By Mary Carroll, Contributing Reporter
RIO DE JANEIRO, BRAZIL – The ethanol industry used to fuel a large percent of vehicles on the roads of Brazil is in a state of crisis following moves by the government to reduce gasoline and diesel costs at the pump. The CIDE tax recently cut to help Petrobras stay competitive has in effect undercut Brazil’s pioneering ethanol industry, creating a bleak outlook for the alternative fuel sector.
As the president of ETH, Luiz Mendonca, put it “the industry is going through a difficult time with a tight margin.” The National Petroleum Agency (ANP) has confirmed that it is cheaper for Brazilians to buy gasoline.
As a result, the government have planned to implement several measures in September to boost the ethanol industry. Ethanol was responsible for the supplying 54 percent of average-sized vehicles in Brazil in 2009. In contrast to this year where it has not been more than 35 percent, as shown by the Sugar Cane Industry’s Union’s figures.
The ethanol industry representatives blame the fall in production of ethanol on the past two years of bad weather in addition to the economic crisis that came in 2008. Also mentioned is that the lack of clear policies in regard to ethanol and legal uncertainty which have acted as a hindrance when trying to attract new investors.
In a bid to make the industry a priority for the government once again, they have proposed that the government inject R$115 billion worth of investment over a time span of ten years to aid the recovery of the industry.
Otherwise, regaining balance in the fuel market would simply not be achievable. “We do not want subsidies, but we need assurances that the business is profitable enough to take it forward” one industry official said.
While the government has recognized the difficulties that the industry has encountered, it is argued that ethanol prices need to be more competitive with the price of a barrel of oil. One of the worries is that with such high production costs, it may be an objective that is unattainable for the ethanol industry.
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