independent

entrepreneurs

42% 42%

who have signed fuel supply

16% 16%

nies, similar to the Brazilian

22% 19% 19% 22% 0.715 0.609

contracts with these compa-

model of partnership be-

tween distribution and resale. The other 50% of the

market

operates

without

a brand and another part

of the sector is formed by companies that have created their own brand, such as

QuikTrip, Wawa, 7-Eleven, and others.

Annual Fuel Retail Report 2017

9


S

O I R

C S

E

A N


The crisis continues For the second consecutive year, the Brazilian

economy declined and GDP closed 2016 down by

3.6%, practically at the same level it stood in 2015, when it fell by 3.8%. The nation’s economic crisis

did not abate last year and its political crisis reached a climax with the impeachment and removal from

office of now-former President Dilma Rousseff, who removed from office on August 31. Since

then, Rousseff ’s vice president, Michel Temer, has taken over as president. Among his first initiatives

was the elimination of nine federal ministries and

the approval of a constitutional amendment, PEC 241, which established a ceiling on public spend-

ing, as a means of containing debt growth. Last year, public sector accounts closed in the red, the

same as they did in 2015. Expenditures exceeded

revenues and generated a R$ 155.7 billion deficit, which represents 2.47% of GDP. The figure does

not take into consideration public debt expendi-

tures. In comparison to 2015, government indebt-

(IBGE), during this period there were 12.9 million people unemployed in the country.

Changes at Petrobras With Brazil’s new president came a new

administration and new federal appointees, in-

cluding Pedro Parente, who was tapped to take over as president of Petrobras. Under his management, important measures were announced

to ease the company’s indebtedness. On Sep-

tember 20, Petrobras released a business and management plan, which set a US$ 15.1 billion divestment target for the 2015-2016 period and US$ 19.5 billion for the 2017-2018 biennium.

Petrobras will reduce its operations in its

various branches of business, while refocusing

its attentions on exploration and production. The company’s new direction brought changes to the field of fuel logistics in 2016, as Petrobras

edness worsened, as that year’s negative balance

intends to choose areas that will generate the

At the close of 2016, economic indicators

being the large operator responsible for 100% of

economy’s basic (short-term) interest rate, known

Contracts with distributors were restructured

was of R$ 111.2 billion, i.e., 1.85% of GDP.

best prices and competitive margins, no longer

offered a snapshot of the present situation. The

deliveries from the refineries to the distributors.

as Selic, ended 2016 at 13.75%. Inflation, which

last year, increasing their responsibility to as-

tional Consumer Price Index (IPCA), closed 2016

2.1 MARKET EXPECTATIONS – 2017

takes into consideration Brazil’s Extended Naat 6.29%, just below the inflation target ceiling

of 6.5%. The unemployment rate remained high, standing at 12.6% for the quarter between November 2016 and January 2017. According to the

Brazilian Institute of Geography and Statistics

GDP (% growth) Selic Target – end of period (% p.a.) IPCA (%) IGP-M (%) Exchange rate - end of period R%/US$)

0.47 9.00 4.12 4.51 3.28

Source: Boletim Focus (Banco Central), 24.03.2016

Annual Fuel Retail Report 2017

11


SCENARIOS

sume certain costs, which until then had been

of industry knowledge, society at large, the press,

Another major change in the market was Petro-

stations should wholly pass along to consumers the

covered by Petrobras.

bras’ announcement that it had implemented a new

pricing policy for gasoline and diesel sold by its re-

fineries, which is based on international price parity. Since then, the state-owned company has made price adjustments at least once a month, announcing price

maintenance, reductions, or increases that comport with changes in the international marketplace.

One of the reasons behind this decision

was the growing volume of imports by distribu-

tors, which resulted in Petrobras losing market share. In the case of gasoline, imports grew 28%

a month between March and September 2016, while diesel imports rose 14%.

Impact on resale The change in Petrobras’ pricing policy was

positively received by market analysts, mainly due to reductions in gasoline and diesel prices in the first

few months of implementation. Due to their lack

and oversight agencies were demanding that service

price drops that were made by Petrobras. However, the complexity of the chain prevents such a com-

plete transfer. Filling stations in Brazil may only purchase fuel from distributors which, in turn, are the

ones that buy fuel from the refineries. By the time product arrives at the stations, other costs must be

added to the equation, such as anhydrous ethanol blending with gasoline and biodiesel blending with

diesel, as well as taxes and freight. By year’s end, anhydrous ethanol prices rose, which caused gasoline price cuts to be canceled for 2016.

From a business standpoint, it was a year in

which resellers felt the impact of the crisis more in-

tensely.There was an increase in operating costs, more

legal obligations, a rise in competition, an escalation of

irregularities and a drop in fuel sales.The combination of these factors often resulted in the sale of such busi-

nesses, as this type of establishment does not typically close but, rather, changes ownership.

Gasoline in the spotlight Last year, due to an increase in sales, gasoline was the only fuel that grew its share in the national vehicle consumption matrix, rising from 29.7% in 2015 to 32% in 2016. Also in comparison to 2015, despite the 5.1% drop in diesel consumption in the 2016 matrix, this fossil fuel maintained its lead position, representing 45% of the total, registering a slight decrease from the year prior of 0.8 percentage points. Hydrous ethanol also reduced its matrix share, dropping to 9.8%.

12 Annual Fuel Retail Report 2017

2.2 VEHICLE CONSUMPTION MATRIX Biodiesel CNG Ethanol Hydrated Anhydrous Ethanol

3.3% 3.3% 2.0% 2.1% 11.6% 9.8%

2015 2016

7.5% 7.7% 45.8% 45.0%

Diesel Gasoline A Source: ANP

29.7% 32.0%


Still in decline The situation continued to

2.3 LICENSING OF LIGHT VEHICLES

worsen for the auto industry.

88.4% 88.0%

Production of vehicles, light

commercial vehicles, trucks,

2015 • 2.5 million units

and buses fell 11.2% in the

2016 • 2.0 million units

2015-2016 period to 2.16 mil-

lion units. Meanwhile, combined sales of light and heavy vehicles experienced a 20% drop, to 2 million units sold.

5.5%

6.0%

4.0%

Gasoline

Flex fuel

7.9%

Diesel

Source: Anfavea

The fuel market contribut-

ed to the drop in sales. In the midst of a subdued economic climate, fuel sales declined 4.5% compared to 2015, totaling 135.4 million cubic meters of fuels sold last year.

Revenue from the three

main fuels Brazil (diesel, gasoline, and ethanol) totaled

2.4 SALES (Gasoline + Diesel + Ethanol) R$ billion 2016

363.1

2015

341.6

Source: Fecombustíveis

R$ 363.1 billion, a growth of

6% over the same period in the previous year.

As 2016 saw the finan-

cial situation worsen in several

states, many increased fuel tax-

es, which contributed to a 10%

rise in the volume of tax collections in the period, reach-

ing a cumulative amount of R$ 104.7 billion. Gasoline sales

contributed more than half of the total amount collected, ac-

2.5 TAX COLLECTIONS (Gasoline + Diesel + Ethanol) R$ billion

2016

104.7

2015

95.3

Source: Fecombustíveis

cumulating R$ 59.4 billion.

Annual Fuel Retail Report 2017

13


SCENARIOS

Natural gas With the decline in economic activity, especially in industrial facilities and thermoelectric power plants, natural gas consumption in 2016 totaled 51.3 billion cubic meters, a decrease of 5.7% over the same period in the previous year. Domestic production increased from 35.1 billion cubic meters to 37.9 billion cubic meters, 7.8% more than in 2015. As a result, the domestic natural gas supply increased from 65% to 74%, reducing the import volume from 35% to 26%. Since November of 2015 the Petrobras’ provisional discount has not been applied on contractual prices of the new, firm mode policy. 2.6 PRICE OF NATURAL GAS (US$/MMBTU)

Contract: New Firm Mode Policy Source: MME Note (1): Prize with the Petrobras discount in the January to October/2015 period

2.7

NATURAL GAS BALANCE

M3 billion 2015

2016

PRODUCTION

35.1

37.9

IMPORTS

19.3

13.4

APPARENT CONSUMPTION

54.4

51.3

Source: ANP

14 Annual Fuel Retail Report 2017

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

Jan/15

4,0

Mar/15

9,0

Contract: Imported Gas


Oil

2.8 OIL BALANCE M3 billion

2015

2016

Production

141.4 19.0 42.8 117.7

146.1 10.4 46.3 110.1

Imports Exports Apparent consumption Source: ANP

2.9 PRICE OF THE BRENT OIL IN THE SPOT MARKET (US$/Barrel)

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

0

Mar/15

100

Jan/15

For the oil sector worldwide, last year was also quite difficult and volatile. Prices started low, at US$ 30.7 per barrel in January, but experienced a rising trend as from March, although, for most months, there was unsteadiness, with prices fluctuating sharply until they declined again in November. This drop occurred because, at the end of November, OPEC member states signed an agreement, which is renewable every six months, to jointly reduce daily oil production to 1.2 million barrels. Following the accord, Brent oil prices rose in December, peaking at US$ 53.32 a barrel, 40% higher than for the same period in 2015. On the national level, in 2016 there was a 3% increase in Brazilian oil production compared to the previous year, rising to 146.1 million cubic meters. The production increase contributed to an 8% growth in exports and a 45% drop in imports in the period. Accordingly, the difference between these operations resulted in a 36 million cubic meter Brazilian trade balance, which generated revenue to the country of US$ 10.1 billion.

Source: EIA

Annual Fuel Retail Report 2017

15


SCENARIOS

Market agents Even in the midst of an adverse economic

climate, the total number of market players increased by 7% (2015-2016), from 116,770 thou-

sand to 124,715 thousand. Much of this increase

is due to the resale of LPG, which increased the

number of resellers by 7% compared to 2015. The

resale of liquid fuels experienced a more modest,

2% increase, totaling 41,689 thousand agents. Refineries, as well as biodiesel and ethanol plants

remained unchanged from their 2015 levels. Distributors shed 23 players, shrinking, by the close of 2016, to 164 companies. These declines

are related to the conclusion of administrative proceedings initiated by Brazil’s National Petro-

2.10 MARKET AGENTS

2015

2016

Refineries

18 383 50 187

18 383 50 164

19

20

380 40,894 13,408 61,431

359 41,689 16,343 65,689

Ethanol plants Biodiesel producers Liquid fuel distributors LGP distributors TRR Service stations Supply points LGP retailers Fonte: ANP

leum, Natural Gas and Biofuels Agency (ANP), which revoked the authorizations of agents that allegedly were not satisfying the minimum requirements necessary to engage in this activity.

Unbranded increase Last year, with the economic crisis deepening, there was a small growth in the participation white flag (independent) service stations, from 39.8% to 41.1% of the total market. BR stations fell from 19.7% to 18.8% and Ipiranga declined slightly, from 14.6% to 14.4%. Only Raízen registered a small increase to 11.5% of the total. This movement is justified by the migration of branded resellers, mainly BR, to those that are unbranded because of more favorable market conditions and freedom of choice between fuel suppliers for the latter.

16 Annual Fuel Retail Report 2017

2.11 FUEL RETAIL STATIONS PER BRAND 19.7% 18.8%

BR

14.6% 14.4%

Ipiranga

11.2% 11.5%

Raízen Alesat Other brands Unbranded

Source: ANP

3.1% 2.8%

2015 2016

11.6% 11.4% 39.8% 41.1%


Supervision Although the Fuel Quality Monitoring Program operated with less intensity in 2016, ANP’s Inspections Office continued to monitor market agents with increased vigor. There were 20,121 inspections carried out in 2016, as compared to 18,019 registered for the previous year. Oversight was greatest for resellers of liquid fuels and LPG. Of 8,382 filling stations, 4,008 infraction notices were issued; and of 4,354 LPG establishments, 1,102 were cited. Of the 327 inspected liquid fuel distributors, 290 were cited, which represents nearly 88% of all agents. The most common infractions were acquisition of product from an unauthorized source or allocation of product to an unauthorized endpoint; not providing a control sample or providing one in an irregular manner; not maintaining minimum required stock; and sale or storage of irregular products. The last of these was the basis of a large-scale fraud operation that was carried out at the end of 2016 in Rio de Janeiro, in which three large distributors to filling stations were caught selling unauthorized ethanol and methanol. As soon as it identified the fraudulent fuel, the ANP took the steps to address the situation and further investigations were initiated. The suspects all received the fuel from a plant that supplied product to members of the National Association of Fuels and Lubricants Distributors (Sindicom). To date, those responsible have yet to be identified.

2.12 INFRACTIONS AND INSPECTION ACTIONS Segment Fuel Resellers LGP Resellers Fuel Distributor LGP Distributor TRR Supply Point Finished Lubricant Producer Re-refiner of lubricating oil Biodiesel producer Others Produtor de Biodiesel Outros TOTAL

Inspection Actions 12,847 5,534 686 172 221 106 75 87 38 18 31 306 20,121

Agents Inspected 8,382 4,354 327 93 154 67 50 59 18 7 22 179

Infractions Applied 4,008 1,102 290 39 78 41 55 45 13 5 10 37

13,712

5,723

Units 1,309

% 23%

Does not post information for consumers

890

16%

Selling or storing a product outside of the specifications

849

15%

Equipment that is missing or in non-compliance with the legislation

807

14%

Other infractions

1,808

32%

TOTAL

5,663

Source: ANP

2.13 FUEL RETAIL INFRACTIONS Infraction Non-compliance with notification

Source: ANP

2.14 INFRACTIONS IN THE DISTRIBUTION OF LIQUID FUELS Infraction

Units

%

107

30%

Sample for testing (not supply/supply of test not pursuant to the legislation)

64

18%

Not maintain the minimum mandatory inventory of the product Sell or store product that is not in compliance with the specification

56

16%

38

11%

Others

96

27%

TOTAL

361

Acquire or the send product from/to a source different than that authorized

Source: ANP

Annual Fuel Retail Report 2017

17


IL

E N

G

A

O S


Sales rise Despite the crisis scenery, which worsened in 2016, the consumption of gasoline recovered from the decline of the previous year and once again registered growth. Some 43 million cubic meters were sold in 2016, representing a 4.6% increase over 2015. The positive performance can be attributed to the resumption of the competitiveness of gasoline C prices in relation to hydrated ethanol as a result of the migration to the biofuel, which peaked in 2015. Demand for gasoline was not even greater only because of the decline in economic activity and household consumption; in fact, householders presented a high degree of indebtedness, with the population losing purchasing power and unemployment on the rise. Gasoline sales generated revenues of R$ 158.3 billion in 2016, up 15% over the previous year, when the total was R$ 137.5 billion. Taxes rose from R$ 50.9 billion in 2015, to R$ 59.4 billion in 2016, representing a growth of 16.7% in the period. The greatest impact on tax revenues came from the ICMS, which represents 75% of the total taxes collected, totaling R$ 44.3 billion.

3.1 RETAIL SALES VOLUME M3 billion

43.0 41.1

2016

2015

Source: ANP

Sales of branded or linked service stations were 69.7% of the total, while white flag or no flag stations represented 30.3%

3.2 TAX REVENUES R$ Billion 50.9 billion

59.4 billion

44.3

37.0 CIDE PIS/COFINS

12.0

11.9

ICMS

3.1

2.0 2015

2016

Source: FecombustĂ­veis

Annual Fuel Retail Report 2017 19


GASOLINE

3.3 SALES

3.4 SALES BY TYPE OF STATION

R$ Billion

unbranded

30.3%

2015

2016

2016

137.5

branded

69.7%

158.3 Source: ANP

Source: Fecombustíveis

ICMS With the economic difficulties aggravated and imbalances in the public accounts, various state governments decided to raise taxes in order to boost tax revenues. Last year, 13 states raised the ICMS tax on gas. The highest continues being Rio de janeiro, which saw gasoline prices increase from 31% to 32%. Rio Grande do Sul and Goiás raised the tax to 30%. Most of the Northeastern states increased the rate from 27% to 29%, equalling the charge in Paraná and Minas Gerais, which maintained the same percentages. For its part, the Federal District hiked the tax from 25% to 28%, while Piauí and Rondônia tax rates increased to 27% and 26%, respectively. The other states of the federation kept the same rates as in 2015.

20 Annual Fuel Retail Report 2017

3.5 TAX RATE

RR

AP

AM

MA

CE

PA PI

PE

AC

BA

MT DF

32% 30% 29% 28% 27% 26% 25% Source: Fecombustíveis

GO MG ES

MS SP PR SC RS

PB

AL SE

TO

RO

RN

RJ


Price policy projected the pump price to fall. Ignorance about the supply chain was largely responsible for the pressure, since service stations cannot buy fuel directly from refineries and there are other costs embedded in the chain until the fuel reaches the pumps. One of the main factors for the failure to pass along the cuts was the high price of anhydrous ethanol, which is mixed 27% with gasoline; this offset the first fossil fuel price cuts and, due to other costs, the distributors did not lower the price of gasoline delivered to the stations. Early in 2017, on January 26, Petrobras announced the first cut in gasoline prices, of 1.4% and new reduction was announced a month later, on February 24, of 5.4% on average. Consumers thus began to realize cost savings in 2017.

