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Shell, Brazil’s Cosan form $12 billion ethanol unit

14 February 2011

SAO PAULO, Brazil — Anglo-Dutch energy giant Shell and Brazilian sugar-production group Cosan said Monday they were forming one of the biggest joint ethanol fuel ventures in the world, with an estimated market value of $12 billion.

The new entity, to be called Raizen, will employ around 40,000 people and produce over 2.2 billion liters (580 million gallons) of ethanol per year to Brazilian and international markets, the two companies said in a statement.

Raizen should be launched in the first half of this year, they said.

“Due to the size of its operations, Raizen will help sugar cane ethanol, a sustainable, clean and renewable source of energy, to consolidate itself worldwide and strengthen Brazil’s position in the international biofuels trading business,” said the venture’s chief executive, Vasco Dias.

Raizen will have 23 mills able to crush 62 million tonnes of sugar cane per year to produce the ethanol. The mills will also output four million tonnes of sugar per year.

The venture will distribute some of the ethanol in 4,500 Esso service stations across Brazil that Consan owns, and through participation in distribution depots for aviation fuel in 54 airports.

The statement said the new company would have approximately $1.6 billion in cash inflow brought to the table by Shell.

“We want to be even bigger,” Dias said. “We want to be recognized globally for our excellence in the development, production and marketing of sustainable energy.”

Raizen plans to finance its plans by tapping the market, probably through issuing corporate bonds.

“We are in contact with the rating agencies to obtain an evaluation. Inherited debt for the company is $2.5 billion, but that is considered ‘comfortable’ given the $1.6 billion to be brought in by Shell,” Raizen’s vice president in charge of finances, Luis Rapparini, said, according to Energia Hoje, a specialized website on Brazil’s energy sector.

Europe and Asia are the main targets for ethanol exports, through Shell’s established network of outlets. The European Commission gave the green light last month for the new venture to be formed.

In the United States, Raizen aims to bolster lobbying by Brazilian sugar-growing companies to reduce or eliminate an import tariff on ethanol designed to protect US ethanol producers.

Brazil is the second-biggest producer of ethanol in the world, after the United States, and the biggest exporter of the biofuel.

It sustains a large domestic market using ethanol through the sales of cars whose engines can take either gasoline, ethanol or a mix of the two.

With Brazil’s economy growing strongly, pressure is building to consolidate a fractured ethanol sector, forming corporations around sugar mills that are often family owned.

Cosan, a publicly traded company, is the world’s biggest ethanol company.

It was founded and is controlled by the family of a Brazilian billionaire, Rubens Ometta, whose net worth is put at $2.1 billion, according to Forbes magazine.

The company bought the Esso outlets in Brazil from US oil giant ExxonMobil in 2008. They will be rebranded with the Shell logo over the next three years, according to Ometta, the news website Globo reported.

It said Raizen will be the fifth biggest company with its headquarters in Brazil.

Copyright © 2011 AFP. All rights reserved.

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