BP PLC took another step toward its goal of becoming a leading ethanol producer Friday, snapping up an 83% stake in Brazilian ethanol and sugar producer Companhia Nacional de Acucar e Alcool, or CNAA, for $680 million.
BP PLC took another step toward its goal of becoming a leading ethanol
producer Friday, snapping up an 83% stake in Brazilian ethanol and sugar
producer Companhia Nacional de Acucar e Alcool, or CNAA, for $680 million.
The deal, which BP said is the largest yet by biofuels unit BP Alternative Energy,
represents "an important platform for growth in
Brazil
,"
Mario Lindenhayn, president of BP Biofuels Brasil, said during a conference
call. BP Biofuels Brasil is the local unit of BP Alternative Energy.
The CNAA acquisition will swell BP's installed ethanol production capacity to
1.4 billion liters annually, up from current output of 435 million liters. After
the deal is completed, BP will operate ethanol mills in Goias and Minas Gerais
states. A third mill is under development in Minas Gerais state.
BP was the first global oil major to make an acquisition in
Brazil
's
ethanol sector, buying a 50% stake in Tropical BioEnergia SA in 2008. Tropical
also operates an ethanol mill in Goias state. Other oil majors have followed,
including rival Royal Dutch Shell PLC, which undertook a $12 billion tie-up
with Cosan Industria e Comercio SA, the world's largest sugar and ethanol
group, in February last year.
Brazil
has
attracted increased attention from global oil majors seeking exposure to the
domestic market, where more than 80% of all new cars sold are flex-fuel models
that can run on any mixture of ethanol and gasoline. Latin America's largest
country is also seen as a low-cost production base for key export markets such
as the U.S., Europe and Asia, where use of biofuels is expected to rise as
countries aim to reduce carbon emissions.
"BP is consolidating its position in
Brazil
,"
said a sugar industry consultant who declined to be named. "The mills are
very close to its other plant, so the acquisition should generate scale and
reduce production costs for the company."
But BP isn't likely finished participating in the ongoing wave of consolidation
in
Brazil
's
fractured ethanol market, which is dominated by small, family-run mills. BP
Biofuels Brasil's Mr. Lindenhayn said the company will continue to look for
growth opportunities in the world's largest sugarcane-based ethanol market. "We're
open to other opportunities," he said.
The company's goal, according to Mr. Lindenhayn, is to become one of the leading
players in
Brazil
. "Our
objective is to become one of the primary producers of ethanol from sugarcane
in the next 10 years."
BP has been in the spotlight since the Deepwater Horizon disaster last year,
which killed 11 workers and led to a massive oil spill in the
Gulf
of Mexico
. Since then, the company has sold some $22 billion
in assets. It has also announced major ventures with OAO Rosneft and Reliance
Industries Ltd. In February, BP increased by $1 billion the write-off of costs
related to the Macondo oil spill in the
Gulf of Mexico
to
$40.9 billion.
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