3.6 MISMATCH OF PRICES BETWEEN BRAZILIAN AND U.S. GASOLINE 75%

Feb/2016: 60%

Dec/2016: 15%

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Nov/15

Sep/15

Jul/15

May/15

Mar/15

-30%

Jan/16

May/2016 and Jun/2016: 10%

0%

Jan/15

One of the most striking facts of 2016, was Petrobras’ announcement of a change in price in October. According to the state-run oil company, the change was made on the basis of parity with the international market, which includes costs such as ship chartering, internal transport costs and port taxes, plus a spread to remunerate risks involved in the operation — for example, volatility in the exchange rate and prices, port stays and profit, plus taxes. Petrobras reported that it will not implement prices below this international parity rate. A week before the announcement, on October 14, the gap between the domestic and the external gasoline price was at a 13% level. In the last three months of 2016, Petrobras made three changes in gasoline prices charged at the refineries. There were two consecutive cuts: the first on October 14, of 3.2%. The second was on November 8, of 3.1%. The third change was an upward revision of prices on December 5, which raised it by 8.1%. The company announced that the price would subsequently be reviewed once a month. After the first two adjustments, the fuel stations came under pressure of the press and consumer defense organizations to pass along the refinery price cuts to the end consumer. This created a big controversy, since Petrobras itself

Note: Price of product at the refinary excluding taxes Source: FecombustĂ­veis

Annual Fuel Retail Report 2017 21


GASOLINE

Increase in imports In 2016, imports of gasoline rose by 18.5%, from 2.5 million cubic meters in 2015, to 2.9 million cubic meters last year. This increase in the volume of imported products has been registered since 2015; however, last year, the gap between the domestic and the international gasoline price reached a peak of 60% more expensive in Brazil in February. In this situation, with more advantageous prices on the international market, a window of opportunity emerged for distributors importing fuels directly from overseas markets, with reduction of purchases by the Petrobras. This was the main reason — loss of market share — for the change in the state-run oil company’s pricing policy. The number of agents authorized by the ANP to import the product rose significantly,

from six licenses approved in January 2016 to 300 licenses awarded in December 2016. With more importing companies, the impact was the loss of Petrobras’ competitiveness. In 2015, 83.7% of the total volume of imported gasoline was via the Petrobras; by 2016, that number fell to 59.7%. That is, last year, about 40% of imported gasoline was supplied by import agents outside the Petrobras. Two months after Petrobras implemented its new pricing policy in December, the variation in costs between Brazilian and U.S. gasoline dropped to 15%. Petrobras provided 92.2% of gasoline A consumed in the country, a decline of 3.9 percentage points compared to 2015. Braskem was the second largest supplier of gasoline, with 1.9% market share.

GASOLINE A- IMPORTS

3.8 GASOLINE A SUPPLY BY PETROBRAS

M million 3

2015 2016

Source: ANP

22 Annual Fuel Retail Report 2017

2.47

2014

2.93

2015 2016

Source: ANP

98.8% 96.1% 92.2%


Prices 3.9 PRICE BREAKDOWN Freight 2% Anhydrous 14% Margins 16% A Gasoline 30% Taxes 38%

Source: FecombustĂ­veis

3.10 AVERAGE UPSTREAM AND DOWNSTREAM PRICES (R$/L)

Refinery

Distribution

Resale

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

Mar/15

1.0

Jan/15

3.8

Anhydrous (SP)

Note: Average refining price does not include ICMS Source: ANP

3.11 AVERAGE RETAIL MARGIN

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

10%

Mar/15

16%

Jan/15

Last year, the price of gasoline underwent a number of changes. Anhydrous ethanol’s share rose two percentage points, from 12% in 2015, to 14% in 2016. Taxes increased by 1 percentage point and margins decreased in the same proportion. Gasoline A fell 2 percentage points, to 30%. The average price of gasoline A in 2016 was 4.3% higher in comparison to 2015. However, the biggest price hike occurred in anhydrous ethanol, with a 22%, impact on the end cost of gasoline. These changes also led to an increase in the price of the distribution and resale, with a higher average price for distribution, up 11.2%, and for resale, by 10.1%. The average resale margin fell from 13.3% in 2015, to 12.4% in 2016, a fact that evidenced one of the most difficult periods for the fuel retail trade.

Source: ANP

Annual Fuel Retail Report 2017 23


GASOLINE

Quality 3.12 NON-COMPLIANCE RATE (%)

3.6 2.2 2.4

Dec/16

Nov/16

1.4

Oct/16

Aug/16

Jul/16

Jun/16

May/16

Apr/16

1.2 1.0 1.2 1.4

1.7

Sep/16

2.0

Mar/16

Feb/16

1.9 1.9

Jan/16

The number of laboratories accredited by the ANP to perform fuel quality checks continued restricted in 2016, as well as in 2015. The Fuel Quality Monitoring Program should recommence most of the contracts in 2017. The gasoline non-compliance index remained at the levels of developed countries, at 1.4% in December 2016. In times of crisis, the monitoring program is an important tool in combating fraud and irregularities by acting in conjunction with inspection audits. In 2016, the main nonconformity identified in gasoline was the anhydrous ethanol content, which was found in 68% of the total number of samples collected. In the ranking of non-compliance by flag, white flag stations were in the top spot, at 4.1%; Alesat occupied the second highest position, at 2.1%, followed by Ipiranga, with 1.2%.

Source: ANP

3.13 NON-COMPLIANCE PER BRAND BR

3.2%

0.9%

2.4% 2.1%

Alesat Ipiranga RaĂ­zen

2015

1.0% 1.2% 0.9% 0.7%

2016

3.1%

Unbraded

4.1%

Source: ANP

3.14 NON-COMPLIANCE SPECIFICATION Distilation

Octane level

18% 17% 22%

2016

50%

Anhydrous

Others

2015

68%

10% 15%

Source: ANP Note: The ANP did not make octane data available for the year of 2016

24 Annual Fuel Retail Report 2017


Market reduction Last year, BR and Ipiranga, two major distributors, lost market share, with drop of 2.3 percentage points and 1.1 percentage points, respectively. Despite the loss of share, BR remained in first place in the ranking, but Ipiranga fell to third. Raízen for its part moved up to second place, with 20.5% of the total market. It is worth mentioning that 2016 was notable for the strengthening of small and medium-sized distributors, which operate regionally, boosting their market share by 2.5 percentage points. This movement demonstrates that there has been an increase in the supply of gasoline C for resale by smaller distributors due to the competitive advantages of direct imports from abroad.

3.15 DISTRIBUTORS MARKET SHARE BR

27.7% 25.4%

Ipiranga

20.8% 19.7%

Raízen

19.6% 20.5%

2015 2016

31.9% 34.4%

Other distributors

Source: ANP

Additive gasoline The ANP forwarded to its management board a proposal to suspend the program for compulsory additions to regular gasoline, to have taken effect in the market on July 1, 2017. Gasoline with additives is designed to boost the quality of the fuel. However, there was a delay on the part of the economic agents involved in compliance with all stages of the process, which should result in a further postponement of the schedule. The first deadline had been scheduled for January 1, 2014 and later postponed to July 1, 2015.

KEEP AN EYE ON… 3 Actions of the inspection agents in relation to adulterated fuels;

3 Monitor the impact of the new pricing policy of Petrobras in the gasoline market;

3 Petrobras’ divestment plan regarding the sale of BR and refining assets and fuel supply; 3 The dispute for market share and the new map of the distributors;

3 Monitor the decisions regarding the new timetable for the addition of dispersant detergents to regular gasoline; 3 Monitor the economic situation and the impact of retail data and household consumption on the fuels market.

Annual Fuel Retail Report 2017 25


L

O N

T E

A H


In decline Ethanol once again lost competitiveness vis-Ă -vis gasoline in 2016. The dizzying growth scenario, which marked 2015, changed radically and the biofuel began to suffer decreasing sales in the period. Last year, 14.6 million cubic meters of ethanol, 18.3% less in relation to the 17.9 million cubic meters from the previous year, were sold. Even with the reduction, in the overview of sales, ethanol continues to grow, since the drop was in comparison to the 17.9 million cubic meters seen in 2015, which was considered an historical record. This retreat was motivated mainly by the price fluctuations of hydrous ethanol. The main factor of influence was the shortage of sugar on the world market, since the commodity becomes more attractive for Brazilian plants due to the higher and more advantageous prices compared to ethanol. The impact was a reduction in the supply of the biofuel on the domestic market and subsequent increase in price at the fuel pump. With the crisis scenario, for consumers the savings factor weighed even more heavily at the time of filling up their vehicles, which led car drivers to return to the gasoline pumps.

The weather effects also influenced the production of the 2016/2017 harvest in the CenterSouth region. The beginning of 2016 was marked by drought, followed by excessive rainfall in mid-May. The production of sugarcane was also affected by three frosts. Due to all these factors, the forecast is for the harvest to be lower than the expectations of representatives of the production segment, between 600 million and

4.1 RETAIL SALES VOLUME M3 million

17.9 14.6

2015

2016

Source: ANP

4.2 SALES (R$ billion)

2015 2016

39.8 38.7

Decline of

3%

Source: FecombustĂ­veis

Annual Fuel Retail Report 2017

27


ETHANOL

605 million tons of sugarcane, which

tax revenues. And neither was the re-

other factor that led to a lower yield

goas, Paraíba, Pernambuco, Piauí and

represents 40 million tons less. Anwas the lack of regeneration of sugarcane fields.

The ethanol sales decline led to a slight

decrease of 3% in billed sales over the period,bringing the total volume of 2015-2016 to R$ 38.7 billion last year. Biofuel tax collections also were lower, registering

R$ 6.1 billion, down 6% compared with to the R$ 6.5 billion in 2015. The

increase in ethanol ICMS rates in six states (Bahia, Federal District, Rio de

Janeiro, Rondônia, Rio Grande do Sul

and Tocantins) also helped to boost biofuel prices and the loss of gasoline

duction of the state tax rates in AlaRio Grande do Norte enough to raise the competitiveness of biofuel. From the point of view of tax collection, by

2017 the scenario should tend to be

more favorable for the federal govern-

ment with the return of PIS/Cofins collection, on January 1.

Since May 2013, Dilma Rous-

seff ’s government granted the exemp-

tion of PIS/Cofins incurring on hydrated ethanol for the production and

distribution sectors. The initiative was

implemented in an attempt to rescue the segment, which was going through

hard times. With the measure, the tax waiver exceeded the mark of R$ 5 bil-

4.3 TAX REVENUES

lion during the period. The produc-

R$ Billion

tive sector sought alternatives from

ICMS 2015 2016

6.5 6.1

be borne by the sugar mills. However, and in the midst of an economic cri-

4.4 SALES BY TYPE OF SERVICE STATION

sis, the federal government was un-

able to exempt the taxes and main-

Unbranded

tained their collection.

43.7%

With a more attractive scenario

2016

Branded

56.3%

28 Annual Fuel Retail Report 2017

collection of taxes once again would with the imbalance in public accounts

Source: Fecombustíveis

Source: ANP

the government to prevent thaty the

for the world sugar market, the share of the sugarcane harvest for ethanol

plants located in the Center-South region decreased from 58.7% to 53.3%.


4.5 TAX RATES RR

AP

Rio Grande do Sul and AM

MA

PI

30% 29% 28% 27% 26% 25% 23% 22% 20% 19% 18% 14% 12%

RN PE

AC TO

RO

Tocantins were the

CE

PA

PB

states where ethanol

AL

tax rates increased

SE

the most, to 30% and

BA

MT

29%, respectively. On

DF GO

the flip side, São Paulo,

MG ES

MS SP

the largest producer of

RJ

sugarcane in Brazil,

PR

continued with the lowest

SC

rate, at 12%

RS

Source: Fecombustíveis

Loss of market share The big three distributors all lost market share and saw their positions changed in the ethanol sales ranking. BR, which was the market leader in 2015, fell 3.3 percentage points, ranking second with 17% of the total market. With the fall of BR, Raízen took the lead with 19.1% of total share. And Ipiranga remained in second place, but lost 2.5 percentage points, falling to third place on the list. With the lower ranking in the ethanol market, the three big cut their overall share to 53%, down from 59.2% in 2015. Meanwhile, the other small and medium-sized distributors strengthened and expanded their share by 6.2 percentage points, reaching 47% of the market in 2016.

4.6 DISTRIBUTORS’ MARKET SHARE

BR

20.4% 17.1% 2015

Ipiranga

19.3% 16.8%

Raízen

19.5% 19.1%

Other distributors

2016

40.9% 47.0%

Source: ANP

Annual Fuel Retail Report 2017

29


ETHANOL

Prices Higher ethanol prices were seen in

4.7 PRICE BREAKDOWN

all links in the chain, from manufacturing plants through to distribution and

Freight 2%

resale over the course of 2016.

Margins 18%

In São Paulo, the main producing

Taxes 16%

state, average prices of anhydrous etha-

Plant 63%

nol were 22.1% higher than in 2015. Goiás posted the biggest price variation

in production, higher by 25% in the same period.

Source: Fecombustíveis

Hydrated ethanol prices fluctua-

distributors rose 22.8%. The average

between 2015 and 2016. In the São

other links in the production chain,

ted more than the anhydrous product Paulo mills, the increase was 23.8%; in Alagoas and Goiás they rose 26.7%

and 26.4%, respectively, over the period. Consequently, average prices by

retail prices were up less compared to

at 19%. As a result, the resale margins flattened in a crisis year, from 16.1% to 13.4%, a decrease of 2.7 percentage points.

4.8 AVERAGE RETAIL MARGIN

Source: ANP

30 Annual Fuel Retail Report 2017

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

Mar/15

5%

Jan/15

20%


4.9 DOWNSTREAM AVERAGE PRICES R$/L

3.5

Distributors

3,2

Service Stations

2,8 2,5 2,1

Average anhydrous Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

Mar/15

1.4

Jan/15

1,8

Source: ANP

and hydrated ethanol prices were buffeted by

4.10 AVERAGE PRICE OF ANHYDROUS ETHANOL AT THE MILL R$/L

volatility throughout 2016. All the agents

2.4

in the chain ended the

Jul/16

Nov/16

Goiás

Sep/16

Alagoas

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

Mar/15

São Paulo

Jan/15

1.0

year with high prices and retail was the link

Source: Cepea/Esalq Note: No data available for Alagoas for the June-August period of 2016

where the margins 4.11 AVERAGE PRICE OF HYDRATED ETHANOL AT THE MILL R$/L

were flat

2.2

Nov/16

Goiás

Sep/16

Jul/16

Alagoas

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

Mar/15

São Paulo

Jan/15

0.9

Source: Cepea/Esalq Note: No data available for Alagoas for the May - August period of 2016

Annual Fuel Retail Report 2017

31


ETHANOL

Anhydrous goes higher 4.12 ETHANOL FUEL PRODUCTION M3 million

11.3

Anhydrous

2015

11.7

2016

18.7

Hydrous

16.9

Source: ANP

4.13 ETHANOL FUEL PRODUCTION BY REGION South

5.2%

Center-West

20.5%

Northeast

7.1%

ANHYDROUS

North

1.2%

Southeast

66.0%

South

5.1%

Center-West

35.2%

HYDROUS

Southeast

55.3%

Northeast North

0.4% Source: ANP

32 Annual Fuel Retail Report 2017

4.0%

In 2016, ethanol fuel production totaled 28.6 million cubic meters, which represented a 5% decline compared to the same period in 2015. In 2016, 16.9 million cubic meters of hydrated ethanol were produced, a 10% drop compared to the previous year’s production, which totaled 18.7 million cubic meters. Because it is a mandatory addition to gasoline (27% mix), anhydrous ethanol grew 4% to 11.7 million cubic meters, following the evolution in demand for gasoline. In the result for domestic production, the Southeast region is notable for being the world’s largest producer of both hydrated and anhydrous ethanol, with 55.3% and 66% of the total produced in the country, because the main industrial producers in the sugar-energy sector are located there. Another highlight, with 35% of the total production, is the Center-West region, with important producing states such as Goiás, Mato Grosso and Mato Grosso do Sul. The South and Northeast regions have the lesser shares of the productive market, with 5% and 4%, respectively.


