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Brazil unveils plan and incentives to boost ethanol production

Wednesday, June 8th 2011 - 23:32 UTC
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Energy minister Edison Lobao said a 10-year investment plan is being drafted with the private sector  Energy minister Edison Lobao said a 10-year investment plan is being drafted with the private sector

Brazil's government unveiled new financing and other incentives for sugar cane ethanol production, vowing to work closely with the private sector to boost production in an industry that has struggled recently despite its immense promise.

The state-run development bank BNDES announced that it would provide 30 billion to 35 billion Real (19bn to 22bn USD) to finance expansion in the sugar cane sector through 2014, a major bet equivalent to about two-thirds of the industry's annual output.

The head of Brazil's ANP energy regulatory agency, Haroldo Lima, told a major investor conference the best way for the government to prevent regular shortages in the sugar cane-based bio-fuel was to provide the conditions so that investment could increase “not in the medium term, but in the short term.”

The enthusiastic, business-friendly message from Lima and other officials including Energy Minister Edison Lobao came as a surprise, given that Brazil's government assumed regulatory control of ethanol earlier this year. Some investors in the sector fear stronger government intervention, such as the setting of production targets.

“It's important to consider that the sector is going through a new phase of challenges,” Lobao said. “These are challenges that together, government and business, we are going to face and overcome.”

Lobao said the government is working with private-sector representatives to formulate a regular 10-year investment plan -- a period that is expected to see demand for ethanol roughly double in tandem with Brazil's booming economy.

Producers at the conference said some kind of stimulus was badly needed. Despite high prices for the bio-fuel and a massive expansion in the domestic fleet of cars that use it, Brazil's roughly 30bn a year sugar cane industry has struggled with stagnant investment and insufficient supply.

Officials from President Dilma Rousseff's government have criticized ethanol producers for what they describe as a failure to invest and plan -- and, thereby, a failure to prevent cyclical ethanol shortages that prompted a near-revolt among consumers at the pump earlier this year.

Producers, meanwhile, say they are boxed in by regulatory uncertainty, uneven taxes and enduring financial wreckage from the 2008-09 global crisis. After growing at an annual average rate of 10% since 2000, cane output in Brazil rose by no more than 3.3% per year starting in 2008.


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