India Brazil ethanol investment over $2bn - BPCL

12 December 2006 09:04  [Source: ICIS news]

NEW DELHI (ICIS news)--Indian companies would have to invest well over $2bn (€1.5bn) in Brazil to produce 1,000m litres/year of ethanol for export to India to meet its objective of doubling ethanol blending with petrol (EPB) to 10%, a BPCL official said on Tuesday.

 

The BPCL (Bharat Petroleum Corporation Limited) official said that this preliminary estimate had been made by its team of officials that visited Brazil in late September to explore long-term ethanol sourcing opportunities.

 

India’s Ministry of Petroleum and Natural Gas has proposed to start working towards its target of doubling EPB production from June 2007. The ministry set this target, keeping in view the domestic sugar-ethanol industry’s assurance that it would step up ethanol production through expansions and Greenfield units.

 

BPCL believes that the domestic ethanol industry and proposed capacity creation by Indian companies in Brazil and elsewhere could work in tandem to sustain the EPB programme.

 

To produce 1,000m litres/year of ethanol, the land requirement for sugarcane farming is estimated at 233,000 hectares in the western part of Sao Paulo State, the most productive sugarcane region in Brazil.

 

The cost of land acquisition alone would aggregate to $1.16bn at a rate of $5,000/hectare, BPCL said.

 

The company said that this cost could be staggered by opting for a mix of outright acquisition of land and to also lease land on 20 year contracts.

 

The cost of building ethanol plants with aggregate 1,000m litres/year capacity was estimated at $700m with a payback period of eight years.

 

The company did not estimate the variable and recurring expenditure to be incurred on cane farming.

 

According to a BPCL presentation, the current cost of importing ethanol from Brazil was higher than the domestic price.

 

This cost could be reduced by owning production facilities in Brazil, reducing Indian import duty, economising freight and by properly timing imports. 

 

“It makes sense for India to participate in Brazil’s ethanol sector from a long-term strategic point of view. Creation of captive supply capacity of ethanol/sugar (optional) could bridge the supply shortfall and also allow global trading in case of a glut in the domestic market,” it said.

 

($1 = €0.76)

By: Naresh Minocha
+65 6780 4359

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