Loss of competitiveness The loss of competitiveness of hydrous ethanol compared to gasoline is visible. In just three producing states — Mato Grosso, Minas Gerais and São Paulo — the biofuel became advantageous for consumption, when it hit parity of 70% of the value of gasoline. Mato Grosso was the state in which the competitiveness of ethanol lasted for the longest time, from May to October. In the other states, the competitive advantage lasted only five months. Goiás and Paraná, which in 2015 saw competitive ethanol prices throughout the year, were not as successful, maintaining competitiveness for only a brief period. 4.14 PRICE PARITY BETWEEN GASOLINE AD ETHANOL

December

November

October

September

August

July

June

May

April

March

February

January

December

November

October

September

2016

August

July

June

May

April

March

February

UF

January

2015

Acre Alagoas Amapá Amazonas Bahia Ceará Distrito Federal Espírito Santo Goiás Maranhão Mato Grosso Mato Grosso do Sul Minas Gerais Pará Paraíba Paraná Pernambuco Piauí Rio de Janeiro Rio Grande do Norte Rio Grande do Sul Rondônia Roraima Santa Catarina São Paulo Sergipe Tocantins Source: Fecombustíveis estimate based on ANP data. Note: Ethanol is more advantageous when its priece corresponds to 70% of the price of gasoline.

Advantageous to consume ethanol.

Annual Fuel Retail Report 2017

33


ETHANOL

Less quality 4.15 NON-COMPLIANCE RATE %

4.2 3.3 2.6

Dec/16

Nov/16

Jul/16

Sep/16

0.9

0.6 Jun/16

Apr/16

May/16

Mar/16

Feb/16

0.3

Aug/16

1.2

Jan/16

2.0

1.7

Oct/16

2.0 2.0 1.9

Source: ANP

4.16 NON-COMPLIANCE SPECIFICATION 59% 48%

Alcohol content

Conductivity

pH

Others

15% 17% 2015 2016

8% 5% 18%

30%

Source: ANP

4.17 NON-COMPLIANCE PER BRAND Petrobras Alesat Ipiranga Raízen

1.7% 2.7% 3.6% 3.5% 1.9% 2.6% 1.4% 2.3%

Unbranded Source: ANP

34 Annual Fuel Retail Report 2017

2015 2016

3.9% 5.0%

In 2016, ethanol non-compliance was higher than in 2015. The index rose from 1.5% in the previous year to 2.1% in 2016, reaching a peak of 4.2% in November. It was a year marked by the increase of irregularities and fraud in the fuel sector. One of the actions of the Fuel Quality Monitoring Program identified a serious fraud scheme to swap ethanol for methanol in Rio de Janeiro in late 2016. The tainted ethanol was sold by market leading distributors, but it was the service stations that were shut down for six days after the discovery of the irregularity by the ANP. The origin of fraud pointed to the mill that supplied ethanol to the distributors. Methanol has become an easy vehicle for fraud due to the product’s tax exemption status, since it is used as a raw material in the production of biodiesel. To stimulate the industry, the federal government had granted an increase in the content of biofuel mixed with diesel and the tax on it has been waived since 2013. The set of factors, with taxes lowered to zero and the economic crisis, created an environment conducive to fraud. The ANP began to qualify methanol as a solvent, a measure to control and prevent the proliferation of these irregularities; however, methanol fraud continued to be discovered by the regulatory agency. In one supervisory action in March 2017, in São Paulo 90% methanol was found in ethanol, whereas the tolerance of the methanol content permitted by the regulatory agency is up to 0.5%. With respect to this problem, the main irregularity observed in ethanol was the percentage of methanol in 43.7% of the samples. Non-compliance was on the rise in all the major brands, although white flags had the highest concentration, with 5%. The three major non-compliance incidents identified were irregular alcohol content, conductivity and pH.


Increase in imports

RenovaBio

Since the plants prioritize the production of sugar and with the proximity of the off-season at the end of the year, starting in October, Brazil began importing ethanol from the United States. If on the one hand, the country raised sugar exports to take advantage of the global demand, on the other it had to import 56% more ethanol than in 2015 to take advantage of U.S. prices and ensure minimum safety stocks required by the ANP.

One of the milestones for the ethanol industry was the launch of the RenovaBio program at the end of last year. The government’s goal is to focus its initiatives on biofuels as a way to diversify the Brazilian energy matrix and, thus, help the country meet the commitment made at COP-21 to reduce emissions of gaseous pollutants. Currently, the productive capacity of hydrated ethanol is 24 billion liters. By 2030, it is intended to raise this productivity to 54 billion liters. However, without clear and transparent policies, it will be difficult for the industry to attract investment needed to double production. It is expected that the RenovaBio program will point to the direction to be taken, making investments in the sector predictable.

4.18 EXTERNAL MARKET

EXPORTS

IMPORTS

M3 millions 2016

0.82

2015

0.53

2016

1.79

2015

1.78

Source: MME

KEEP AN EYE ON… 3 Monitor the impact of Petrobras’ pricing policy on the ethanol market; 3 Monitor RenovaBio’s guidelines for the sugar-energy industry;

3 Monitor the inspections and measures to combat ethanol irregularities, especially methanol fraud;

3 Follow the government policy of U.S President Donald Trump and the impacts on Brazilian ethanol imports.

Annual Fuel Retail Report 2017

35


I D

S E

L E


Another year of contraction Considered one of the bellwethers of the economy in tracking changes in the GDP, the diesel market contracted for the second consecutive year. According to the ANP, the consumption of diesel fuel fell from 57.2 million cubic meters in 2015, to 54.3 million cubic meters in 2016, a drop of 5.1% in the period. The decline in sales volume can be explained by the scenario of economic downturn that Brazil experienced in 2016. One of the major factors impacting consumption of diesel was the reduction in the level of industrial activity and, consequently, a reduction in the movement of logistics deliveries across the country. The slowdown of the automotive market, mainly in the heavy vehicles segment, with 29.4% drop in the period 2015-2016, it was another factor influencing the drop in consumption. Among the agents that sell diesel fuel, the decline among resellers was 3.7%, 1.8% in TRR and for the end user, the decline was even stronger, 9.3%. The crisis did not prevent an increase in the consumption of low-sulfur diesel (S10), which registered an increase in market share from 29.1%

to 30.9%. With regard to the average price of the fuel in 2016, the difference between S10 and S500 (kinds of diesel) fuels was 4.8%. Even with lower sales, revenues increased to R$ 166.1 billion in 2016, about 1% over 2015. 5.1 SALES R$ Billion 2015 2016

164.2 166.1

Growth of

1.1%

Source: FecombustĂ­veis

5.2 S10 SALES BY RETAILER 2015

2016

Mandatory

4,859

4,977

Voluntary

19,698

33,953

TOTAL

24,557

38,930

Source: ANP

5.3 BREAKDOWN OF SALES BY TYPE OF DIESEL

2015

2016

S500

67.9%

66.7%

S10

29.1%

30.9%

Maritime

1.5% 1.4%

Non-highway

1.5% 1.0%

Source: ANP

Annual Fuel Retail Report 2017

37


DIESEL

5.4 SALES BREAKDOWN BY SEGMENT 57.2 milhões de m 3 57,2 m3 million

5.5 SALES BY TYPE OF SERVICE STATION

54.3 milhões de m 3 54,3 m3 million

Unbranded

58.9%

58.1%

28.9%

28.4%

2016

27.6% 13.0%

13.4%

Branded

71.6%

2015 Retail

2016 Consumer

TRR

Source: ANP

Taxes Despite the recession, the collection of taxes resulting from the sale of diesel fuel increased from R$ 37.9 billion to R$ 39.2 billion, about 3% for the 2015-2016 period. This increase was due to the Cide and the ICMS collections. Last year, several states, in an attempt to generate revenue and reduce their deficits in public accounts, raised the tax rates for the ICMS. The highest increase occurred in Amapá, which raised the tax from 17% to 25%. However, differences in tax rates end up leading to a competitive disequilibrium, with unfair competition in the boundary regions between neighboring states and an increase in tax evasion. To try to avoid detection, fuel smugglers traveled the back roads to deliver fuel between states in an attempt to profit from the difference. In the Southeast, for example, the states of São Paulo and Espírito Santo charge a 12% tax rate on diesel, while Minas Gerais charges 15% and Rio de Janeiro 16%. 38 Annual Fuel Retail Report 2017

Source: ANP

5.6 TAX REVENUES 39.2 bilhões

R$ Billion 37.9 bilhões 37.9 billion

39.2 billion

24.2

22.7 13.4

12.5 2.5

1.8 2015

2016

CIDE

PIS/COFINS

ICMS

Source: Fecombustíveis

5.7 TAX RATES RR

AP

AM

MA

CE

PA PI

PE

AC TO

RO

SE BA

MT

25% 18% 17% 16% 15% 14.5% 13% 12% Source: Fecombustíveis

DF GO MG ES

MS SP PR SC RS

RN PB

RJ

AL


Increased imports

Sep/16

Nov/16

Jul/16

May/16

Jan/16

Mar/16

Nov/15

Jul/15

Sep/15

May/15

Jan/15

Mar/15

The data from January to December 2016 show that imports of diesel fuel were 14.1% higher than in 2015, from 6.9 million cubic meters for 7.9 million cubic meters. An analysis of the monthly data shows the accumulated imports of fossil fuel, from January to August 2016, were lower than accumulated imports in the same period in 2015, reflecting lower consumption of the product. However, from September 2016, cumulative imports began to exceed 2015 imports, and the year ended with an overall increase. According to the ANP, in January 50 new import licenses were granted and, in December, about 600 were issued. The increase in the number of importers was due to the price advantage of diesel fuel in the domestic market, attracting the distributors who took advantage of lower international market prices rather than buying through the Petrobras. Another significant change was the importation of diesel fuel through different ports, moving from the Northeast to Santos (SP) and Paranaguá (PR). This change occurred because, in these ports, the smaller agents were able to use private terminals to receive and transship these products. In 2015, 84.2% of the diesel products that came in were imported by Petrobras. In 2016, this number dropped to 16.4% and 83.6% of the diesel products that came in were imported by companies other 5.8 MISMATCH BETWEEN BRAZILIAN than Petrobras. It is worth noting that the loss AND U.S. DIESEL PRICES of market by the state-owned company to direct 75% imports of oil products by distributors was one of the factors in the company’s decision to adopt a new pricing policy more closely aligned with the international market. Despite the fact that the volume of imports 0% surpassed those of 2015, expenditures for the import of diesel fuel in 2016 were 15.2% lower than Source: Fecombustíveis in the previous year (US$ 3.4 billion to US$ 2.9 Note: Price of the product at the refinery billion), which reflects the decline in internatio5.9 IMPORTS nal prices of this fuel. Because the performance M million of the economy was also weak, in 2016, increased diesel imports resulted in reduction of 8.3% in 2015 domestic production of this derivative, from 49.5 6.9 million cubic meters in 2015, to 45.4 million 2016 7.9 cubic meters in 2016. 3

Source: ANP

Annual Fuel Retail Report 2017

39


DIESEL

Prices In terms of prices, the difference

between domestic and international

5.10 PRICE BREAKDOWN

prices was significant in 2016. In one

Freight 2% Biodiesel 6%

of the largest drops, a barrel of oil was

Margins 15%

quoted around US$ 30. Internally, the

Taxes 24%

Brazilian government practiced discre-

Diesel 53%

tionary pricing policies, which did not

follow the international market. But in

Source: FecombustĂ­veis

October 2016, Petrobras announced a change in its pricing policy based on international parity, more like a margin that will be practiced to cover risks

5.11 AVERAGE RETAIL MARGIN

15%

involved in the operation. The first an-

nouncement of the price reduction was

the index registered in January (68%) or February (64%).

Nov/16

Jul/16

Sep/16

Mar/16

May/16

Jan/16

Sep/15

Jul/15

Nov/15

price in the USA was 31%, far less than

May/15

casion, the difference in relation to the

5% Jan/15

sel fell 2.7% at the refinery. On the oc-

Mar/15

made on October 14, 2016 - when die-

Source: ANP

Less than a month after the first

rate and high international oil prices.

ber 2016 announced a new 10.4% cut

November 8 and the readjustment of

announcement, Petrobras in Novemin the price at the refinery. However, in

December the company announced an increase of 9.5%. The rationale for the

increase, after two price reductions in a row, was the variation in the exchange

40 Annual Fuel Retail Report 2017

Between the price cut announced on

December 5, the price of Brent crude rose by 22.6%, including the change in the value of the real.

On average, the price increase at

the Petrobras refineries was 3.5% be-


tween 2015 and 2016. The biggest increase was in the price for B100, which rose 18.5%

5.12 AVERAGE UPSTREAM AND DOWNSTREAM PRICES R$/L

3.5

in the period. Average resale prices increased 6.6%, from

riod, from R$ 2.509 per liter, in 2015, to R$ 2.673 in 2016.

Refinery

Distribution

Resale

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Jul/15

Sep/15

an increase of 6.6% in the pe-

1.0

May/15

for distributors also recorded

Mar/15

Similarly, the average prices

Jan/15

R$ 2.827 to R$ 3.013 per liter.

B100

Note: Average refining does not include ICMS. Source: ANP

The average resale margin for the fuel remained at the same level as in 2015, 11.3%. In 2016, highway service stations, selling primarily diesel fuel, experienced serious difficulties, with the same margins and a fall in demand for the fuel, combined with large customer delinquencies, with carrier companies, for example. Many dealers are still in a difficult situation even today.

The first announcement of the price reduction was made on October 14, 2016, when diesel prices fell 2.7%, at the refinery. At that time, the difference in relation to the U.S. price was 31%, far less than registered in January (68%) or February (64%)

Annual Fuel Retail Report 2017

41


DIESEL

5.13 NON-COMPLIANCE RATE 5.2

%

4.5

1.9 1.9 1.4

2.3

2.8 3.0

3.3

1.6

Dec/16

Nov/16

Oct/16

Sep/16

Aug/16

Jul/16

Jun/16

Apr/16

May/16

Mar/16

Source: ANP

5.14 NON-COMPLIANCE BY BRAND Petrobras Alesat Ipiranga RaĂ­zen

3.5% 2.1% 4.5% 2.6% 2.6% 2.7% 3.3% 2.0%

2015 2016

6.6% 5.5%

Unbranded Source: ANP

5.15 NON-COMPLIANCE SPECIFICATION Sulfur Distillation Appearance Colorant Flash Point

21%

8%

13% 7% 1% 4% 1%

2015 2016

21% 19% 36%

Biodiesel Content Others

11% 8%

Source: ANP Note: The ANP did note make available distillation data for the year of 2015

42 Annual Fuel Retail Report 2017

4.3

0.8 Feb/16

In terms of quality, the diesel non-compliance rate was the highest among all other fuels. In the first half of the year, the variation was between 0.8% and 2.3%. In the second semester, the fuel reached even worse levels of non-compliance. In November, it was 5.2%, similar to the problems found during the introduction of the first B5 fuel in 2010. In the cumulative data for 2016, the principal irregularity detected was the biodiesel content in 50% of the samples collected – one of the characteristics that cannot be analyzed at the service stations when they take delivery of the product. Since 2015, and over the course of several months in 2016, the number of laboratories accredited to perform fuel compliance analysis suffered a reduction that affected the program for monitoring fuel quality. Despite not being specifically designed for monitoring, the program is an important tool of the ANP for direct supervision of the service stations.

Jan/16

Quality

50%


Regional distributors improve position The market share of BR and Ipiranga, the diesel sales leaders, declined whereas Raízen, Alesat and other regional companies showed a slight upwards evolution. The increased share of regional distributors can be explained by the better negotiating conditions resulting from the more advantageous costs involving importing fuel.

5.16 DISTRIBUTORS’ MARKET SHARE

37.2% 33.5%

BR

Ipiranga

Raízen

Other distributors

22.9% 22.0% 19.0% 19.7% 20.9% 24.9%

2015 2016

Source: ANP

KEEP AN EYE ON… 3 The negotiations for the possible anticipation of an increase in the biodiesel content of B8 to B9 diesel, which is supposed to take effect in 2018;

3 The movements of diesel imports with increased biodiesel content in 2017, as it can provide the imported volume reduction, in addition to ensuring greater share of biofuels in the national energy matrix; 3 The discussion of the new phase of Proconve for heavy-duty vehicles in 2017;

3 Monitoring the actions of the Federal Highway Police and Ibama that promise to intensify enforcement actions to curb fraud related to vehicles regarding the failure to use Arla 32.

