Brazilian Government Intensifies Pressure on States Over Piped Gas Tariffs

Federal Government Demands Tariff Containment

The Brazilian federal government has intensified its efforts to pressure state-level piped gas distributors to contain tariff increases. The Ministry of Mines and Energy (MME) has dispatched official letters to various entities, including the National Agency for Petroleum, Natural Gas and Biofuels (ANP), the Administrative Council for Economic Defense (Cade), legislative assemblies, state regulatory agencies, sectoral secretariats, and state governments. The MME expressed significant concern regarding observed tariff increases, advocating for stronger economic regulation and enhanced competition within the sector.

Aligning with Market Reform Objectives

According to the federal government, current state regulatory practices are often misaligned with federal guidelines, thereby undermining tariff affordability, industrial competitiveness, and the anticipated economic benefits for consumers and productive sectors. This renewed pressure aligns with the objectives of Brazil's New Gas Law (Law nº 14.134/2021), enacted in April 2021, which established a new legal framework to restructure the natural gas sector. The law aims to improve economic competitiveness, encourage new market participants, promote decentralization, foster investment, and ultimately reduce costs for consumers.

Further reinforcing this agenda is the Gas for Employment Program, established by the National Energy Policy Council (CNPE) in 2023. This program seeks to expand domestic and imported supply, reduce systemic costs, and support reindustrialization, with expected positive impacts on employment, income, and tax revenue across the states.

Concerns Over State-Level Practices

Despite these federal initiatives, the MME notes that tariff reviews currently underway or already approved by state concessionaires indicate significant increases in the margins of local piped gas services. This trend is observed even in scenarios of falling demand. The Ministry points to several issues in some concessions, including:

• Outdated tariff structures.
• Investments that do not correspond to projected demand.
• Undue restrictions on the migration of consumers to the free market, which contradicts established state regulatory rules.

Recent examples of states with proposed tariff increases include Alagoas, Amazonas, Bahia, Espírito Santo, and Pernambuco. The federal government's stance emphasizes that public policies should primarily focus on areas under federal jurisdiction to sustainably reduce natural gas prices, including expanding competition in molecule supply, diversifying sources, and reducing transportation bottlenecks.

Impact on Industry and Consumers

The high cost of natural gas significantly impacts various industries. For instance, the chemical industry, which is the largest industrial consumer of gas in Brazil, can see gas account for up to 80% of its production costs, potentially making production unfeasible at current prices. The federal government's push aims to alleviate such burdens, fostering a more competitive and affordable energy landscape for both businesses and end consumers. While the federal government seeks to reduce prices nationally, some regions have already seen positive developments. For example, consumers in Santa Catarina are set to experience an average reduction of 12% in natural gas tariffs starting January 1, 2026, contributing to a cumulative reduction of 38% since 2023. This reduction in Santa Catarina has benefited industrial, residential, commercial, and automotive sectors, driven by factors such as lower Brent crude oil prices and favorable exchange rates.