BRAZIL ETHANOL PROPERTIES IN DEMAND, HARD TO FIND

One of the first things that struck me about the new situation in Brazil (new as in "relative to when I left eight months ago") is the appetite with which properties are being tossed around. I have been shown the description of refineries valued at US$ 200 million or more, capable of processing 1.5 to 2.5 million tons of cane/year (roughly equivalent to an output of about 1.3 million barrels of oil equivalent every year). But seeing a description and actually finding a good property for sale are very different things.

Professionals with distinguished careers in public service have quit their jobs to set up a fund or otherwise attract foreign investments and channel them to this or that project, hawking whatever particular investment strategy flavor is believed to be the most marketable. A hefty check from the Interamerican Development Bank (BID) and other cheap-money multilateral institutions is considered a plus.

Sergio Thompson-Flores, a former diplomat with a career in banking, has set up Infinity BioEnergy (previous post), a US$600 million dollar fund, in association with American partners, using the London stock exchange's lightly-regulated Alternative Investment Market as a platform. His fund has bought at least four properties in the past year and is, presumably, still shopping around. Henri Philippe Reichstul, the former president of Petrobras, has started Brenco (Brazilian Renewable Energy Company - previous post), with partners such as James Wolfensohn, former World Bank chief; Vinod Khosla, one of the founders of Sun Microsystem and legendary Silicon Valley VC; and Steve Case, former head of AOL. The partners have committed US$200 million (out of an announced project total of US$ 2 billion) to the initial stages.

The list goes on. And on.

The frenzy that has taken hold of Brazil is, at once, a reason for Brazilians to rejoice and a cautionary sign. The agricultural expansion currently going on in regions like the interior of Sao Paulo state and the flatlands in the westernmost portion of Minas Gerais state does not appear to have been the subject of adequate studies - a recipe for environmental and labor mishaps that can tarnish the image of Brazilian biofuels overseas, at great cost to the entire industry. Over the coming weeks, I will be surveying some of these sites in loco to better assess the transformations underway, part of the market study I am carrying out with Tom MacDonald, a research specialist with the California Energy Commission and the principal at MacDonald Associates.

Quite interestingly, Brazil has invented the IMBY, analogous to the American NIMBY (Not in My Backyard). The Brazilian IMBY cries out loud for foreign investments to plunk themselves somewhere inside its borders - states like Minas Gerais, the third-largest ethanol-producing state in Brazil, have lowered or are considering lowering their respective value-added taxes to become more attractive to foreign capital.

The Brazilian IMBY stands in stark contrast to the American BANANA ("Build Absolutely Nothing Anywhere Near Anyone"), the typically-American personage that has elevated gasoline prices to an all-time high and further spiked interest in Brazilian ethanol.

Funny how BANANA Republics rise and crumble...

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