Annual Fuel Retail Report 2017

43


S E

L E

O I B

I D


Weak performance In 2016, the demand for biodiesel declined by 5.1%, a percentage identical to the decline in the demand for diesel fuel. Both suffered for the same reason: a reduction in the consumption of diesel due to the downturn in the economy and a slowdown in industrial activity. The sector, which reported growth in 2015, especially with the entry of the B7 regime (7% biodiesel added to diesel), presented poor performance in 2016. Despite a reduction in the volume of sales, the productive sector was successful in its efforts with the federal government and won an increase in the biofuel mixture in diesel fuel to 10%, in gradual and staggered steps. Law 13.263, dated March 2016, established the increase in the levels within a year, with entry

into force of the B8, or an 8% biodiesel mix, on March 1, 2017; and within 24 months after the promulgation of the law, the percentage will be again increased to 9%. In 2019, the percent of biodiesel in the mixture will rise to 10%. However, for B10 to enter the market, the law stipulates that, according to the publication of the Edict 262/2016, tests and trials by the automotive industry must be implemented to determine the effects of the mixture in the vehicles within 12 months of implementation. In 2017, the biodiesel industry began to prepare for the anticipation of the blend of B9 and B10 in 2017 and 2018, respectively. However, no final decision had been made by the closing date of this report.

Concern with the content increase While for producers of biodiesel, the elevation of the levels was a boon, to automakers, distributors and resellers the move was troubling. In the case of automakers, as there are no tests to determine the effects, if any, of mixtures exceeding B7, there continues to be concern about potential engine problems, mostly for the older vehicles in the fleet, and also with injector nozzles. Some companies – such as Iveco, Ford Caminhþes, Toyota, Land Rover, Cummins Generators - will not issue warranties for problems in vehicles which use blends higher than 7%. In the case of distributors and resellers, another major concern is related to the storage of the product. Since biodiesel absorbs moisture from the air, it creates an environment conducive to the proliferation of micro-organisms that form deposits on engine parts. To reduce the risk of contamination, in the case of transportation, one solution would be to segregate the product. For resellers, the procedures would have to be intensified, including performing routine monitoring of equipment and increasing the frequency of cleaning and drainage in the tanks, and the exchange of filters, which represent higher costs.

Annual Fuel Retail Report 2017

45


BIODIESEL

Capacity utilization Since biodiesel plants were operating with excess capacity, the approval of the increase of the mixture in diesel fuel was very welcome to the producers, who would not have any difficulty in meeting the increased demand. The sector has an installed capacity to produce 7.3 million cubic meters of biodiesel, but production was only 3.8 million cubic meters, resulting in excess capacity of 48%. On January 31, 2017, there were 51 biodiesel production plants authorized to operate. There are also three new biodiesel plants approved for construction and three requests for permission to increase production capacity. With the completion of these projects and the subsequent authorization for operation, the total biodiesel production capacity could increase to 2,947 cubic meters per day, representing an increase of 14.1% over current capacity. The main producing region is the Center-West, followed by the South, while the main consumption Center is the Southeast.

6.1 PRODUCTION X INSTALLED CAPACITY (1,000 m3) Production Installed capacity

3,937

2015

3,414

7,263

7,311

3,801

2016

7,502

2014

2013

2010

2,930

2,708

2011

2,661

2,350

7,504

6,853

2012

5,256

6,019

Source: MME and ANP

6.2 B100 REGIONAL INFORMATION 3 3 23 8 14

Negotiated volume (m3) 34,559 312,084 1,668,441 249,566 1,554,410

Average price at auction (R$/m3) 2,729.74 2,790.56 2,551.00 2,668.45 2,492.87

51

3,819,060

2,556.21

Region

Plants

North Northeast Center-West Southest South BRAZIL Source: ANP

46 Annual Fuel Retail Report 2017


Approved biodiesel From the perspective of the auc-

tions, there were significant changes in

2016. One of them was the insertion of

approved biodiesel (higher than required

blend levels, optional and voluntary use, in specific projects) in the auction system set by MME Decree 516/2015. Of the six auctions conducted, two indicated

6.3 B100 AUCTIONS Auction/Delivery Deadline L46 L47 L48 L49 L50 L51

-

Jan a Feb/16 Mar a Apr/16 May a Jun/16 Jul a Aug/16 Sep a Oct/16 Nov a Dec/16

Average price

Negotiated volume

2,721.39 2,589.75 2,465.50 2,416.54 2,423.87 2,880.10

580,597 639,567 643,216 645,307 674,106 636,267

(R$/m3)

(m3)

Source: ANP Note: Price with Petrobras margin

demand for approved use, linked espe-

led R$ 9.75 billion. The average price of

(when B20 vehicles were used as part of

but increased at the end of the year. In

cially to the 2016 Olympic Committee the sustainability program adopted). In

addition, there was demand for captive

fleets (B20), railway use (B30) and agricultural machinery (B30).

Thirty-four power plants participa-

ted in the auctions, most of them in the

Center-West and having the Social Seal of approval. The sector’s revenues tota-

biodiesel declined steadily until August, the first auction, the average price was

R$ 2,721.39 per cubic meter, and at the

most recent auction the average price was R$ 2,880.10 (November/December). The best price was at the July/Au-

gust auction at R$ 2,416.54 per cubic

meter, where more than 645,000 cubic meters of the product were sold.

Soybeans a highlight In 2016, soybeans remained the most important raw material used in the production of biodiesel, with a 76.4% share. The other common raw material inputs saw a reduction in share prior to 2015. In 2012, cottonseed oil accounted for more than 4.5% of production. The participation of animal fats and cotton oil fell 18.5% to 15.7% and 2% to 1.1%, respectively. However, the category “other animal fat materials” increased significantly, from 0.9% to 4.2% over the period.

6.4 RAW MATERIALS USED IN B100 PRODUCTION 77.4% 76.4%

Soy oil Cow fat Cottonseed oil Other greasy materials Others

2.0% 1.1% 0.9% 4.2% 1.2% 2.6%

18.5% 15.7%

2015 2016

Source: ANP

Annual Fuel Retail Report 2017

47


BIODIESEL

6.5 RANKING OF INFRACTIONS IN BIODIESEL PRODUCTION

Violations Most of the notifications served on biodiesel plants by the ANP were for the conditions of sale/storage of the product when it does not comply with the specifications, or when the tax documents submitted are not in accordance with the law and do not comply with the notifications.

01

Sell/store product outside of specifications

50%

02

Tax documentation not compliant with legislation

14%

03

Failure to comply with notification

14%

04

Other infractions

21%

Source: ANP

Between highs and lows Last year, the main biodiesel producers continued to increase their market shares. The exceptions were Petrobras, which in 2016, maintained the same index (7.8%) as in 2015; and Granol, which reported a fall of 11.7% to 8.4%. In fact, 2016 was not a good year for Granol because one of its units shut down and ceased activities. 6.6 PRODUCER MARKET SHARE

45.6% 45.0%

2015 2016

9.6%

10.7%

Bsbios Fonte: ANP

48 Annual Fuel Retail Report 2017

9.5% 10.1%

Oleoplan

8.2%

9.9%

ADM

11.7%

8.4% 7.6% 8.1%

Granol

Caramuru

7.8% 7.8%

Petrobras Others BiocombustĂ­vel


RenovaBio In December 2016, the government launched RenovaBio – Biocombustíveis 2030 program, a national plan to develop the biofuel sector, in line with the commitments assumed at COP21. The program is designed to increase the participation of bioenergy in the Brazilian energy matrix to 18% by 2030, with not only expansion of biodiesel, but also of ethanol, bioelectricity and the new biofuels. With this, the country will achieve a 45% share of renewable energies in the energy matrix. The forecast is that, by mid-2017, the proposal will be sent to Congress, and the RenovaBio Program will take effect in 2018. In February 2017, the bases of the program were presented: a definition of the role of biofuels in the matrix, setting the rules of marketing of these biofuels, environmental sustainability and encouraging the development of new products.

KEEP AN EYE ON… 3 Petrobras Biofuels, which could still be included in Petrobras’ disinvestment plan and this could impact the sector’s market share configuration; 3 The discussions about the anticipation of increases of B9 and B10; 3 The proposals of the RenovaBio program and the validation tests in relation to B10.

Annual Fuel Retail Report 2017

49


C

G N


The year of the turnaround For several years running, CNG

has been unable to attract end-user appeal and accumulated a long track

record of negative results. Market his-

a segment that has borne bad results

since its peak years in 2006 and 2007, the 2016 increase represents a win.

In its golden years, average daily

tory shows some periods with greater

consumption of CNG was around 7

in 2016, for the first time and right in

in the years that followed, a lack of fed-

declines, others with less. However, the middle of a national economic cri-

sis, the situation changed, with CNG consumption closing higher. Factors directly contributing to the increase in sales were the higher prices for liq-

million cubic meters per day. However, eral government incentives and loss of product competitiveness against other fuels, consumption fluctuated between

4.8 and 5 million cubic meters per day. The automotive segment was also

uid fuels associated with the economic

a point outside the curve in terms of

a reduction in the purchasing power

ural gas market. In general, distribu-

situation. High unemployment and of the population motivated consum-

ers to seek less expensive alternatives at the filling station. Accordingly, the number of vehicular conversions for

use of the product increased, result-

ing in a nationwide 3% rise in CNG consumption in 2016, which translates

consumption growth in the total nattors had a bad year in 2016, with total

consumption down 20.4% in relation to 2015, dropping to 61.4 million cu-

bic meters per day. The sharpest drop

in consumption was recorded in electricity generation (-42.4%) due to

into 4.9 million cubic meters per day, compared to 4.8 million cubic meters

7.1 NATURAL GAS SALES BY STATE CONCESSIONAIRES

tween December 2016 and the same

(1,000 m3/day)

per day in 2015. In a comparison bemonth of the previous year, growth was significant, at 7.8%.

In general terms, however, CNG

Automotive Industrial Residential Commercial

growth was not as significant within

Eletricity Generation

from 2% in 2015 to 2.1% last year. Al-

TOTAL

the Brazilian energy matrix, rising though this may seem insignificant, for

Cogeneration Others

2015

2016

4,820 28,816 969 791 32,881 2,501 6,418 77,197

4,962 26,213 1,110 829 18,942 2,374 6,427 61,436

Source: Abegรกs

Annual Fuel Retail Report 2017

51


CNG

the shutdown of many thermoelectric power plants as a result of an increase

in the water levels of significant reser-

voirs. Declines were also registered for the cogeneration (-5.1%) and industrial (-9%) segments.

Rio de Janeiro continues to be the country’s largest CNG market, especially due to the tax incentives offered by the state government

Markets in the spotlight Rio de Janeiro continues to be the

country’s largest CNG market, which is especially due to tax incentives of-

fered by the state government. Even with last year’s 1% to 1.5% increase

in the motor-vehicle ownership tax (IPVA) on CNG-powered cars, drivers were still motivated to invest in

conversion kits. Although Rio is the largest national consumer, São Paulo

and Paraná were notable participants in this segment in 2016.

Comgás – the largest natural gas

not only taxi and Uber drivers, but ordinary citizens looking, in times of economic crisis, to reduce their fuel costs.

However, it was not just the price

factor that helped. Distributors relied on a number of initiatives to stimulate

conversions, which included offering bonuses and financing the kits.

For 2017, Comgás intends to main-

tain programs such as Rode Legal, which

distributor in Brazil, which oper-

offers free check-ups and discounts on

Paulo – recorded a 110% increase in

graphically reorganize its stations (275

from 3,527 vehicles in 2015 to 7,391

where there is demand, but where CNG

a company that had been registering

a mobile app to helps consumers find the

years. Distributor sales grew 8% in the

As above, the state of Paraná was

ates in 177 cities in the state of São

annual automobile inspections; geo-

the number of conversions in 2016, up

total), providing coverage to regions

vehicles last year, a historic figure for

resale is not present; as well as the launch

an 11% annual drop for the last four

nearest filling station.

2015-2016 period.

another 2016 highlight. Compagás

cars, 40% belong to private individu-

conversions, i.e., 691 more cars con-

Of the total number of converted

als, while in 2015 this figure was 20%, which means that CNG has attracted 52 Annual Fuel Retail Report 2017

recorded a 151% increase in vehicle verted to CNG, raising to 34,383 the

number of cars powered with this fuel.


As in Rio de Janeiro, the government of Paraná provides IPVA discounts for CNG-powered cars, offering a rate of 1%, while the rate for other flex vehicles is 3.5%. There are 36 CNG stations in the state.

Conversions on the rise By October 2016, the total number of vehicles converted to CNG was 43,010, a significant, 88% increase over 2015, when 22,869 vehicles were converted. According to the Brazilian Institute for Oil, Gas and Biofuels (IBP), the nation’s total CNG fleet is 1,859,300, of which half of these vehicles are in Rio de Janeiro, followed by São Paulo (21.5%). For comparison purposes only, in May, conversions reached a peak, when 6,951 cars started using CNG, compared to 1,693 in the same month in 2015. Data compiled by Gás Natural Fenosa, only for the state of Rio de Janeiro, showed that 19,543 vehicles were converted in December. The accumulated figure for the year shows total vehicle conversions stood at 88,834, which represented a 55% increase over 2015. One of the obstacles that discourage the use of CNG is the price of the conversion kit. The 5th generation, for example, which is the most modern on

7.2 CONVERSIONS Units

43,010 22,869

2015

2016

Source: IBP Note: Through October 2016

the market, has an average price tag of R$ 4,000. According to Comgás, a consumer who travels 60 kilometers a day will recoup that investment in one year. Additionally, adapted vehicles, even those that leave the factory with the kit already installed, must be inspected annually and have its safety cylinders recertified every five years. It was precisely to overcome such consumer discouragements that Comgás decided to offer a series of incentives to those who convert their vehicles, particularly as the state of São Paulo does not offer an IPVA discount.

In addition to Rio de Janeiro, other states notable for increases in CNG consumption were São Paulo and Paraná Annual Fuel Retail Report 2017

53


CNG

State adjustments CNG has also entered the basket of products that have been subject to an increase, in some states, in Brazil’s statelevel value added tax (ICMS), as a means of minimizing the effects on state governments of the economic crisis. In total, 11 states adjusted the tax, with the most significant increases being applied in the states of Alagoas, Amapá, Mato Grosso do Sul, and Rio Grande do Norte. Currently, the Federal District is the state with the highest tax rate (from 25% to 28%), while Pernambuco has maintained an exemption for this tax collection.

Economical gas Price was a decisive factor for the CNG market’s return to growth in 2016, as it offset the conversion kit investment for those who drive a lot. Looking at data for the week of November 20-26, CNG brought Brazilian drivers an average savings of 36% when compared to gasoline and 23% when compared to ethanol. During the same period, in Rio de Janeiro, where the vehicular natural gas market is quite robust, CNG brought savings of 47% when compared to gasoline and 39% when compared to ethanol. In Pernambuco, whose positive results are second only to Rio de Janeiro’s, the saving was 43% when compared to gasoline and 29% over biofuel.

7.3 TAX RATES RR

AP

AM

MA

PI

TO

RO

BA DF

Source: Fecombustíveis

GO MG ES

MS SP

RJ

PR SC RS

7.4 CNG SAVINGS

Alagoas Bahia Ceará Espirito Santo Mato Grosso Mato Grosso do Sul Minas Gerais Paraíba Paraná Pernambuco Rio de Janeiro Rio Grande do Norte Rio Grande do Sul Santa Catarina São Paulo Sergipe AVERAGE BRAZIL

PB

SE

MT

28% 25% 18% 17% 13% 12% 0%

RN PE

AC

CNG x Gasoline

CNG x Ethanol

-37% -37% -33% -40% -27% -33% -31% -35% -33% -43% -47% -35% -30% -40% -38% -36% -36%

-26% -22% -20% -32% 1% -20% -9% -23% -14% -29% -39% -22% -26% -35% -19% -24% -23%

Source: Abegás Note: Data refers to the week of 11/20 to 11/26.

54 Annual Fuel Retail Report 2017

CE

PA

AL


Prices Compressed natural gas prices fluc-

2.305 cubic meter), which was pre-

creases, as well as increases over the pe-

for the product began to grow; fall-

tuated throughout 2016, with slight de-

riod, both from distributors and resellers, ending the year with the lowest price at the two ends of the chain.

cisely during the period when demand ing again the following month, until reaching R$ 2.214 in December.

From 2015 to 2016, the average

In January, the average prices

price variation was 4.5% among distrib-

were, respectively, R$ 1.637 and R$

As for the average annual margin

charged by distributors and resellers 2.244 per cubic meter. Among resell-

ers, there was a price spike in July (R$

utors and 8.4% among resellers.

among resellers, there was growth in

2016, when it increased from 26% to 29%.

