Privatizing Local Refining Monopolies
(with Pietro M. B. Figueiredo)
Abstract
In 2020, Petrobras held more than 98% of Brazil’s total refining capacity. One of the reforms promoting competition in this market involved Petrobras’ divestment. We assess the impacts of this policy by focusing on the privatization of two refining plants: Refinaria Landulpho Alves (2021) and Refinaria Isaac Sabb´a (2022). Using difference-in-differences research designs, our analysis reveals that consumers in the states of Bahia and Amazonas, who were most directly affected by the privatization, experienced significant increases in end-user fuel prices compared to the rest of the country. On average, gasoline prices were overpriced by 0.29 BRL per liter, diesel prices by 0.14 BRL per liter, and ethanol prices by 0.21 BRL per liter. Furthermore, by estimating demand curves and conducting back-of-the-envelope calculations, we quantify the welfare impact of privatization sales. From January 2021 to October 2023, consumers in Amazonas and Bahia experienced a welfare loss of 2.6 billion BRL. These outcomes are attributed to the initial positioning of refineries as local monopolies within an integrated national system, subsequently privatized as if they were competitive firms.
Keywords: Privatization, refining market, welfare, event study, fuel prices.
JEL Codes: R40, L12, L33.