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Legal Update

Brazil: CADE Considers Urgent Extraordinary Measures Against Fuel Supply Shortage

30 May 2018
Tauil & Chequer Legal Update

On Tuesday, May 29, 2018, the Tribunal of the Administrative Council of Economic Defense ("CADE") held an Extraordinary Session with the objective of discussing actions and initiatives to combat the supply crisis in the fuel sector.

The first initiative presented by CADE concerns the preparation of a study aimed at contributing to the debate on the fuel sector in Brazil. Entitled Rethinking the Fuel Sector: Pro-Competitive Measures, the publication was organized by the CADE’s Department of Economic Studies (DEE), in collaboration with CADE’s Superintendent-General ("SG").

The study presented nine proposals, which are grouped into three thematic topics involving, respectively, regulatory issues (five measures), tax structure (two measures) and other general institutional changes (two measures), as follows:

  1. Allow ethanol producers to sell directly to the fuel stations 
  2. Rethink the prohibition of verticalization of the fuel retail sector 
  3. Terminate the prohibition of fuel importation by the distributor 
  4. Provide information to consumers on the name of the fuel reseller, how many stations the reseller has and to which other brands the reseller is associated
  5. Improve the availability of information on the commercialization of fuels 
  6. Rethink the tax substitution of ICMS 
  7. Rethink the taxation of fuel 
  8. Allow self-service stations 
  9. Rethink the rules on the competitive use of urban space

The full content of the study is available in this link.

The second initiative highlighted by CADE’s President concerns the establishment of two preparatory procedures, which were launched due to the receipt of information and documents that suggest the existence of possible coordinated activities between companies and transport unions, resulting in the worsening of both the fuel distribution crisis and of the effects of the truck drivers’ strike in the country.

According to the CADE’s President, the following legal entities are being investigated:

  1. ANTC (National Association of Freight Carriers);
  2. CNTA (National Confederation of Independent Carriers); 
  3. CNT (National Transport Confederation); 
  4. Fetrabens (Federation of Independent Freight Carriers in the State of São Paulo); 
  5. Unicam (National Truck Drivers Union); 
  6. Sindicam-DF (Union of Independent Freight Carriers of the Federal District);
  7. Sinaceg (Union of Freight Carriers); 
  8. Fecone (Interstate Federation of Independent Freight Carriers in the Northeast Region);
  9. Fetramig (Federation of Independent Freight Carriers in the State of Minas Gerais);
  10. Fetac-ES (Federation of Independent Freight Carriers in the State of Espírito Santo); 
  11. Union of freight and logistics companies in the State of Rio Grande do Sul; 
  12. Abcam (Brazilian Association of Truck Drivers); 
  13. Fetcesp (Federation of Freight Transport Companies of the State of São Paulo; and 
  14. Sinditac-GO (Union of Independent Freight Carriers of Goiás).

The following individuals are also being investigated:

  1. José da Fonseca Lopes (Abcam);
  2. Wallace Landim (Independent Driver of the Midwest Region);
  3. José Araújo (Unicam); 
  4. Vantuir José Rodrigues (Sinditac-GO); 
  5. Edmar Rosa (Sindcam-DF);
  6. Jaime Ferreira dos Santos (Sinceg); e 
  7. Diumar Bueno (CNTA). 

Consequently, the SG will investigate whether the truck drivers' strike was induced by a concerted undertaking between the unions and companies aiming at worsening the strike’s effects. 

Regarding possible anticompetitive behavior resulting from the current supply crisis in Brazil, CADE’s President announced the receipt of a statement  presented by the National Federation of Fuels and Lubricants ("Fecombustíveis") aimed at raising awareness among its members in order to avoid the imposiing of abusive resale prices.

According to CADE, all protests  provided by Fecombustíveis so far do not constitute an economic infraction of uniform or concerted actions, and CADE signaled Fecombustíveis’s initiative as being positive.

Finally, the third initiative presented by CADE’s President concerned the approval of the request submitted by the distributors Raízen Combustíveis, Petrobras Distribuidora and Ipiranga Produtos de Petróleo, related to a so-called Supply Crisis Protocol.

Such Protocol proposes mutual logistical cooperation between the distributors to optimize the storage, transportation and distribution of fuels, with the purpose of regularizing the fuel supply after the truck drivers’ strike has ended. In this way, the Protocol foresees that distributors may adopt, among others, the following measures:

  1. Establish integrated logistics operational centers, according to the location of their distribution bases and fleet, the stock of fuel products, the consumer centers, as well as according to the demand of the authorities, public and collective service providers, and of society in general;

  2. Order the priority of supply, considering that public services essential to social welfare, health and safety of the population will have priority over any other demands of supply;

  3. When implementing the Protocol, the criteria of equality and non-discrimination of acquirers will be observed;

  4. Divide equally the variable and extraordinary costs required to implement the protocol, which will be fully borne by the companies.

According to CADE’s President, the measures will last for a maximum of 15 days, which can be reduced if the situation is normalized before the estimated time. In addition, during the cooperation, companies should continue acting independently, and are not allowed to share sensitive information (in this sense, only operational information can be shared among these companies).

Finally, CADE’s President pointed out that the distributors are required to submit to CADE all documents used to justify and adopt the measures mentioned above, in order to allow the agency’s inspection during this period.

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