7.5 AVERAGE DOWNSTREAM PRICES R$/L

Nov/16

Sep/16

Jul/16

May/16

Jan/16

Service Stations

Nov/15

Sep/15

Jul/15

May/15

Mar/15

Jan/15

1.0

Distributors

Mar/16

2.8

Source: ANP

7.6 AVERAGE RETAILER MARGIN

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Jan/16

Nov/15

Sep/15

Jul/15

May/15

Mar/15

20%

Jan/15

35%

Source: ANP

Annual Fuel Retail Report 2017

55


CNG

Fewer filling stations 7.7 CNG STATIONS PER STATE Despite the increase in CNG vehicle conversions, the number of stations RR AP that sold the product decreased 1.8%, from 1,618 units in 2015 AM MA to 1,590 in 2016. Only four CE PA RN states recorded an increase PB PI PE AC in stations – Rio Grande AL TO RO SE BA do Sul, Rio de Janeiro, Rio MT DF Grande do Norte, and Ceará. GO Market agents believe that while a few resellers MG ES MS began selling the fuel, others closed, which is SP RJ consistent with market activity since the end PR of the sector’s heyday a number of years back. SC São Paulo, along with Minas Gerais, were RS the states that had the fewest filling stations, with 11 and 18, respectively. To stimulate the resale business, Comgás plans to transfer the infrastructure of low-income stations to less well-off regions with sales potential, as a means of increasing average sales. This demonstrates that, in some regions, the CNG market has been able to survive only through the actions of the distributors themselves, along with isolated government stimuli, such as is provided in Rio de Janeiro and Paraná.

2015 = 71 2016 = 72

2015 = 6 2016 = 5

2015 = 3 2016 = 2

2015 = 2 2016 = 2

2015 = 65 2016 = 63

2015 = 2 2016 = 2

2015 = 59 2016 = 41

2015 = 80 2016 = 83

Last year, the ranking of distributors remained unchanged in relation to 2015, with a slight increase in market share for CEG, which continued to hold first place, followed by Comgás. 56 Annual Fuel Retail Report 2017

7.8 GAS CONCESSIONAIRES’ MARKET Ceg Comgás Ceg Rio Others Source: ANP

11.1% 10.8% 10.5% 10.8%

2015 = 71 2016 = 69 2015 = 31 2016 = 31 2015 = 35 2016 = 34

2015 = 563 2016 = 569

2015 = 317 2016 = 306

2015 = 134 2016 = 133

Unchanged

2015 = 38 2016 = 37

2015 = 34 2016 = 33

2015 = 9 2016 = 9

2015 = 37 2016 = 36

2015 = 61 2016 = 63

43.5% 44.0% 2015 2016

34.9% 34.5%

TOTAL: 2015 = 1.618 2016 = 1.590 Source: Abegás


Natural gas incentive In 2016, Brazil’s Ministry of Mines

Even so, the announcement of the

and Energy (MME) launched the Gas for

program has brought new momentum

a new regulatory framework for the natu-

for the natural gas market to grow again,

Growth program, which aims to establish

ral gas segment as a means of encouraging new investments. The text of a proposed piece of federal legislation is expected to

be ready in the first half of 2017 and will need to win congressional approval before

the initiative can go into effect, which is unlikely to occur before 2018.

The program was launched along with

other MME initiatives, such as RenovaBio and Combustível Brasil, both aimed at ad-

justing the nation’s fuel market, bringing

among concessionaires, who see room

provided that there is an improvement

in marketplace regulations. Nevertheless, CNG will hardly occupy the same space

it once had in the Brazilian energy matrix, especially since the government intends to encourage the development and use

of other renewable fuels (such as ethanol, biogas, and biodiesel) to help Brazil satisfy the commitment it made at COP 21 to reduce greenhouse gas emissions.

CNG offers environmental advan-

new investments, and introducing more

tages, as its burning is more complete

All programs are being discussed with

Natural gas vehicles emit less polluting

predictability and diversity to the fuel chain. their respective market agents so that all solutions are built collectively. For this rea-

son, details on how the Gas for Growth initiative will encourage new investments are not yet available.

than that of gasoline, ethanol, or diesel oil. gases, such as nitrogen oxides (NOx), carbon dioxide (CO2), and especially carbon

monoxide (CO). The problem lies in the

expensive infrastructure and vehicle adaptation costs.

KEEP AN EYE ON… 3 Tracking liquid fuel prices and their impact on CNG competitiveness; 3 Monitoring concessionaire incentive programs to encourage conversions; 3 Following the discussions regarding the Gas for Growth program and the impact of its measures on the CNG market.

Annual Fuel Retail Report 2017

57


L

G P


Sales on the rise LPG consumption growth resumed in 2016 after 2015 saw a sales decline. There were 7.4 million tons of the product marketed last year, a 1.1% increase over the previous year. Present in almost 100% of brazilian households, growth for this product is quite restricted and is tied to population growth. Popularly known as cooking gas, P13 continues to be the driving force in this sector, accounting for 72% of total sales (5.3 million tons). Revenue rose from R$ 32 billion in 2015 to R$ 36.8 billion in 2016, a 15% increase, which was basically driven by product price adjustments. One of the factors that prevents LPG from gaining greater expression in the brazilian energy matrix is federal Law 8.166/1991, which has restricted its use in the industrial, commercial, and residential segments (apart from the kitchen). To diversify product use, the segment would require robust investments and long-term strategies. Tax collections were up 15.4%, coming to R$ 6 billion in 2016, compared to R$ 5.2 billion in the previous year. Of last year’s total, R$ 4.7 billion came from state-level value added tax (ICMS) contributions, which increased 19.2% over 2015. The collections volume for federal social contribution

taxes (PIS/COFINS) grew 1.2% in the period. Of all products sold, the largest contribution came from P13, which totaled R$ 3.8 billion, or 63% of the total collection in 2016.

New regulatory framework Last year ended with a considerable historic advance for LPG resellers, following the release of a new regulatory framework for the segment, which has been in force since start of 2017. 8.1 CONSUMPTION (Million of tons)

5.33

5.27

P13 Other canisters

2.07

2.04

2015

2016

Source: ANP

8.2 SALES R$ Billion

2015 2016

32.0 36.8

Growth of

15%

Source: FecombustĂ­veis

Annual Fuel Retail Report 2017

59


LPG

is part of the state-owned company’s di-

8.3 TAX REVENUES R$ Billion

4.7

and reduce debt.

4.0

The sale is being evaluated by Cade

Pis/Cofins

with a final result expected to be an-

ICMS

1.2

vestment plan to improve its cash flow

1.2

nounced in 2017. If approved, the LPG industry will

2015

2016

Source: Fecombustíveis

become even more concentrated. Ultragaz’s national market share could reach 45%, while reaching 60% in some

Resolutions 49, 50, and 51 were issued, which define the resale and distribu-

tion regulations for the product, with two main aspects that address resell-

ers’ claims. The principal one of these

establishes the class of independent, or white flag (unbranded), resellers in

the same mold as exists for filling sta-

states, such as Bahia and São Paulo, for example. However, from the standpoint of the new regulatory framework, if the Liquigás sale is approved and market concentration increased, then independent resale may represent an alternative for the dissatisfied reseller.

tions offering liquid fuels. The second, addressing non-verticalization of the

sector, has been partially satisfied, as it prevents distributors from market-

ing cylinders of up to 90 kilos directly

to the consumer (rather they may only

handle direct bulk sales), but are al-

lowed to be resellers (learn more in Legislation).

Liquigás sale One of the notable events in the

LPG market in 2016 was the announcement of the sale of Liquigás, a Petrobras

subsidiary, to Ultragaz. The transaction 60 Annual Fuel Retail Report 2017

Tax collections were up 15.4%, totaling R$ 6 billion in 2016, compared to R$ 5.2 billion in the previous year, An increase of 15.4%. Of the total, R$ 4.7 billion came from ICMS contributions, which increased 19.2% over 2015. The collections volume for PIS/COFINS grew 1.2% in the period


13 kg gas canister

Producer 24% Taxes 17% Retail Margin

30%

Distribution Margin

29%

Source: ANP

8.5 AVERAGE UPSTREAM AND DOWNSTREAM PRICES R$/L

Nov/16

Sep/16

Jul/16

Resale

May/16

Mar/16

Nov/15

Distribution

Sep/15

Jul/15

May/15

Mar/15

15.0

Production

Jan/16

65.0

Jan/15

Source: ANP

8.6 AVERAGE DOWNSTREAM MARGIN 45%

Nov/16

Sep/16

Jul/16

May/16

Mar/16

Resale

Jan/16

Nov/15

Sep/15

Jul/15

15%

May/15

Distribution

Mar/15

Average LPG prices showed variation in all links in the chain, with an increase of 10.8% in production, 13.6% in distribution, and 12% in resales between 2015 and 2016. These figures took into consideration product price adjustments authorized during the period and tax changes. Currently, according to industry data, 27% of the volume of LPG sold in the Brazil is imported by Petrobras and, due to the crisis at the state-owned firm, distributors must further expand their role as importers. Distributors managed to slightly increase their gains in the midst of the crisis. Margins increased from 39.6% in 2015 to 41.3% in 2016, while those from resale fell from 30.7% to 29.8% in the same period.

8.4 PRICE BREAKDOWN

Jan/15

Prices

Source: ANP

Annual Fuel Retail Report 2017

61


LPG

Supervision

8.7 PRODUCT SEIZURES 56% 49%

P13 (Full)

29%

P13 (Empty)

Others (Full)

Others (Empty)

2%

47%

13%

1% 2%

2015 2016

Source: ANP

8.8 RETAIL INFRACTIONS RANKING

01

Does not meet safety norms

47%

02

Does not comply with notification

11%

03

Does not provide consumers with information

11%

04

Exercize regulated activity without authorization

7%

05

Others infractions

24% TOTAL: 1,842 infractions

Source: ANP

8.9 DISTRIBUTION INFRACTIONS RANKING

01

Does not meet safety norms

64%

02

Does not comply with notification

22%

03

Other infractions

13% TOTAL: 45 infractions

Source: ANP

62 Annual Fuel Retail Report 2017

Clandestinity is one of the main obstacles in the LPG market, due to the high number of resellers and the easy, diffuse manner by which illegal sales operations may be executed. In 2016, the ANP increased its oversight of the sector. There were 5,534 inspections carried out at 4,354 resellers’ facilities, resulting in the issuance of 1,102 infraction notices. Additionally, a total of 5,607 cylinders were seized. Among distributors, 172 inspections were carried out at 93 distributors, with 39 infraction notices issued. Despite efforts to combat irregularities and initiatives such as the Gás Legal (Legal Gas) program – which even helped to legalize many resellers – it is still difficult for the ANP to completely monitor some 67,000 LPG reseller operations in a country the size of Brazil. Accordingly, the regulatory agency deploys task forces and is in the process of reshaping the Gás Legal program to strengthen the fight against irregular agents. Of all the transgressions in 2016, both among resellers and distributors, those of greatest incidence were not satisfying safety standards and not complying with citations.


Little change The market share of the principal distributors was practically unchanged in 2016, with a slight increase in the share for market leader, Ultragaz, and a 1 percentage point drop for Liquigás. There was no change for Supergasbrás and Nacional.

8.10 DISTRIBUTORS MARKET SHARE

23.1% 23.9%

Ultragaz

22.6% 21.6%

Liquigás

20.5% 20.5%

Supergasbras

19.3% 19.3%

Nacional

2015 2016

14.6% 14.7%

Others Source: ANP

ICMS changes The financial crisis in the states ended up influencing an increase in LPG ICMS rates, a factor that impacted prices at the end of the chain. Ten states raised this tax rate. In particular, where the tariff on production in Bahia, Amapá, and Rondônia had stood at 12% in 2015, it was increased, in 2016, to 17% in Amapá and 18% in Bahia and Rondônia. Also last year, Alagoas, Amazonas, Maranhão, Paraíba, Pernambuco, Rio Grande do Norte, and Sergipe increased their rates from 17% to 18%. States with the lowest ICMS rate (12%) are Goiás, Mato Grosso, Mato Grosso do Sul, Rio de Janeiro, Rio Grande do Sul, Santa Catarina, São Paulo, and Tocantins.

8.11 TAX RATES RR

AP

AM

MA

CE

PA PI

PE

AC

AL SE

TO

RO

RN PB

BA

MT DF GO

18% 17% 12%

MG ES

MS SP

RJ

PR SC

Source: ANP

RS

KEEP AN EYE ON… 3 Monitoring the impact of the new regulatory framework, which is seeking to redesign the market; 3 CADE’s decision regarding the sale of Liquigás to Ultragaz. If approved, the merger should stimulate the market; 3 The ANP is promising an intense monitoring agenda in 2017, with the expansion of its intelligence work in inspections, as well as in its communication initiatives and agent training. Annual Fuel Retail Report 2017

63


S T

N A IC

U L

R B


Challenges persist For yet another consecutive year,

engines and increases in the energy

effects of the Brazilian economic crisis

Inovar-Auto. These changes impose

the lubricating oil sector suffered the and registered a decline in sales. Total sales of lubricating oil in 2016 fell 13.5%, from 1.4 million cubic meters in 2015, to 1.2 million cubic meters

last year. These results were driven by

the drop in consumption of lubricating oils, which accompanied the fall-

off in sales of the automotive industry. According to Anfavea, the total number of new vehicle licenses suffered a

17.2% fall nationally in 2016, in com-

parison with the previous year. With

fewer new vehicles in circulation in Brazil, the consumption of lubricants

also declined. The economic crisis in the country is also reflected in the

increase in the intervals between oil

efficiency of vehicles established by more and more challenges to compa-

nies that operate in the sector, ranging from the production of vastly im-

proved basic oils to compatibility with biofuels, especially biodiesel blended with diesel fuels. The concern aris-

es because the high temperature for

evaporation of biodiesel can lead to

the accumulation of impurities - in the lubricant, harming its performance in vehicle engines, especially as the fleet

ages. In practice, biodiesel in contact with oil can cause problems such as

reduced viscosity, a change in the flash

point, low-soot, low dilution by diesel and high dilution for biodiesel.

In addition to the difficulties in-

changes. In the light of unemployment

volving the performance of the prod-

chosen to extend the time between

9.1 SALE OF FINISHED LUBRICATING OILS

and income, many Brazilians have oil changes, also contributing to the

decrease in the consumption of lubri-

cants. In 2017, the lubricants market

M3 million

1.4

performance will depend on the po-

1.2

litical outlook, but the forecast is for growth of around 1% in sales.

The marketing of lubricating oil in

Brazil has been stable over the years, as a result of the development of new

2015

2016

Source: ANP

Annual Fuel Retail Report 2017

65


LUBRICANTS

uct, the lubricants market faces still

another obstacle: the Brazilian tax codes. The collection of ICMS-ST hinders the expansion of the whole-

sale operations of lubricant resellers to other States. This limitation oc-

Sindilub calculations estimate that, currently, there are approximately 550 companies active in the market for lubricants. This is because the regulatory agency, through Resolution 10/2007,

curs depending on the tax differences,

repealed Resolution 131/1999, which

the ICMS in the neighboring states,

entities for the purpose of selling lu-

with the levying of different rates of

to attract investments. Because of that, the Brazilian market is composed of

a large majority of exclusive wholesalers of only one producer working

determined the registration of legal bricating oils, greases and additives in bottles for automotive application in the country with the ANP. The current

in the states. This is different than in

regulation only reports production

there are resellers who work in more

knowing how many wholesalers exist

the United States, for example, where

than one state and are often multibranded, i.e. resell products from more than one manufacturer.

In fact, the number of whole-

and importation of products. Without in the Brazilian market, the risk of irregularities in the segment increases, since there is no supervision in these

salers who work in the sector is un-

companies on compliance with rules,

the ANP of the number of wholesale

erational, for example.

known, because there is no control by

dealers in operation in the country.

such as environmental, quality and opLogistics costs are also another factor that restricts the maintenance

Given the complexity for operations on a national scale because of the size of the country, the distributor must be near the point of consumption, since the country does not have the kind of paved highway network that facilitates logistics 66 Annual Fuel Retail Report 2017

of the current resale system of lubricants in Brazil. Given the complexity for operations on a national scale because of the size of the country, the distributor must be near the point of consumption, since the country does not have the kind of paved highway network that facilitates logistics.


Stable 9.2 SECTOR AGENTS

The number of dealers has remained stable, with a total of 337 active dealers in the lubricants market in 2016, up from 335 in 2015. Collectors and importers reported an increase in the number of agents. In the case of importers, it is not possible to identify whether the companies used the product for their own use or imported for resale. The number of producers in the market fell from 94 in 2015 to 90 in 2016 while the number of re-refiners remained stable.

Producers Collectors Re-refiners Importers

2015

2016

94 21 15 205

90 22 15 210

Source: ANP

Unchanged BR continued to lead the ranking of producers/importers of lubricants in 2016. Its market share increased from 24.6% in 2015, to 25.2% in the past year. However, the main market producers have been playing a game of musical chairs in the market. Ipiranga moved to second place, with 15.8%. Cosan went from second to third place, with a 13.5% stake. Shell maintained sixth position. Ahead of Shell were Petronas and Chevron, with 9.5% and 9.4%, respectively.

