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Desi firms slow to tap Brazil ethanol pie

Tuesday, 5 June 2007 - 5:53am IST
Bajaj Hindustan is the only company which has announced a plan for $ 500 million investment in ehtonol facilities in Brazil.

NEW DELHI: Indian companies have made no real progress on the ground in acquiring sugar cane acreages or brownfield ethanol facilities in the last eight months since Brazil offered India a piece of its ethanol pie during Prime Minister Manmohan Singh’s visit there.


“A number of Indian companies are exploring the opportunities in Brazil, the most efficient producer of renewable fuel, ethanol. None has yet made the foray,” Rakesh Vaidyanathan, whose Jai Gorup provides business services for BRICs economies out of Brazil and Mexico, told DNA Money on the sidelines of Brazilian President Lula da Silva’s meeting with capitains of industry here on Monday.


Bajaj Hindustan is the only company which has announced a plan for $ 500 million investment in ehtonol facilities in Brazil. Other major sugar producers in India are also known to be interested in buying land in Brazil for growing sugar cane and converting that into ethanol, but they are still at a preliminary stage, Vaidyanathan said.


“India must move quickly to establish its footprint in Brazil’s ethanol market. France, the UK and Germany and a number of other countries seem to be moving faster”, he said. Brazil’s interest in welcoming Indian investment in the “big fuel of the future” is still strong. This was evident when President Lula da Silva once again called upon Indian companies to collaborate with Brazilian firms in creating a world market for renewable energy. “The governments of Brazil, India and some other countries have come together to create a world market for renewable energy,” Lula da Silva said, “but this can happen only if companies collaborate”.


India is already a large importer of ethanol from Brazil. It imported 414 million litres in 2005. India itself produces 2 billion litres of ethanol, but its energy needs are growing. There is a view in Indian sugar industry that the country can produce an additional 2 billion litres of ethanol by diverting surplus sugar cane to ethanol from sugar.


Sugar production in India this year is estimated at 29 million tonnes against a domestic consumption of 20 million tonnes. The sugar cane going in for the production of the surplus 9 million tonnes of sugar can instead be used for making 4 billion litres of ethanol.


“India cannot depend on just import of ethanol from Brazil in the long term. Brazil itself is a big consumer. India must built ethanol capacity in Brazil for getting reliable supply and gaining a price edge”, Vaidyanathan said.


“The IRR (internal rate of return) of investment in acquisition of Greenfield or brownfield ethanol facility in Brazil works out to 20%. It is also possible to get an IRR of 25-26%,” he said. As much as 87% of agricultural land in Brazil is unused,


The India-Brazil CEO Forum on Monday targeted to achieve a two-way trade turnover of $10 billion in four years from $ 2.4 billion in 2006. India-Brazil trade has increased manifold from a meager $ 488 million in 2000 to $ 2.6 billion in 2006. Brazil has emerged as India’s largest trading partner in Latin America.




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