Biofuel Merger Forms Industry Giant

By Christine Wipfli, Contributing Reporter

RIO DE JANEIRO – After five months of negotiations, the deal has finally been made to create one of Brazil’s largest Biofuel companies after Brazilian ethanol firm ETH Bioenergy announced at a teleconference that it will acquire its debt-burdened rival Brenco.

The two companies have been looking to consolidate in order to meet the high capital needed to achieve their ambitious targets, but the deal also reflects a market shift as a drop in supply and higher prices for ethanol has caused similar mergers and joint ventures to take place in the ethanol industry over the past couple months.

ETH Bioenergy, controlled by Brazilian construction and petrochemicals conglomerate Odebrecht, has five plants in the states of Sao Paulo, Goias and Mato Grosso do Sul with a current capacity to crush 11 million tons of sugarcane and produce 720 million liters (190 million gallons) of ethanol. Odebrecht, along with Japanese trading house Sojitz (ETH company shareholder), will own 65 percent of the company.

The remaining 35 percent share will remain with Brenco, the smaller of the two companies, which has two plants in Goias and Mato Grosso do Sul with the capacity to process 3.8 million tons of sugarcane.

Retaining the name ETH Bioenergy, the merged company predicts an annual production capacity of 3 billion liters (792 million gallons) of ethanol and 2700 gigawatts of electricity by 2012. If this ambitious target is met, it will exceed the 2.3-billion-liter (608 million) annual output capacity of Brazil’s Cosan, currently the world’s biggest exporter of sugar-based ethanol.

“This strategic acquisition represents a decisive step in the growth plans of ETH and creates a leader of bio-energy, which combines competitiveness and sustainability,” said José Carlos Grubisich, chief executive of ETH Bioenergy, in the statement.

The merged company’s combined assets are valued at R$3.5 billion (roughly R$1.91 billion) and its focus will be on the production of biomass-based ethanol.

In order to combat the ethanol market shift (low supply and rising prices), the government has responded by ordering a reduction in the mandatory amount of ethanol to be mixed with gasoline from 25 percent to 20 percent. The measure took effect on February 1st for a period of 90 days, allowing drivers in Brazil to achieve greater fuel efficiency, with traditional gasoline offering more miles per gallon than Biofuels.

In Brazil, more than 7 million automobiles are currently “flex-fuel,” meaning that they can run on any mix of ethanol or gasoline. Moreover 93 percent of new light vehicles made in the country now have this technology, representing an enormous potential market for biofuel.