9.3 MARKET SHARE OF THE PRODUCERS/IMPORTERS

24.6% 25.2%

BR Ipiranga Cosan

13.7% 15.8% 14.3% 13.5%

Petronas

9.9% 9.5%

Chevron

8.6% 9.4%

Shell Others

8.1% 8.2%

2015 2016

20.9% 18.4%

Source: ANP

Annual Fuel Retail Report 2017

67


LUBRICANTS

Within the target 9.4 MARKET SHARE OF THE RE-REFINERS 43.8% 42.5%

Lwart Lubrasil Petrolub Proluminas

12.2% 15.8% 11.1% 12.9% 9.1% 10.3%

2015 2016

23.8% 18.6%

Others

Source: ANP

9.5 MARKET SHARE OF THE COLLECTORS Lwart Petrolub Fênix Lubrasil Tasa

8.5% 10.5% 7.9% 8.9% 8.9% 7.8% 6.5% 7.8%

Others

32.9% 30.8%

2015 2016

35.3% 34.3%

Source: ANP

9.6 COLLECTION OF USED OR CONTAMINATED PRODUCT

NORTH Collected: 28.1 thousand m3 (33.2%) Target:32%

CENTER-WEST Collected: 36.3 thousand m3 (38.4%) Target: 36%

BRAZIL Collected: 431,4 thousand m3 (40,5%) Target: 38,9%

NORTHEST Collected: 47 thousand m3 (35.2%) Target:33%

SOUTHEST Collected: 236.4 thousand m3 (44.5%) Target: 42%

SOUTH Collected: 83.5 thousand m3 (39.2%) Target: 38% Source: ANP

68 Annual Fuel Retail Report 2017

Once again, the collection of Used or Contaminated Lubricating Oil (OLUC) reached the target set for the year. In 2016, of the total of 1.2 million cubic meters of oil sold, 431.4 thousand cubic meters were collected, which represented 40.5% of the total. The percentage was above the target set, which was 38.9%. In relation to collectors, the market shares of these agents also suffered changes among companies in comparison to 2015. Lubrasil was the one that lost the largest number of positions in the rankings, dropping from second to fourth place, with 7.8%, tying with Tasa. Petrolub assumed second place, with a 10.5% market share. Phoenix also rose one position, moving from fourth to third place. Lwart kept its leadership position in market share. After collection, the OLUC is forwarded for re-refining, and returns to the market as basic oil. In 2016, the marketing of used oil or contaminated increased by 1.4%, reaching 239,100 cubic meters. In 2015, this volume was in 235,800 cubic meters. In the ranking of the re-refining companies there was no change in the market share. Lwart dropped 1.3 percentage point but kept its market leadership, with 42.5%. Lubrasil was the company that most increased its participation - 3.6 percentage points, and retained second place in the ranking. Petrolub’s and Petroluminas’ share climbed up 1.8 percentage points and 1.2 percentage points respectively.


Play Clean The Jogue Limpo (Play Clean) program, intended to assist in the implementation of reverse logistics in the packaging of lubricating oil used in Brazil, collected more than 90.6 million containers. The result was within the target set by the Ministry of the Environment and by the 11 states plus the Federal District where the system has terms of signed commitments. The amount of plastic packaging for recycling, however, was less than the amount reported in 2015, which exceeded 94 million. This occurred due to the drop in sales of lubricating oil in the country. Since the beginning of the program, 550 million containers have been sent for packaging recycling. On the other hand, the number of municipalities served by the program increased from 3,250 in 2015, to 4,213 in 2016. There was no change in the amount

of registered generating points, remaining at more than 42,000 points, but in relation to the receiving stations, the program ended 2016 with 19 registered sites, two less than in the previous year. Currently, the program is present in the states of the South, Southeast and Northeast regions, with the exception of MaranhĂŁo and PiauĂ­. The expansion to other states will not happen until after insertion of the amendment to the reverse logistics system for plastic packaging of lubricating oil that is currently in progress (check out the discussions on environment). The collection is made along specific routes defined by logistic operators, where the registered generating points are located. The packaging is then taken to the central collection stations where it is sorted and forwarded for recycling or other environmentally correct destination.

KEEP AN EYE ON‌ 3 Development of new products to reduce friction using various types of fuels, particularly biodiesel; 3 Monitoring the performance of the sector amid the national economic crisis; 3 Monitoring the ongoing discussions of the new sectorial Jogue Limpo agreement; 3 Following the evolution of the market in line with the reduction of emissions of gaseous pollutants and increase the energy efficiency of vehicles; 3 Monitoring the tax reform discussions, the final draft and its impact on the segment; 3 Following the discussions of the amendment of the reverse logistics sector agreement in the lubricants industry.

Annual Fuel Retail Report 2017

69


E

T N

N E

I V

O R

M N


Compromised quality With the downturn in the economy and most companies being significantly undercapitalized in 2016, progress in the environmental arena has been less than desired. In addition to non-renewal of the fleet, which contributes to the deterioration of air quality by keeping older vehicles in circulation, fraud involving the improper use or non-use of the automotive liquid reducing agent (Arla 32) continued to occur. Accordingly, anticipated results for phase P7 (intended for heavy vehicles) for Brazil’s Air Pollution Control Program for Motor Vehicles (Proconve) have not been fully achieved. Used in trucks and buses equipped with the Selective Catalytic Reduction (SCR) system, Arla 32, which is necessary to satisfying P7 targets, is a urea-based chemical compound that reduces the emissions of pollutant gases present in the exhaust of diesel vehicles. When these goals were established, for vehicles to achieve particulate emissions restriction targets, industry opted to raise NOx emissions, which wound up producing similar levels to those established for phases P3 and P4. To control the emission of this gas, Arla

32 post-treatment systems were introduced. However, whether out of ignorance or perhaps a misguided attempt to save money, many motorists have begun to circumvent the use of this substance, installing chips that alter the functioning of their vehicles or even using water or adulterated Arla. Without the use of the liquid reducer, particulate emissions rates are much higher than those set for P7. Every truck not using Arla 32 in its SCR system or that is using an out-ofspecification product increases by 4.5 times the emissions of nitrogen oxides into the atmosphere. In 2016, in relation to S10 diesel consumption, the Arla use deficit was between 45% and 50%. In other words, approximately half of the vehicles that were supposed to be using the product were not doing so. To combat fraud and scams, which are treated as environmental crimes, the main entities responsible for combating this deficit, Brazil’s Federal Highway Police and its environmental protection agency, Ibama, carried out several inspections operations on the nation’s highways. However, from an oversight perspective, there is still a lot of work to be done, including the adoption of Annual Fuel Retail Report 2017

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ENVIRONMENT

equipment that allows a more detailed analysis of vehicles. Such equipment – a type of sensor capable of reading the on-board diagnostic (OBD) data – has already been approved, but is not yet being effectively used in inspections. However, although it accounts for the largest share of air quality-related problems, the heavy vehicles fleet is not the only one responsible for automotive emissions pollution. According to data from the emissions laboratory of the state of São Paulo’s environmental pro-

72 Annual Fuel Retail Report 2017

tection agency, CETESB, light vehicles are the main source of carbon monoxide (CO) and hydrocarbon (HC) emissions, with gasoline-powered cars being the largest emitters of CO (43.6%). The gasoline vehicle fleet also contributes to increased emissions as the average age of cars is more advanced than those of the flex fleet. Although a smaller fleet, the motorcycle segment is also a significant contributor to CO and HC emissions (19.6% and 7.8%, respectively), due to their higher emission factors.


Diesel laboratory According to the schedule established by Pro-

conve, urban buses should have started using S50 diesel in January 2004, with other diesel-powered

trucks following suit in January 2005, in what was defined as the P6 phase of the program. However, this timetable was not met and, as a result, São

Paulo’s state government, the federal government, including the federal Public Prosecutor’s Office; the

automotive industry, and those that are involved in

the production, distribution, and marketing of diesel in addition to the ANP signed a Conduct Adjustment Agreement in October 2008, anticipating the

next phase. Thus, in practice, there was a leap from

P5 to P7, and all links in the chain had to adjust to it. When it was signed, this agreement included

a requirement to set up a laboratory specifically fo-

cused on diesel vehicle emissions testing. However, the lab did not open until early 2017. Until that

time, the only laboratory maintained by Cetesb, located in the city of São Paulo, prioritized light vehicle testing.

The new laboratory – installed by Cetesb in

the city of São Bernardo do Campo – began opera-

tions in January 2017 and will conduct research on diesel engine emissions to assist the government in the formulation of public policies to control ve-

hicular pollution. The lab has the ability to analyze concentrations of pollutants, such as NOx, carbon monoxide, hydrocarbons, carbon dioxide, particulate matter, and ammonia. Shutterstock

At present, various diesel market representa-

tives have begun discussing the parameters for defining the next phase of Proconve.

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ENVIRONMENT

No agreement

Pay Clean Institute

Another issue that did not move forward in 2016 was a proposal from the Instituto Jogue Limpo (Play It Clean Institute) to expand, nationwide, a program to collect the packaging of lubricants through the installation of Voluntary Drop Points (PEVs). To make this change, the Sectorial Agreement regarding the Reverse Logistics System for Plastic Packaging of Lubricant Oil must be amended. This, in turn, requires the approval of all of the signatories of the existing document, which did not happen. By the close of 2016, Brazil’s Ministry of the Environment (MMA) had established a goal that would see Instituto Jogue Limpo overseeing 4,213 municipalities and collecting 4,400 tons of packaging. To achieve this goal, the institute proposed PEV installations in regions of the nation where the program had not yet been implemented (e.g., Brazil’s North region), but also to extend the same idea in those localities that are already a part of the collections circuit. The idea was to get individual retail filling stations (and others, currently

participating in Jogue Limpo collection initiatives) to install a waste collection and storage system on their properties, which waste generators (including competitors of these stations) could use to deposit their waste. Jogue Limpo believes this would improve collection logistics, as it would reduce the difficulty of collection from all points in the waste generation chain. Initially, the institute’s proposal had not considered the necessity of advance discussions with all the many agents involved in these reverse logistics. Furthermore, the National Federation of Fuel and Lubricant Retailers (Fecombustíveis) is concerned that resellers will have to bear the risks arising from third-party generated wastes being discarded at PEVs. Additionally, resellers maintain that PEV installations must be voluntary, dependent upon an individual business owner’s interest in participating, with the equal understanding that withdrawal of a PEV must also be at the sole discretion of the reseller. Lacking consensus, the issue will remain under discussion in 2017. Regardless, in its first month of operation (November 2016), a pilot project to install PEVs at oil change shops, which was implemented toward the end of last year in Maceió, Alagoas, collected nearly 5,000 empty plastic packages of lubricating oil. A Jogue Limpo truck makes weekly collections from each PEV.

Installation of PEVS by the Pay Clean Institute for collection of lubricants continues without a definition in 2016

74 Annual Fuel Retail Report 2017


Licensing iStock

For filling stations, 2016 was also a difficult year. In accordance with ANP Resolution 57/2014, since October 2015, the agency has been monitoring the compliance of these businesses to obtain and keep current a series of documents (among which is an environmental operation license). However, in many Brazilian cities, the obligation has been difficult to enforce because public agencies link the issue of licenses to other authorizations, and resellers get caught in a bureaucratic maze. Meanwhile, last year, Proposed Constitutional Amendment (PEC) 65, which changes (and simplifies) environmental licensing for public works, began to be debated and moved through the approval process by the Constitution, Justice and Citizenship committees of the federal Chamber of Deputies and the Senate. Additionally, there are two other bills, one in the Senate (PL 654/2015) and ano-

ther in the House (PL 3.729/2004), which also propose changes in environmental licensing. In parallel, the MMA has created a working group to consider a new proposal for national environmental licensing. Discussions commenced, but work was suspended following the removal of one of this group’s members.

KEEP AN EYE ON‌ 3 The introduction of a new Proconve phase for heavy vehicles. As there is no consensus yet, the issue will remain on the agenda and be debated throughout 2017; 3 Governmental entities concerned about controlling vehicular emissions, which have fleet renewal of their radar screens;

3 The Arla 32 inspections regimes of the Federal Highway Police and Ibama may come into renewed focus, as testing is underway for a new device that is supposedly capable of reading data from vehicle self-diagnostic systems to certify if inappropriate products are being used in place of Arla 32; 3 Reseller discussions with Instituto Jogue Limpo and the MMA to expand the lubricants plastic packaging collections program.

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A bitter flavor After five years under discussion in the Fuel Resellers Subcommittee, a statutory instrument was published through Edict 1.109 on September 22, 2016, which approves Appendix 2 of Regulatory Standard no. 9 (NR-9). This annex sets out the requirements for workplace safety and health for the activities with the possibility of occupational exposure to benzene on fuel resellers’ premises, complementing the legislative rules and guidelines already in force regarding the safety and health of workers in Brazil. Until the publication of Edict 1.109, there were no specific regulations regarding the fuel sector. The legislation in force in the country, established by the National Benzene Agreement of September 28, 1995, only established general rules for companies that produce, transport, store, use or handle benzene or its liquid mixtures containing 1% or more by volume, thus not encompassing the downstream segment. Discussions to draw up a proposal on the subject were initiated only in 2011, when the Fuel Resellers Subcommittee was created, formed by representatives of workers, government and employers (distributor and resellers). The main motivation,

of both employees’ representatives and the government for a definition of the regulatory framework has always involved the air-borne vapors containing benzene which could be inhaled by service station attendants. Through the National Benzene Agreement, the understanding is that any exposure could lead to health changes because it is not known how benzene acts on a person’s body. That is, regardless of the amount, even minimum exposure to the substance offers risk to workers’ health. It is important to note that at the time of the preparation of the National Benzene Agreement the standard definition of benzene was based on existing rules in Germany, which considered that a single exposure offered risk. Today, the rules in force in the European country do not follow this methodology and consider a limited exposure to benzene to be between tolerable and acceptable. In Brazil, the harm of this chemical substance on workers’ health has never been proven. Currently, the maximum benzene content permitted in the makeup of gasoline is 1%, pursuant to the specification in ANP Resolution 40/2013. However, gasoline A has been Annual Fuel Retail Report 2017

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LEGISLATION

shipped from Brazilian refineries with

tem to prevent gas fumes from being

anhydrous ethanol, this percentage has

being fueled. The deadlines were set to

less than 1% and, after the addition of fallen to around 0.5%.

Regardless of the actual effects on

worker health and safety, the fact is

that, for the retail sales the publication of the Edict wound up having bitter

taste, since some adjustments will lead

to an increase in the costs of the business, such as the replacement of the fuel pumps and installation of washing equipment to sanitize employee uni-

forms. It is worth remembering that, in recent years, the sector has been impacted by regulatory adjustments, such as the issuance of environmental licens-

ing and inspection by fire departments, along with the implementation of Regulatory Standard No. 20 (NR-20).

New metered pumps One of the main rules established by

Edict 1.109 is the substitution of gaso-

line pumps, which from now on must be equipped with a vapor recovery sys-

expelled into the air when vehicles are coincide with the schedule of the Met-

rological Technical Regulation (RTM)

issued by Inmetro, established by Edict 559, of December 15, 2016.

The new RTM establishes the

technical, metrological, software and hardware and safety requirements applicable to all fuel pumps installed in the country. In practice, the new rules

seek to curb fraud in the metered

pumps, better known as “low pumps” or “rigged pumps,” replacing existing equipment with more sophisticated and inviolable models.

Pursuant to the new regulations,

manufacturers have up to three years

from the date of publication of the Edict

to make the new metered pumps available on the market. Retailers will have a period of 72-180 months, depending on the year, after the publication of the

order, to replace the existing pumps for new models.

TRRNI Rules The ANP issued Resolution 10 on March 15, 2016, establishing the requirements for authorization of the Transporter-Reseller-Retailer company for Inland Navigation (TRRNI). According to these regulations, the agent can only acquire bulk fuels through the distributor, which must deliver the products directly to TRRNI vessels, with the removal of the product in the company via tanker-truck prohibited by the TRRNI. 78 Annual Fuel Retail Report 2017


LPG: new rules In 2016, the ANP finally published

the new regulatory framework of the

LPG segment. The new regulations, the

result of three years of discussions between the Agency and the agents, is espublished on December 2, 2016 and that

define the requirements for the exercise of LPG distribution and sales activities in the country.

The new regulatory framework was

well received by LPG resellers, since at

least two important grievances of catego-

ry were addressed by the regulator. One of them refers to the figure of the independent, or white flag, dealer and the other

concerns the prohibition of direct sale of

bottled LP gas up to 90 kilos to the consumer by the distributors.

The vertical integration of the sec-

tor was a main battle line drawn between resellers and distribution compa-

Agency Petrobras

tablished by Resolutions 49, 50 and 51, all

inform the who are their reseller partners, if applicable.

