PANORAMA BRASIL MARCH 18 2007

The ethanol market in Brazil looks extremely bullish for major investors, who have been scrambling to forge alliances and clinch deals, further consolidating the still-pulverized industry. Big names abound and come up repeatedly in many different places.

Brazilian Renewable Energy Company, known as “Brenco”, for instance, is led by former Petrobras chief executive Henri Phillipe Reichstul and has just committed US$200 million to its initial stage.

Mr. Reichstul’s venture partners include James Wolfensohn, former World Bank president; Steve Case, of AOL fame; and Vinod Khosla, Silicon Valley venture capitalist and founder of Sun Microsystems.

Interestingly, American supermarket magnate Ron Burkle, founder of Yucaipa Investments, is also part of the Brazil venture. Mr. Burkle, a longtime Democratic fund-raiser, has been a major contributor to the Republican governor of California, Arnold Schwarzenegger. At the same time, Mr. Burkle is a close friend of former President Bill Clinton, who calls Burkle's Boeing 757 private jet "Ron Air."

It has even been suggested that Tony Blair may take up a seat on the board of one of Burkle's companies when he stands down as Prime Minister of the United Kingdom.

Also in on the Brasil Energy deal is David Zylbersztajn, former general director of Brazil’s ANP (Agencia Nacional do Petroleo – National Petroleum Agency), which, among other things, is charged with supervising Petrobras.

Brenco has divided its venture into “tranches”, presumably to feel the water in a fickle Brazilian and international environment. As things progress, their aim is to reach US$ 2 billion in investments.

In the (now) fast-moving world of biofuels, the lines between the public and private spheres are growing increasingly blurred. Maurilio Biagi Filho, ethanol baron and one of the key figures in the industry, has just denied being invited by President Lula to take over the Ministry for Development, Industry, and Foreign Trade – a key political post in Brasilia, presently occupied by Luiz Fernando Furlan.

In Mr. Biagi’s words, “I have never been invited to take over any ministry. If Lula were to come to me and make an invitation, I wouldn’t reply immediately – I would ask him for some time to think it over. Then I would go and bring the topic up with my wife. And I’m quite sure she would say ‘no’”.

Former Minister of Agriculture Roberto Rodrigues has also been very busy pulling the political levers in Brazil and elsewhere, as a director of the Interamerican Ethanol Commission, whose declared mission is to “(p)romote the usage of ethanol in the gasoline pools of the Western Hemisphere”.

The IEC’s web site goes on to say that “the commission will serve to foster awareness of the benefits of renewable fuels to economies throughout the Americas. The commission will also contribute toward a framework for a rationalized and viable regional marketplace in ethanol, promoting the policy guidance necessary to spur both foreign and domestic investment in environmentally sound renewable fuel production and infrastructure.”

Serving with Mr. Rodrigues on the IEC’s board are Jeb Bush, former governor of the state of Florida; and Luiz Moreno, president of the Inter-American Development Bank.

I urge you to click here to read a full list of participants in the International Ethanol Commission, a list that includes chairpersons and major stakeholders, for a glimpse into the future of the development of biofuels elsewhere in the tropical world.

Mr. Moreno’s Inter-American Development Bank (IADB) is scheduled to meet later this month in Guatemala, a country that, like many others, is waiting in the wings with bated breath to see how the interaction between the two ethanol giants plays out and where exactly it fits in.

Interestingly, Brian Dean, executive director of the Commission, believes that the future will see Brazilian and American expertise coming together. He believes that “there's a lot of cross fertilization that can take place" – an idea that suggests a quid pro quo that would ultimately allow Brazilians to move on from their instinctive reaction against the 54-cent-per-gallon tariff on Brazilian ethanol imported into the U.S. and, instead, focus on more market-friendly economies like Japan, Nigeria, and Venezuela.

Throughout 2007, these three countries will be importing 850 million liters from Brazil, via Petrobras. A test volume of 20 million liters has already been slated to go to Japan, also through Petrobras, a company that is increasingly asserting itself as a force to be reckoned with in the Brazilian ethanol industry.

Putting its money where its mouth is, Petrobras, through Transpetro, its subsidiary in charge of fuel transportation, is preparing to build a pipeline from Senador Canhedo, in the state of Goias, deep in Brazil’s interior, to its refinery in Paulinia, and, from there, to the port of Sao Sebastiao – a dedicated “neat ethanol” pipeline that will run approximately 800 miles and cost around US$ 750 million. Technical details may be found in a rather thorough document by clicking here.

