May 25, 2018 / 2:23 AM / a month ago

Brazil truckers suspend strike, govt to subsidize diesel prices

BRASILIA (Reuters) - Brazil’s government struck a deal with truck drivers on Thursday to suspend a four-day protest that crippled swathes of the Latin America’s largest economy, promising changes to diesel pricing that could leave it footing a 5 billion reais ($1.37 billion) bill this year.

Truckers block the BR-040 highway during a protest against high diesel fuel prices in Duque de Caxias in Rio de Janeiro, Brazil May 24, 2018. REUTERS/Pilar Olivares

Truckers agreed to immediately suspend the strike for 15 days, government ministers told reporters, appearing alongside representatives of truckers’ groups.

“We need all of you truckers to get back to work. Brazil needs you,” said Eliseu Padilha, President Michel Temer’s chief of staff, while announcing the deal at the presidential palace in Brasilia.

Urgency to broker a solution mounted as lack of deliveries led to perishable items disappearing from store shelves, fuel shortages threatening airports and public transport, and the country’s automakers association Anfavea announcing that all vehicle production had been halted for Friday.

The accord could leave the government with a bill of up to 5 billion reais a year to compensate state-led oil company Petroleo Brasileiro SA for any losses under a scheme to stabilize prices, according to government ministers.

Under the deal, a 10-percent price cut for diesel announced by Petrobras on Wednesday will be extended to 30 days, with the government compensating the company for costs beyond the originally announced 15-day period.

The price will then be re-evaluated every 30 days, replacing the policy of daily price changes, Finance Minister Eduardo Guardia said at the news conference.

Petrobras will be compensated by Brazil’s treasury when the set price for diesel falls below the refinery price, he said, estimating a cost of 700 million reais a month until the end of the year.

Truckers try to stop another truck driver who doesn't want to protest against high diesel fuel prices in Duque de Caxias in Rio de Janeiro, Brazil May 24, 2018. REUTERS/Pilar Olivares

Petrobras shares plunged 14 percent earlier in the day after the firm initially slashed diesel prices, raising investor concerns of a return to government interference in the company that saw it run up huge losses and debts under ex-President Dilma Rousseff.

Petrobras said in a statement that the accord was “highly positive and an unquestionable gain for the company.”

The company said the reimbursement provided by the government would “fully preserve” the company’s pricing policy.

RETURN TO NORMAL

As the strike lifts, the country will not return to normal immediately. Truckers group Abcam said prior to the accord that it would take up to 12 days to normalize cargo deliveries in Brazil once demonstrations end.

Abcam, a major force behind the strike, did not sign onto the government accord, differing from many other truckers’ groups.

Slideshow (8 Images)

Changes proposed in the accord, which also includes tax cuts on diesel, will still require congressional approval. Lawmakers are expected to take up the measures next week.

Participation in the demonstrations had swollen to around a million truck drivers as trucking companies joined the movement kicked off by independent truck owners, according to Abcam. The group said there were about 330 blockades in 23 of 26 Brazilian states.

The toll also mounted in industries from automaking and meat processing to aviation and agribusiness as the protests froze deliveries of fuel, feed and other essential inputs, threatening economic activity and exports of soft commodities.

Poultry and pork processors association ABPA said 120 plants had halted production for lack of feed and storage space, up from 78 previously.

At Paranaguá port, Brazil’s second-largest grain export hub, the protests impeded 1,000 trucks from delivering goods over two days, Brazil’s largest cooperative Coamo Agroindustrial said on Thursday.

Brazil’s top coffee exporter Cooxupé on Thursday warned foreign clients about possible shipping delays due to the truckers’ protests.

Brazil’s weak recovery from the deepest recession in decades could have been damaged if protests had lasted weeks, according to a senior member of the government’s economic team on condition of anonymity.

Prior to the accord, automakers association Anfavea announced plans for all car production to halt starting Friday, with the sector accounting for roughly 25 percent of Brazil’s industrial output alone potentially dealing a major blow to the economy.

($1 = 3.6491 reais)

Reporting by Lisandra Paraguassu and Mateus Maia in Brasilia; Additional reporting by Leonardo Goy and Marcela Ayres in Brasilia; Ana Mano, Brad Brooks, Marcelo Teixeira, Alberto Alerigi and Flavia Bohone in Sao Paulo; Sybille de La Hamaide in Paris; Writing by Jake Spring; Editing by Brad Haynes, David Gregorio and Lisa Shumaker

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