Brazil’s Odebrecht to Spend US$ 2.6 Bi for Piece of Ethanol Market

    An Odebrecht worker

    An Odebrecht worker The Odebrecht group, one of the leaders of the Brazilian heavy construction and petrochemical sectors, recently announced that it intends to become, in less than one decade, a major sugar and alcohol industry player.

    For such, the company plans to develop, in the next six to seven years, three sugar and alcohol production hubs, in which 10 plants will be built or bought, at a total grinding capacity of 40 million to 45 million tons of sugar per year. The forecasted investment is 5 billion reais (US$ 2.6 billion).

    "This is the necessary expense for us to start playing our game, it is the volume of capital that we need in order to become one of the major national industry players," according to a statement by Eduardo Pereira de Carvalho, one of the executives in charge of the project, and former president of the São Paulo Sugar Cane Agroindustry Union (Unica), of the state by the same name.

    Just to have in an idea – for reference purposes, Cosan, the country's largest sugar and alcohol group, has a grinding capacity of 40 million tons of cane per year.

    The investments will be made in the region of Pontal do Paranapanema, in São Paulo, and in the states of Goiás and Mato Grosso do Sul. Odebrecht's goal is to take control of the entire production process, from farming to industrialization, transport, and even commercialization of sugar and alcohol. In the case of cane, for instance, the idea is to use at least 70% of the company's own raw material.

    According to Carvalho, the aim is to destine 60% to 70% of total production into ethanol production, and 30% to 40% into sugar. Judging from his calculations, this equals approximately 2,5 billion liters of alcohol and little less than 2 million tons of sugar a year. "It is a very ambitious project," he said.

    The group also wants to utilize cane bagasse for power supply to its plants, and sell excess production in the domestic electric power market. "We cannot forget that, in the long run, energy will become increasingly scarce," said Carvalho.

    In terms of logistics, the executive said there are "strangling points holding the sector back," therefore investments in storage and transport are also forecasted, including alcohol pipelines to ship out the produce. But this segment is still under study. The aim is to have two thirds of sugar production sold to the foreign market, with the remainder of ethanol commercialized mostly in the domestic market.

    In the assessment of Carvalho, the commercial arm will be one of the business' strong links. The team of executives in charge of the sector includes three former directors at trading company Coimex, which specializes in agricultural commodities.

    With their knowledge in hand, the company not only wants to sell its own production, but also that of third parties. Strategic partnerships with companies are not ruled out, as they might help open up new markets.

    Besides Carvalho, the team includes Clayton Hygino de Miranda, Zenilton Rodrigues de Mello, and Roger Maynard Haybittle (the three of whom came from Coimex) and Luiz Pereira de Araújo Filho, formerly with Odebrecht.

    Before joining Odebrecht, Carvalho, Mello and Haybittle established a company named CZRE (the initials of the four) and started the process of acquisition of a plant, in the region of Pontal do Paranapanema (comprising 21 municipalities in the southeastern Brazilian state of São Paulo) with a grinding capacity of 1.3 million tons of cane per year. The plant will be one of the 10 planned by the company. Carvalho said the plant will be expanded to reach a 2.1-million ton grinding capacity in 2009.

    The business' financial structure has not yet been fully disclosed, but Carvalho said investments should be leveraged using the company's own resources, and bank loans.

    Public Listing

    To manage its business in the sector, Odebrecht is in the process of establishing a subsidiary company, whose name has not yet been divulged. Nevertheless, Carvalho said the new company is not going to be named after Odebrecht. The reason is that the company may become publicly listed in the future. "Eventually our company will migrate to the capital market, and the Odebrecht name can become a source of confusion," he said.

    The executive explained that, in 2000, Odebrecht began contemplating a new focus of operation in 16 different sectors, and the ones selected were sugar and alcohol, and co-generation of electric power.

    Established in 1944, the Construtora Norberto Odebrecht is one of Latin America's leaders in its sector, with construction works in Brazil and abroad, including the Arab countries. The group also controls Braskem, a regional leader in the petrochemicals field.

    Last year, Odebrecht posted gross revenues of 24 billion reais (US$ 12.5 billion) and a net profit of 127 million reais (US$ 66.5 million), according to its annual report. The chemical and petrochemical sectors answered to 68.85% of revenues, and the construction business, 30.89%, with the remainder coming from other company business. The group generates over 50,000 direct and indirect jobs in Brazil and abroad.

    Anba – www.anba.com.br

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