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Cosan, Shell Plan Sugar, Ethanol Venture in Brazil

BLOOMBERG

Feb. 1 (Bloomberg) — Cosan SA Industria & Comercio, the world’s largest sugar-cane processor, and Royal Dutch Shell Plc said they plan to combine ethanol, sugar and distribution assets in Brazil.

Cosan will contribute units with the capacity to crush 60 million metric tons of sugar cane a year, plants to produce power from cane waste and control of an ethanol-trading unit, Shell said today in a statement. Shell will provide 2,740 branded service stations among other assets and contribute $1.63 billion in cash to the joint venture with Cosan over two years.

The deal will boost Shell’s access to ethanol in Brazil, the world’s biggest exporter of the biofuel, and ease retail competition for Cosan, said Jason Kenney, head of oil and gas research at ING Commercial Banking. The venture will have about 4,500 service stations, which would make them the third largest in Brazil, JPMorgan Chase & Co said in a note to clients today.

“For Cosan to compete with Shell in retail in Brazil, it would be very difficult,” Kenney said today in a telephone interview from Edinburgh.

Last year, Barra Bonita, Sao Paulo-based Cosan bought 1,500 sites and other assets in Brazil from Exxon Mobil Corp. for $826 million.

Net Debt

As part of the agreement, the venture will assume $2.5 billion of Cosan debt, representing all of the company’s net debt, Marcos Lutz, Cosan chief executive officer said on a call with analysts today. Shell and Cosan will share management of the venture, he said.

“We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix,” Mark Williams, director of Shell’s downstream business, said in an e-mailed statement.

The two companies signed a non-binding agreement aimed at forming the venture and will now have 180 days to conduct exclusive negotiations on a final agreement.

The companies didn’t disclose their respective holdings in the venture.

The deal excludes Cosan’s assets in lubricants, logistics, farmland, retail sugar brands and future investments in power generation from cane waste, known as bagasse. It also excludes Shell’s lubricants activities in Brazil.

To contact the reporter on this story: Lucia Kassai in Sao Paulo at [email protected]

Last Updated: February 1, 2010 08:07 EST

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