SAO PAULO (Dow Jones)--Brazilian ethanol company Brenco doesn't view the current wave of attacks against biofuels as curtailing its ability to attract investment for its ethanol expansion, the company's president said.
"We expect to hold an (initial public offering) to raise up to 5.5 billion Brazilian reals ($3.2 billion) for our ethanol expansion by the end of this year or next year, depending on market conditions," Philippe Reichstul told Dow Jones Newswires in an interview late Friday.
Brenco, also known as the Brazil Renewable Energy Co., aims to have 10 ethanol mills up and running by 2015, with a capacity to produce 3.8 billion liters of ethanol.
With high oil prices, global warming and the growing importance of renewable energies, Reichstul said he was confident that the market conditions will be positive, despite a looming economic downturn.
So far, Brenco has pumped BRL1.8 billion into the construction of four ethanol mills in Mato Grosso, Mato Grosso do Sul and Goias states, which should start operating between 2009 and 2010. Each will have a capacity to crush 3.6 million metric tons of sugarcane.
Brenco also recently announced it intends to invest $1 billion to build a 1,100-kilometer ethanol pipeline by 2011 from Mato Grosso to the port of Santos with a capacity to deliver 4 million liters of ethanol. The company doesn't have any mills operating at the moment.
Brenco, a recently formed renewable energy company, is already backed by financial companies such as Goldman Sachs Group (GS), Ashmore Global Situations Fund and Amber Master Fund, as well as U.S. venture capitalists including billionaires Vinod Khosla and Ron Burkle. Brenco is funded by 35% equity versus 65% debt.
Although Brenco started its investment when ethanol was a buzzword and a bright light among options to tackle increasing energy problems, in recent weeks the Brazilian government and ethanol companies have been on the defensive against harsh critics who are pointing fingers at biofuels as a leading cause of the global food crisis.
In April, the World Bank issued a report saying that biofuels were one of the main reasons food prices were rising so fast as farmers in the U.S. and Europe use arable land for fuel crops rather than food.
Despite the current wave of critics, Reichstul said he doesn't believe that these accusations concern ethanol produced by sugarcane in Brazil. "In Brazil, biofuels aren't a threat to food," said Reichstul, an ex-president of Petrobras.
Overtime, the debate should become more rational, examining the different types of biofuels and assessing the level of emissions and efficiency, he said. "This will benefit Brazil's sugarcane-based ethanol over other types (of ethanol)," he said.
Ethanol Exports
Reichstul also said the food-versus-fuel debate shouldn't impact ethanol exports.
Once Brenco starts producing ethanol in 2009, the company expects to export two-thirds of its ethanol production while a third will be for the local market.
"The pace of the export market will depend on how fast markets in Asia, Europe and the U.S. open, and whether projectionist barriers are raised," he said, noting that Asia may open up faster as it appears less protected.
Brazil is the world's leading ethanol exporter, and exports should rise by 27% on account of U.S. and some European demand to a total of 3.9 billion liters in 2008-09, according to the Union of Sugarcane Industries, Unica.
Unica estimates that around 24.3 billion liters of ethanol should be produced in 2008-09 from the 498.1 million metric tons of new sugarcane.
Reichstul supported BP PLC's (BP) announcement on Thursday that it has entered into a joint venture to acquire a 50% stake in new sugarcane ethanol company Tropical BioEnergia SA for BRL100 million.
Companies like Brenco and BP moving into biofuels removes one of the uncertainties for customers of guaranteeing a steady, reliable supply, he said.
"There's a strong future for biofuels," he said.
Brazil is the world's leading sugarcane producer and makes ethanol using the cane-crushing process.
Source: Tony Danby, Dow Jones Newswires; 55-11-3145-1489; brazil@dowjones.com