The creation of the independent

reseller was considered a major victory for the category, as it gives the segment greater autonomy in view of the fact the

multi-brand model, established by Edict

297/2003, did not work out as expected. With the new rule, the independent re-

seller cannot display a distributor-specific brand name, and is forbidden to use col-

nies during the regulatory framework

ors or signage that is reminiscent of any

was always for the non-vertical in-

or more distributors, a linked LPG resell-

cept ended up being partially met. The

For their part, the linked reseller or a flag

bottled LPG up to 90 kilos to the final

associated with the establishment. With

set up companies with the resellers and

and linked), resellers were given a period

discussion period. The resale demand

flag; but it can acquire products from one

tegration of the sector, and this con-

er and/or an LPG independent reseller.

ANP banned distributors from selling

station must identify the brand which is

consumer; however, it allowed them to

the new classifications (independent

to sell LPG in bulk directly to the con-

of 180 days to inform the ANP if they

sumer. The distributors have a period of 360 days to end their LPG activities or

would remain independent or maintain a connection with a distributor.

Annual Fuel Retail Report 2017

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LEGISLATION

Biodiesel highlighted Embrapa

In 2016, biodiesel producers were

able to celebrate another victory. The federal government responded to the category’s request and modified Law 13.033 of September 24, 2014, which

governs the mandatory addition of

biodiesel to the diesel fuel sold to the end consumer. Law 13.263, published on March 23, 2016, defined the new percentages of the addition of biofuel

to diesel, to be implemented gradu-

ally. The percentage of 8%, or B8, commenced on March 1, 2017. In

2018 and 2019, there will be further

increases to 9% and 10%, respectively. The entry into force of the new

percentages, however, was conditional on completion of tests and tri-

als on engines that validate the use of the mixture. For this, the MME

published Notice 262, on June 20,

tion 30, of June 24, 2016, authorized the specification for BX diesel fuel to

B30. The standard satisfies current

2016, that created a working group

legislation, which allows the defini-

months to validate the use of mix-

sale and use of biodiesel in excess of

not been done prior to the B8 mix –

addition required in specific law. The

to conduct a test program within 12

tion of guidelines for authorizing the

tures up to B10 - something that had

the percentage of biofuel-to-diesel

and up to 36 months for up mixtures

of up to 15%. The Law, however, stipulates that it is the CNPE that has the responsibility to increase, or

not, the percentage of biodiesel fuel

other, Resolution 34 of July 29, 2016, determined that the experimental or

specific use of biodiesel or BX diesel in an amount higher than the per-

with diesel by up to 15%.

centage of the mandatory mixture of

tions relating to biodiesel. Resolu-

of the ANP.

The ANP published two resolu-

80 Annual Fuel Retail Report 2017

biodiesel is subject to prior consent


Security envelope In an attempt to ensure greater speed regarding the procedures for the dispatching of the samples for testing, the ANP changed item 2 of Technical Regulation 1/200, appended to Resolution 9 of March 7, 2007. The item deals with the security envelope specifications for samples sent out for testing. Resolution 17/2016 amended the sole paragraphs of Articles 3 and 4 of Resolution 44/2013, which deals with the obligation of sending FOB and CIF samples. Under the new wording, all involved in the procedure, both FOB and CIF, must sign the sample identification form.

Longer deadline Inmetro published Edict 453 on October 11, 2016, amending paragraph 2 of Art. 2 of Edict 528/2014, which had approved Metrological Technical Regulation regarding 100 ml glass test tubes used for testing anhydrous ethanol content in gasoline. In practice, resellers gained another six months to replace the test tubes. The deadline, which originally expired in December 2016, was extended to June 4, 2017.

Labor rights One of the last acts of Dilma Rousseff as president of the Republic was related to workers’ rights. The former president signed Law 13.257, published on March 8, 2016, which rules on public policies for early childhood in Brazil and extended the period of paternity and maternity leaves. From now on, employees have two days leave to accompany spouses (wives or partners) to doctors’ appointments and supplemental medical tests during a pregnancy and, also, the right to one day a year off to accompany a child of up to six years old to a medical appointment. In relation to the period of paternity and maternity leave, there was no change for resellers, since Law 13.257 only concedes the benefit to companies participating in the Corporate Citizen Program, which offers tax incentives to enterprises that adhere to the real profit tax regimen. That is, the amount continues to be five days for paternity leave and 120 days for maternity leave. Another piece of legislation sanctioned by former president Rousseff was Law 13.287, published on May 11, 2016, which added Art. 394-A to the country’s labor code (CLT), which deals with the protection of pregnant workers or those in the lactation period. The new text establishes that pregnant or breastfeeding employees must be free from working in any activity, operation or unhealthy location for the duration of the pregnancy and lactation periods. The rule also states that a pregnantnursing employee is authorized to carry out her activities in healthy places.

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In search of trends For resellers, 2016 was not an easy

maintained the habit of eating out, it

considered one of the most difficult

lower prices at time of purchase. That

year due to the economic crisis, and was

periods for the industry due to the reduction in fuel consumption. The con-

venience segment was also affected by

the crisis; however, the impact was lower for those who were able to discover

an alternative approach, implementing and adjusting the product mix. Data from the CREST survey carried out in

Brazil by GS&MD GouvĂŞa de Souza consultants in partnership with the

NPD Group show that while, in 2016, the number of convenience store clients

fell about 8% in relation to 2015, the

was observed that they were seeking is, resellers needed to adapt to the demands of their customers, diversifying the offer of products, in order to maintain their sales.

Potential The market trends point to the

convenience store representing one

of the ways the Brazilian reseller businesses, a segment that has a vast

amount of space for growth if com-

pared with the U.S. market where the

average ticket increased due to higher

convenience industry is consolidated,

customers. Meanwhile, the decline of

thousand convenience stores out of a

6.29%) helped give businesses a mea-

stations, according to recent data pub-

Although the consumer is spending

It is a fact that the good perfor-

consumption of products by class A

can diversify. In Brazil, there are 7,366

inflation (the IPCA closed the year at

universe of 41,689 thousand service

sure of sustainability.

lished by Sindicom.

less generally than last year, sales in the

mance of a convenience store de-

3% over 2015, according to the same

income of the population. However,

On the other hand, there was a

a niche business can obtain better re-

food service area remained high, rising

pends largely on its location and the

survey.

resellers who perceive the activity as

change in consumer behavior in 2016.

sults. Thus, those who have invested

With the crisis, a portion of the population began consuming fewer meals

away from home or started to buy ready-made meals. Among those who

in good service, a cozy atmosphere

and a variety of products posted favorable results, which helped offset

the low fuel consumption. Others Annual Fuel Retail Report 2017

83


Combustíveis & Conveniência

CONVENIENCE

Healthy eating remains among the trends in the convenience sector

who bet on healthy, fresh and readymade meals to take home or invested in bakery products also managed to attract clients.

In addition, the management of

a convenience store involves a certain amount of complexity. There are a lot more products to be managed, clean-

ing and hygiene rules to be followed, stock control, inventory and, especially, good staff training. Most resellers

still see the business as sort of a small supermarket, and therefore do not exploit the venture to its fullest, consequently impacting the results.

Despite it being a bit more work,

fewer families and who are living in

apartments with increasingly smaller kitchens.

Another factor is that the food

service area continues to be a trend-

ing market year after year. Accord-

ing to the Sindicom Yearbook-2016, outside-the-home meals represented

it is necessary to take into consider-

17.4% of the revenues linked to its

ness potential. The first advantage is

Foodservice Institute’s data show that

with the modern behavior of con-

food occur outside of the home.

daily routines are more crowded, with

tion of healthy foods and beverages.

ation the list of advantages and busi-

members’ stores in 2015. The Brazil

that a convenience retailer converges

33% of household expenditures for

sumers, who have less time, whose

Another trend is the consump-

84 Annual Fuel Retail Report 2017


It should be noted that both the young members of the Millennial generation

as well as those who have reached maturity are more health-conscious and want to consume quality products.

Proof of this is that sales of wa-

ter, coconut water, fruit juices (both manufactured and natural) and teas

accounted for the 33.1% increase in relation to share of revenues from Sin-

dicom member stores in 2015. Also to

be taken into account is the fact that products like chocolates, candies, cigarettes and chips generate impulse purchases and help expand store sales.

Independent stores For Aghora Conveniência there was a perception that business was stagnant in 2016: that is, there was nether a decline or particularly significant increase in the number of stores (currently 90 throughout the country). This was because, due to the economic crisis, many resellers preferred to wait for the improvement of the country’s economy to resume investing. Of the 30 stores, only two closed down last year. On the other hand, 15 interested parties expressed new interest in the brand at the beginning of 2017, which led to renewed optimism on the part company.

Large distributors The am/pm (Ipiranga), BR (BR Distribuidora) and Select (Raízen) stores, following the example of previous years, used different strategies and marketing activities to boost sales. In the case of Ipiranga, there was consolidation of am/pm Suprimentos, an Ultra group company that is a national distributor of a large portion of the convenience products. Now, its resellers will buy Ipiranga products directly for the stores. Another action of the brand in 2016 was the launch of a line of candies, including cannolis and cookies, under the American confectioner Buddy Valastro brand name, for the menu am/pm Bakery. BR Mania reinforced its advertising for products and promotions in its bakeries, cafes and general dining (especially promotion of combos). In addition, it launched the national “my coffee, My Mania” challenge last year, a competition run from July to September, with the participation of sales promoters from the stores who chose the cold drinks for the summer menu. Raízen’s Select invested in specific initiatives, such as seasonal promotions on commemorative dates. Annual Fuel Retail Report 2017

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Eyes wide open Every day, Fecombustíveis seeks dialogue with the authorities as part of its ceaseless efforts in defense of the legitimate interests regarding the sale of fuels and lubricants. In 2016, it was no different: this work continued apace. The Federation once again took part in meetings in Congress and regulatory bodies, public consultations and hearings, and it was engaged in campaigns, industry programs and a variety of events. The possible impacts of the acquisition of Alesat by Ipiranga, announced on June 12, 2016 by the Ultrapar Group (the holding company that controls Ipiranga), on competition in the fuel sector led to a caution light being turned on for resellers, who fear market concentration in the distribution segment resulting from the transaction. Ale is in fourth position on the distributor ranking, with a small slice of the domestic market share; however, its exit could restrict the negotiating power of the resellers, who could become hostage to the country’s three major distributors. Thus, Fecombustíveis joined as the third interested party in the proceedings opened by the Cade anti-trust regulator, hiring the LCA Consulting

firm to develop a market assessment study to determine the real possibilities of competitive impacts of the operation, both in distribution as well as reselling. The study raised significant competitive concerns, because the exit of Alesat would increase the symmetry between the other large distributors. The characteristics of the distribution market in the country were considered an oligopoly and the consolidation of the Ale purchase operation could offer risk to the competitive environment. Fecombustíveis’ initiative led to a first win for the reselling sector. In Cade’s understanding, “the operation could result in higher fuel prices in distribution and on resale arising from an increase of market power of Ipiranga and the elevation of the possibility of coordinated activities of the companies in the sector.” In the decision, issued in February 2017, which followed the Cade Court’s analysis (responsible for approval, disapproval or adoption of any conditions), the regulator noted that, currently, only four brands are able to compete on a national level, including Ipiranga and Alesat, which would result in reducing the number of competitors in an already concentrated market environment. In 2017, the Fed-

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FECOMBUSTÍVEIS

Claudio Ferreira

R$ 20,000 to R$ 5 million according to Law 9.847/1999 – known as the Pen-

alties Law. In addition, the reseller that has been thus warned could still be object of a restraining order.

Combating irregular agents be-

came a common objective of the category in late 2016 through the Legal

Fuel campaign launched by Sindicom, Paulo Miranda Soares, president of Fecombustíveis, participated in meetings and events in defense of the resellers interests

eration will continue to closely follow the case as it moves through the anti-

trust agency to avoid possible damage to the country’s fuel market and, consequently, to resellers.

Combating irregularities The work of Fecombustíveis also

was noteworthy in the fight against

fraud and irregularities at the fuel pumps. This topic always has been controversial for resellers, who have been

marked as the villain by society because

of some entrepreneurs who act unfairly in the market to achieve commercial

advantages but who make up a minority. Currently, this is because there is no distinction between the application

with the adhesion of Fecombustíveis. As a result of this work, the actions aim

to combat the fraudulent fuel pumps by changing state legislation to pun-

ish the malicious agents more rigor-

ously. The state of Paraná, for example, changed Law of 17.617 of July 9, 2013. The new legislation – Law 18.950 of

December 22, 2016 – established the cancellation of state registration of establishments in the event electronic

devices have been installed. The measure represents a victory for fuel resell-

ers in Paraná who, next to those in São

Paulo, are more likely to encounter the problem. São Paulo also is reviewing the legislation, although so far it has not been approved.

Parallel to the regulatory issue,

of penalties in the case of a mechanical

other measures in the area have been

for example, and cases of deliberate

trols to combat fraudsters. The main

defect or problems with maintenance, adulteration of fuel pumps, such as

the installation of electronic devices

resulting in damages to the consumer. And the penalty is heavy, with fines of 88 Annual Fuel Retail Report 2017

adopted to increase metrology conone concerns the new standard set by

Inmetro for fuel pumps, which must be replaced by more sophisticated and

inviolable models. Fecombustíveis ac-


tively participated in this process, contribut-

ing to establish a more equitable and balanced transition for resellers (see the chapter

on Legislation) with a substantially longer implementation timetable.

In addition, the entity adopted institu-

tional initiatives with the clear aim of show-

ing authorities the high level of losses this

would cause the honest reseller. Among the

actions, of particular note was the workshop organized at the end of last year in Rio de Janeiro in partnership with Inmetro. At this

event, Fecombustíveis emphasized the im-

portance to the market of legislation that, in fact, punishes criminal practices that stain the image of the fuel sector.

Regarding fuel quality, Fecombustíveis

also maintained a firm stance in order to preserve recent achievements of the

industry, such as the mandatory FOB

sample from distributors. The measure, determined by Resolution 44/2013, was

not well-received by the distribution com-

panies; at the time, they joined a lawsuit

against the measure contesting the ANP, alleging it would make collecting samples

a slower process. To contribute to the preservation of the resolution and foster optimization of the base sample collec-

tion process by the distributors, Fecombustíveis supported the ANP’s develop-

ment of special fuel sampling equipment. The automated system aims to minimize the time needed for collecting samples and to contribute to cost reductions, the

main arguments of the distribution companies regarding the procedure.

Environmental control Another subject of much relevance

for resellers is the Fee for Environmental

Monitoring and Control (TCFA) charged by the federal regulator Ibama. After the publication of the Interministerial Edict 812 on September 29, 2015, which adjusted

the TCFA amount, Fecombustíveis began working with the government to review the classification of the degree of risk of fuel sta-

tions. The regulator met with the Minister of the Environment, Jose Sarney Filho, to re-

quest a review of Law 10.165 of December 27, 2005, establishing the fee. The request is for the service stations with a different ac-

tivity classification included in the mediumsized category, where the fee charged is between R$ 3.6 million - R$ 12 million.

Although the volumes handled in a ser-

vice station can be high, most companies are family-owned and their structures differ – a

lot – depending on the size of establishments in this category, which accrue very large rev-

enues. It is worth remembering that nonpayment of the TCFA implies penalties and

fines of up to 40% of the value of the fee and monetary correction, in addition to the risk of

being tried in court and having the company placed on the Cadin blacklist. Fecombustíveis is working with Ibama to find a viable solu-

tion to make the collection process less potentially damaging to service stations.

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FECOMBUSTÍVEIS

Claudio F

erreira

Resale’s numbers The Fuel Resellers Annual Report - 2016 was presented to the media and industry agents on June 23 in the CNC Auditorium in Rio de Janeiro (RJ). The publication, developed by Fecombustíveis, has become a reference source for research for everyone in the industry and has been improving every year.

Regional events

Divulgação Sindipetro-PB

For the first time in Campina Grande The 11th Northeastern Brazil Fuel Resellers Meeting attracted some 400 participants on June 9-10 in Campina Grande (PB), to discuss important issues such as the environment and the anti-trust law. Another subject of interest addressed in the resale event was through a panel discussion about the ban on self service systems, with the participation of the president of the Fecombustíveis, Paulo Miranda Soares, as mediator.

Omar Aristides Hamad Filho, president of Sindipetro-PB opens the 11th Northeastern Brazil Fuel Resellers Meeting

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Divulgação

Double dose in Belém The Pará capital hosted the 13th Meeting of North Region Petroleum Product and Convenience Store Retailers, the fourth time it has hosted the event. Held August 4-5, it was heldin an atmosphere of celebration for the 40th anniversary of Sindicombustíveis-PA and the 400th anniversary of the city of Belém. During the meeting, which attracted about 1,000 persons, the difficulties facing the resale industry in another year of economic crisis were discussed. “For many, the moment generates a lot of pessimism, but our understanding is in the opposite direction; it is time to focus all our efforts on service excellence and quality,” said Ovid Gasparetto, president of Sindicombustíveis-PA.

