02/19/2010

The BNDES considers the merger between ETH Bioenergia and Brenco, disclosed June 18, an important step for the development of the ethanol sector in Brazil. The operation is in keeping with the federal government’s Production Development Policy, which has given the ethanol segment priority. Brazil has internationally recognized competence and leadership in this sector.

The merger will pool together a total of nine plants, seven of which already rely on the BNDES’ support for implementation (greenfield projects). The new company will have a milling capacity of around 40 million tons of sugarcane per year, annual production of 3 billion liters of ethanol, in addition to over 2,500 GWh of energy.

In the agreement entered into between ETH and Brenco, shareholders from both companies committed to transferring new resources to the undertaking. After the merger, Brenco’s former partners will have 35% of the new company’s capital, leaving BNDESPAR with around 16%. The BNDES expects the new company to carry out an initial public offer on the BM&F/BOVESPA over the next few years.

The BNDES is the main financing agent for investment projects to expand Brazilian ethanol. The Bank and its financing agents have a portfolio of R$ 30 billion in financing to the sector, with projects aimed at sugarcane and alcohol production as well as power generation. Over one hundred direct operations have been carried out by the BNDES, and thousands of indirect operations for companies of all sizes.

Since 2003, investments in the sector have been presenting strong expansion, a direct result of the annual growth in the demand at rates that surpass two digits. These results also encourage the recent positioning of important multinational groups.
The BNDES foresees continued growth in the demand for ethanol over the next few years, boosted mainly by the sale of cars with flex fuel technology. Currently, only about 25% of the national fleet is bi-fuel cars, and the sales of new vehicles with this technology are higher than 90%. The recent decision handed down by the Environmental Protection Agency in the US, which qualified sugarcane ethanol as advanced biofuel, because it reduces carbon emissions by more than 60%, increased the potential of foreign demand for Brazilian ethanol. This decision is expected to generate an additional market to the order of 6 billion liters in 2015 for sugarcane ethanol.

Within this context, the BNDES reaffirms its commitment to maintaining support for the ethanol production chain, provided that it is supported by the best socio-environmental practices and corporate governance. The Bank also has several initiatives aiming at support for technological innovations in the sector, aimed at productivity gains that increase even more the advantages of Brazilian ethanol.