Shell, Cosan in US$12b Biofuels Deal

By Tim Anderson, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Anglo-Dutch oil giant Shell and their Brazilian partner Cosan have agreed the name of their sugar cane operations as Raizen. The name is taken from the words for ‘root’ and ‘energy’ and the new company will oversee the merger of the ethanol, fuel and sugar divisions.

The new company will have an estimated value of R$20 billion (US$12 billion). According to the former chairman of Shell in Brazil, Vasco Dias, Raizen “Will be the fifth biggest company in Brazil in terms of revenue with the ranking to increase.”

Dias outlined the goals for the new company, “Our plan is to consolidate the ethanol from sugar cane as international commodity.”

The new company starts with more than 62 million tons of sugar cane generating 900 megawatts from sugarcane bagasse. They also own 24 sugar cane processing plants, more than 4,500 gas stations and has more than 40,000 employees.

Rubens Ometto has become Chairman of the Board of Raizen, moving on from his position as Chairman of the Board of Directors at Cosan. He said investments by both Cosan and Shell have been agreed, but specifics will not be disclosed.

Raizen will have three areas of operation; An ethanol and sugar cane production branch, a branch to overlook the distribution process and an overarching management company. Ometto added that the synergies were still being counted between the operations.

Raizen aim to increase fuel production from 62 million tons to 100 million tons. They also aim to expand from 4 million tons to 6 million tons of ethanol and from 2.22 billion gallons to 5 billion gallons of fuel.

They will be the third largest fuel distributor in Brazil behind BR Distribudora-Petrobras and the Ultra Group. Furthermore, with the investments, co-generation should pass the 900 megawatts to 1,300 megawatts.

Raizen has been in contact with ratings agencies so that the first issue of bonds can be arranged. Cosan will have 51 percent of shares in the ethanol production with 49 percent going to Shell. Shell will own 51 percent of shares in the distribution side of the business with 49 percent at Cosan and both will have 50 percent of the management company.

R$2.5 billion of debt carried by Cosan onto Raizen will be alleviated by an injection of R$1.6 million from Shell. Cosan purchased the Esso brand in 2008 and this will now be replaced by Shell over the next 3 years.

Brazil is currently the world’s second largest producer of ethanol fuel and is the world’s largest exporter. It is considered to be the world leader in the development of a sustainable biofuels economy which has been in operation for over 30 years.

In 1976, all light cars in Brazil were ordered to have a blend of gasoline and ethanol. Since 2007, the blend has been set by the government at 25 percent ethanol and 75 percent gasoline. Sugarcane ethanol is considered by many to be the best of the ‘alternative’ fuels currently being produced.