Ovid Gasparetto, president of Sindicombustíveis-PA, opened the 13th North Region Resellers Meeting

Ismael Viezzer

Gaining space Expo Conveniences was held on September17 in Caxias do Sul (RS). In its fifth edition, the event showcased news about the convenience sector in the domestic market, attracting 28 exhibitors and visitors on an 850-squaremeter site. This was very different from the first edition of the Expo event, which featured only five exhibitors and 250 participants. “It is important to highlight the degree of maturity and growth of the event, which has become a point of reference in this niche market,” said Luiz Henrique Martiningui, president of Sindipetro Serra Gaúcha in the opening ceremony.

Luiz Henrique Martiningui, president of Serra Gaúcha Sindipetro and host of Expo Conveniências

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FECOMBUSTÍVEIS

In Cuiaba, once again

Paulo Cardoso

The 5th Center-West/Brazil Fuel Resellers Meeting was held in Cuiabá (MT), the city’s third time as host, on October 25-26. With approximately of 600 participants, the event featured panels on management excellence, environment, case histories about overcoming obstacles and industry supervision. The encounter also was the scene of harsh criticism of the national press, which has blamed service stations for not passing along fuel price reductions from Petrobras’ refineries at the end of 2016, as well as more regulations and red tape that has been paralyzing the sector. But there also was optimism voiced by the participating public. “I’ve got 50 years of experience and I don’t know how to do anything else. I hope my colleagues don’t get discouraged. Let’s make an effort, stop complaining and have hope,” said Aldo Locatelli, president of Sindipetróleo. Aldo Locatelli, president of Sindipetróleo, who transmitted a message of optimism to the resellers at the 5th Center-West/Brazil Fuel Resellers Meeting

Recap

Reselling goes to Campinas In 2016, the 5th Meeting of the Southeastern Fuel Resellers was held in Campinas (SP), on November 23-24. The event was focused on talks and discussions regarding economics, politics, anti-trust law, reverse logistics and the lubricants market. The meeting attracted more than 900 participants, between public authorities, trade union leaders, dealers and executives in the industry, including ANP director Aurélio Amaral, and Fecombustíveis Vice-President for Finance and Honorary President, Gil Siuffo. Flávio Martini de Souza Campos, president of Recap, and Laércio dos Santos Kalauskas, president of Sindilub, hosted the Campinas resellers meeting

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Claudio Ferreira

Paulo Miranda Soares hands Magda Chambriard a placard in her honor

Year-end fraternization Fecombustíveis’ year-end festivity and dinner, held on December 9 in Rio de Janeiro (RJ), was held in a climate of unity, as in previous years, between the presidents of the associated organizations, political authorities and industry executives. The Federation took the opportunity to pay tribute to Magda Chambriard for her efforts as the director-general of the ANP, a position she left in November.

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SUPPLY CHAIN

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ACRONYMS

Anfavea – National Association of Automotive Vehicle Manufacturers ANP – National Petroleum, Natural Gas and Biofuels Agency Cade – Administrative Council for Economic Defense Cadin – Federal Public Sector Registry of Unpaid Credits Cetesb – State of São Paulo Environmental Company Cide – Contribution Tax for Intervention in the Economic Domain CIF – Cost, Insurance and Freight CLT – Consolidated Labor Laws CNC – National Goods, Services and Tourism Confederation CNPE – National Energy Research Council Comgás – São Paulo Gas Company EIA – U.S. Energy Information Administration EUA – United States of America Fecomércio-DF – National Federation of Commerce – Federal District FOB – Free on Board GDP –Gross Domestic Product Ibama – Brazilian Institute for the Environment and Renewable Natural Resources IBGE – Brazilian Geography and Statistical Institute IBP – Brazilian Petroleum, Gas and Biofuels Institute ICMS – Tax on Circulation of Goods and Services ICMS-ST – Tax on Circulation of Goods and Services in Tax Subsitution Inmetro – National Metrology, Quality and Technology Institute IPE – Individual Protection Equipment IPVA – Automotive Vehicle Tax LPG – Liquefied Petroleum Gas MME – Ministry of Mines and Energy MTE – Ministry of Labor and Employment OBD – On-Board Diagnostics Opec – Organization of the Petroleum Exporting Countries Proconve – Automobile Air Pollution Program SCR – Selective Catalytic Reduction Sindicom – National Fuels and Lubricants Distributors Union Sindilub – Interstate Union of Lubricant Resellers

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LIST OF TABLES

CHAPTER 1 • UNITED STATES 1.1 Sales of gasoline and diesel 1.2 Biodiesel 1.3 Ethanol 1.4 Composition of gasoline retail prices 1.5 Composition of diesel retail prices CHAPTER 2 • SCENARIOS 2.1 Market expectations - 2017 2.2 Vehicle consumption matrix 2.3 Licensing of light vehicles 2.4 Sales 2.5 Tax collections 2.6 Price of natural gas 2.7 Natural gas balance 2.8 Oil balance 2.9 Price of the Brent oil in the spot market
 2.10 Market agents 2.11 Fuel retail stations per brand 2.12 Infractions and inspection actions 2.13 Fuel retail infractions 2.14 Infractions in the distribution of liquid fuels CHAPTER 3 • GASOLINE 3.1 Retail sales volume 3.2 Tax revenues 3.3 Sales 3.4 Sales by type of station 3.5 ICMS tax rate 3.6 Mismatch of prices between Brazilian and U.S. gasoline 3.7 Gasoline A- imports 3.8 Gasoline A supply by Petrobras 3.9 Price breakdown 3.10 Average upstream and downstream prices 3.11 Average retail margin 3.12 Non-compliance rate 3.13 Non-compliance per brand 3.14 Non-compliance specification 3.15 Distributors market share CHAPTER 4 • ETHANOL 4.1 Retail sales volume 4.2 Sales 4.3 Tax revenues 4.4 Sales by type of service station 4.5 ICMS tax rates 4.6 Distributors’ market share 4.7 Price breakdown 4.8 Average retail margin 4.9 Downstream average prices 4.10 Average price of anhydrous ethanol at the mill 4.11 Average price of hydrated ethanol at the mill 4.12 Ethanol fuel production 4.13 Ethanol fuel production by Region 4.14 Price parity between gasoline ad ethanol 4.15 Non-compliance rate 4.16 Non-compliance specification 4.17 Non-compliance per brand 4.18 External market CHAPTER 5 • DIESEL 5.1 Sales 5.2 S10 sales by retailer 96 Annual Fuel Retail Report 2017


5.3 Breakdown of sales by type of diesel 5.4 Sales breakdown by segment 5.5 Sales by type of service station 5.6 Tax revenues 5.7 ICMS tax rates 5.8 Mismatch between Brazilian and U.S. diesel prices 5.9 Imports 5.10 Price breakdown 5.11 Average retail margin 5.12 Average upstream and downstream prices 5.13 Non-compliance rate 5.14 Non-compliance by brand 5.15 Non-compliance specification 5.16 Distributors’ market share CHAPTER 6 • BIODIESEL 6.1 Production x installed capacity 6.2 B100 regional information 6.3 B100 auctions 6.4 Raw materials used in B100 production 6.5 Ranking of infractions in biodiesel production biodiesel 6.6 Producer market share CHAPTER 7 • CNG 7.1 Natural gas sales by state concessionaires 7.2 Conversions 7.3 ICMS tax rates 7.4 CNG savings 7.5 Average downstream prices 7.6 Average retailer margin 7.7 CNG market share 7.8 Gas concessionaires’ market share CHAPTER 8 • LPG 8.1 Consumption 8.2 Sales 8.3 Tax revenues 8.4 Price breakdown 8.5 Average upstream and downstream prices 8.6 Average downstream margin 8.7 Product seizures 8.8 Retail infractions ranking 8.9 Distribution infractions ranking 8.10 Distributors market share 8.11 ICMS rates CHAPTER 9 • LUBRICANTS 9.1 Sale of finished lubricating oils 9.2 Sector agents 9.3 Market share of the Producers/Importers 9.4 Market share of the re-refiners 9.5 Market share of the Collectors 9.6 Collection of used or contaminated product

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GLOSSARY

ANHYDROUS ETHANOL: Fuel alcohol (ethanol) blended with gasoline A at the distributors for the production of gasoline C, which is sold at gas stations.

core sample should be collected in the presence of representatives of the interested parties, identified and packaged in accordance with the law or regulation that proposes its collection.

ANP: National Agency of Petroleum, Natural Gas and Biofuels. It was created by Law number 9478/1997. This special agency is responsible for regulating, contracting and supervising the economic activities of the oil, natural gas and biofuel industry.

DISTRIBUTOR: Supply chain agent that works as a middle person between the producer and the retailer. Only one allowed to buy directly from refineries and power plants. It is responsible for the blend of anhydrous ethanol with gasoline A and biodiesel with diesel. Distributors are prohibited from operating gas stations directly, except for school gas stations. It can provide fuel directly to large customers. Can supply fuel directly to large consumers.

ARLA-32: Automotive liquid reducer agent. It is also known as AdBlue or AUS 32. It is a liquid that is not toxic, not explosive and not hazardous to the environment, produced from a technical urea aqueous solution (the one for farming purposes cannot be used). In heavy vehicles manufactured from 2012 onwards, which use S10, there is an additional tank for the product, necessary to reduce emissions of NOx. BIODIESEL: Biofuel produced from byproducts of vegetable oils or waste, according to ANP’s specification. Its name often starts with the letter B, followed by a number indicating the percentage used. Example: B2, addition of 2% biodiesel; B100 (pure biodiesel). BRENT TYPE BARREL: It refers to the oil produced in the North Sea (Europe) and traded on the Intercontinental Exchange Futures in London. CIDE: Contribution for Intervention in the Economic Domain. Federal tax provided for in the constitution, instituted by Law 10336, of December 19, 2001. It is a tax on the import and sale of petroleum and its byproducts, natural gas and its byproducts. COMMODITY: A product that is bought and sold. Term used to describe products that are traded on international stock exchanges - usually raw materials such as minerals and agricultural products. Although they originate from different producers, their characteristics are uniform. CORE SAMPLE: Representative sample of a product that has the same characteristics of the product from which it was collected. It is usually collected to serve as material evidence in administrative or judicial proceedings and it can be submitted for analysis to dispel doubts as to its nature and origin. The 98 Annual Fuel Retail Report 2017

DOWNSTREAM: Distribution and retail chain. ENGINE EURO 5: Since January 2012, all diesel vehicles manufactured in Brazil rely on the so-called Euro 5 engine. Light vehicles (pick-ups, vans and some types of trucks and buses) are replaced with engines with an EGR system. Most heavy vehicles such as trucks and buses will use SCR, which requires filling a specific tank with Arla-32. ENVIRONMENTAL LICENSING: The formal authorization by the competent environmental bodies to all enterprises and activities considered effectively or potentially polluting and that can cause environmental degradation. FLAG STATION: A station that is affiliated with a distributor and which has declared such affiliation to the ANP. It can purchase fuel only from the distributor whose brand it bears. FLEX FUEL: Vehicles that use either ethanol or gasoline. GASOLINE A: Gasoline without the addition of ethanol, which leaves the refinery GASOLINE C: Gasoline after the addition of ethanol at the distributor. HYBRID VEHICLE: Vehicle that has two or more energy sources to drive it, for example, an internal combustion engine and an electric motor. This contributes to the reduction in fuel consumption and emissions.


HYDRATED ETHANOL: Fuel alcohol (ethanol) sold to consumers at gas stations MARKET SHARE: Participation in the market NOx: Hydrogen oxide is a gas emitted by vehicles, which causes eye irritation, affects the respiratory system and contributes to the formation of the pollution haze in large cities. P-13: The 13-kg LPG canister - the one most often used in Brazilian homes. PPM: Parts per million. Acronym commonly used to indicate the amount of sulfur present in diesel. PROCONVE: The Program for the Control of Air Pollution from Motor Vehicles was created in 1986 by the National Environmental Council. Its objective is to reduce emissions of pollutants from new vehicles, thanks to the implementation of more modern engines and fuels. REVERSE LOGISTICS: Set of actions, procedures and means intended to enable the collection and return of solid waste to the business sector, in order for it to reuse it in its cycle or other production cycles, or in order for it to dispose of such waste in an environmentally sound manner (Law 12305/2010). SUPPLY POINT: Installation provided with equipment and systems for fuel storage, with an appropriate volume recorder for the filling of mobile equipment, land motor vehicles, aircraft, ships or locomotives. Intended to be used by distributors to supply large consumers. The excess fuel must not be sold to third parties. RETESTING: Periodic process to assess the state of the LPG containers, to determine whether they may continue to operate, if they can return to the market or if they must be scrapped, in accordance with ABNT regulations. RE-REFINING: Industrial process to which used or contaminated lubricating oil is subject, in order for it to have the same characteristics as the basic lubricating oil so that it can be marketed.

RESELLER: Legal entity authorized to work as a dealer/retailer of automotive fuel. It may purchase products only from a distributor, being prohibited from purchasing directly from the plant or refinery. Only agent to sell fuels in the retail segment to consumers. SCR: Selective Catalytic Reduction is a technological post-treatment of the gases emitted by diesel powered vehicles, which together with Arla 32, reduces the emission of nitrogen oxides (NOx) and other atmospheric polluting gases. SOx: Sulfur oxide is a gas that results from the burning of sulfur present in fuels. It reduces the visibility and causes acid rain, which causes the corrosion of buildings and destruction of the vegetation. S10: Diesel with very low sulfur content (10 parts per million) sold in Brazil since January 1, 2013. S50: Diesel with 50 parts per million of sulfur, which was sold in the country up until December 2012. It is no longer marketed in Brazil. TRR: Carrier-Dealer-Retailer. Legal entity authorized to transport and resell fuels, except for automotive gasoline, liquefied petroleum gas, aviation fuel and fuel alcohol. It may purchase products only from a distributor, and it is prohibited from purchasing directly from the plant or refinery. VERTICALIZATION: In the downstream sector, vertical integration is characterized by the operation of distribution companies (that sell fuel in the wholesale market) and in the commercial retail operation. The current Brazilian legislation determines the separation of the fuel retail and wholesale activities, and the distributors are prohibited from working in the operation of service stations. WHITE FLAG STATION OR UNBRANDED: It is also called an independent gas station, because it is not affiliated with any distributor. It can not display the brand trade mark of the companies, but it is free to buy from any of them. It must inform the origin of the product at the pump Annual Fuel Retail Report 2017

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RESEARCH SOURCES AND ACKNOWLEDGMENTS

Adriano Pires (Centro Brasileiro de Infraestutura – CBIE) Agência Nacional de Transportes Terrestres (ANTT) Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP) André Gevaerd (Rede Vip 24 Horas) Antonio Megale (Anfavea) Associação Brasileira das Empresas Distribuidoras de Gás Canalizado (Abegás) Associação Nacional dos Fabricantes de Veículos Automotores (Anfavea) Banco Central do Brasil Bernardo Souto (Fecombustíveis) Centro de Estudos Avançados em Economia Aplicada/ Escola Superior de Agricultura Luiz de Queiroz Cesar Guimarães (Sindicom) Companhia Paranaense de Gás (Compagás) Conselho Nacional de Política Fazendária Deborah Amaral dos Anjos (Fecombustíveis) Edmilson Moutinho dos Santos (USP) Elcio Farah (Afeevas) Fabio Meneghin (Agroconsult) Felipe Klein Goidanich (Fecombustíveis) Francisco pessoa (LCA Consultores) Frederico Amorim (Cardinalis Consultoria) Giancarlo Pasa (Fecombustíveis) Gilberto Leal (SAE Brasil) Henry Joseph Jr (Anfavea) Instituto Brasileiro de Petróleo, Gás e Biocombustíveis (IBP) Instituto Jogue Limpo José Luiz Rocha (Abragás) Klaiston Soares D’Miranda (Fecombustíveis) Laboratório de Emissões da Companhia Ambiental do Estado de São Paulo (Cetesb) Laercio Kalauskas (Sindilub) Marcelo Mendonça (Abegás) Ministério de Minas e Energia (MME) National Association Of Convenience Stores (NACS) Paulo Tonolli (Fecombustíveis) Pietro Gasparetto Planner Corretora Ricardo Guimarães (Aghora Conveniência) Ricardo Hashimoto (Fecombustíveis) Ricardo Vallejos (Comgás) Sérgio Bandeira de Mello (Sindigás) Sindicato Nacional das Empresas Distribuidoras de Combustíveis e de Lubrificantes (Sindicom) União da Indústria da Cana-de-Açúcar (Unica) U.S Energy Information Administration Vanderlei Rodrigues Ferreira (Cetesb) Vicente Pimenta (SAE Brasil) Walter Vitto (Tendências Consultoria Integrada) 100 Annual Fuel Retail Report 2017

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