Even with the American tariff in place, Silas Oliva Filho, manager of ethanol and oxygenates at Petrobras, said during a sugar and ethanol conference in Sao Paulo Thursday that the company planned to enter the U.S. ethanol market for the first time in 2007.

Mr. Filho went on to say that “the pipeline is a big risk for the company, because no one knows for sure when the market will come. It could take a few years after construction before we really have the buyers”.

Mr. Filho’s “build and they will come” philosophy holds promise. How to get them to Brazil more quickly is the topic that has Brazilian policymakers and businessmen convening for a growing number of conferences, seminars, and similar events. ConCana (Congresso Internacional de Tecnologia na Cadeia Produtiva da Cana – International Technology Conference in the Sugarcane Production Chain) will take place in the city of Uberaba, in the westernmost portion of the state of Minas Gerais, from March 26th to March 30th, 2007.

This region, known in Brazil as the “Triangulo Mineiro” (“Triangle of Minas”), occupies 93,500 sq. km and is a little larger than Portugal. It is widely seen as a new frontier in the development of the sugarcane market in Brazil.

Traditionally cattle territory, the Triangulo’s flat geography makes for excellent land for sugarcane, as it allows mechanical harvesters to be deployed, thereby raising productivity and eliminating the arcane practices associated with manual labor in sugar fields.

Participants in ConCana include former Minister of Agriculture Roberto Rodrigues; leading agribusiness consultant Plínio Nastari, from Datagro; Manoel Ortolan, from Canaoeste; Vitor Montenegro, from Usina Coruripe; Sílvio Castro, from Canacampo; Silas Oliva Filho, from Petrobras; Wilson Brumer, Secretary for Economic Development of the State of Minas Gerais; Eduardo Carvalho and Antônio Rodrigues, from UNICA, the powerful Sugarcane Growers Association; Jose Matos, from the state of Minas Gerais electric power utility CEMIG; Paulo Kronka, from Usina Coruripe; Marcos Bernardes and Godofredo Vitti, from ESALQ, a leading agricultural research center in the state of Sao Paulo; Jorge Donzelli, Claudimir Penatti e Luis Almeida (CTC – Center for Sugarcane Technology); and João Crisóstomo, from Saccharum Planning and Consulting.

The picture below shows the sponsors behind the event.

One of the topics that the event will address is the outsourcing of sugarcane production. Outsourcing has been successfully adopted by, among others, the Coruripe Refinery, which belongs to the Tercio Wanderley Group; and also by the U.S.’s Cargill.

In June 06, Cargill, the world's largest privately-owned company and one of the biggest agribusiness corporations in the world, put out a press release announcing its acquisition of Cevasa, “the only mill in the region of Ribeirao Preto with the capacity to expand production economically”. The company was purchased from the Biagi family.

With a 63% stake in Cevasa, Cargill is now in a joint venture with Canagril, the local association of sugarcane growers. By outsourcing sugarcane production, Cargill also outsourced the bulk of its environmental and labor concerns – two issues that have plagued the Brazilian sugar and ethanol industry.

Infinity BioEnergy, a hedge fund constituted on the London stock exchange’s lightly-regulated Alternative Investment Market (AIM), is investing in the hilly state of Espirito Santo. The Fund has announced that it “has entered into an agreement to acquire a controlling interest in two sugarcane-based ethanol production businesses in Brazil: Disa Destilaria Itaunas SA (“Disa”), an operating facility; and Pecana Empreendimentos e Participacoes SA (“Montasa”), a facility that will be operational in 2008.”

Both facilities are expected to have a joint milling capacity of 4.5 million tons of sugarcane per year. They are located within a 100-mile radius of Infinity’s other two plants, Alcana and Cridasa, purchased by the Fund in 2006.

Sergio Thompson-Flores, Infinity BioEnergy’s Chief Executive Officer, has claimed that “these acquisitions give us economies of scale to justify the development of meaningful logistical alternatives that improve the cost and efficiency of producing and exporting ethanol; the first step of which is a dedicated ethanol export terminal for which we have contracted and which is being developed by Oil Tanking in the port of Vitoria, in the state of Espirito Santo. Furthermore, the association with the Disa and Montasa shareholders and their meaningful land holdings and local relationships enhances our ability to grow in the region".

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.