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EXCLUSIVE-Brazil studies subsidizing domestic fuel with oil auction proceeds: source

By Rodrigo Viga Gaier

RIO DE JANEIRO, Apr 14 (Reuters) – The Brazilian government is considering using part of the proceeds from an upcoming oil auction to create a fund to protect domestic consumers from changes in fuel prices, it told Reuters a source with direct knowledge of the subject.

The proceeds would come from an auction scheduled for November of the Atapu and Sepia deepwater oil fields off Brazil’s southeastern coast, the source said Monday, requesting anonymity because the discussions are private.

While it is not yet known how much money the auction will raise, the government believes it could generate between 20 billion and 30 billion reais (3.5 billion to 5.23 billion dollars), the source said.

Brazil’s Mines and Energy Ministry told Reuters it was unaware of the proposal. Petrobras did not immediately comment on the matter.

Currently, state oil company Petrobras, formally known as Petroleo Brasileiro SA, has a virtual monopoly on refining and is by far the most important fuel supplier in the country.

According to company policy, Petrobras sells fuel in the country at prices that are in line with international values, although the company has recognized that international and domestic prices may diverge in the short term.

That policy is at the center of the current confusion at the company. On Monday, Roberto Castello Branco was formally removed from his post as chief executive after a series of fuel price hikes earlier in the year angered President Jair Bolsonaro.

Since then, Brazilian authorities have floated the idea of ​​creating a fund to protect consumers from volatility in fuel prices. The company would refrain from raising fuel prices in certain situations and would then be compensated, authorities said.

Although the possible creation of such a fund was known, the fact that it could be financed with the proceeds of the Sepia and Atapu auction was not known.

The full size of the potential fund has yet to be determined, the source said.

The government tried to auction the rights to Atapu and Sepia in 2019 as part of a larger supply of oil fields, but complex legal issues surrounding the sale depressed demand. The government last week published a new set of rules governing the sale of Atapu and Sepia.

(1 dollar = 5.7318 reais)

(Reporting by Rodrigo Viga Gaier; Written by Gram Slattery; Edited in Spanish by Ricardo Figueroa)

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