Indian state oil companies to invest $600 million in three Brazilian ethanol producers

In India, Bharat Petroleum, Hindustan Petroleum and Indian Oil have agreed to acquire up to 35 per cent of Brazilian ethanol producers Louis Dreyfus Commodities Bioenergia and Infinity, and 50 percent of Rezek. The companies will invest $600 million in new land acquisition and plant expansion funds. Initially, the companies had hoped to export ethanol to India, but scrapped plans after concerns were raised by Indian sugar producers.

The three Indian oil companies were among ten companies seeking to bid on closed government sugar mills in Bihar state. The mills would be used to increase ethanol production to meet the Indian government’s existing E5 mandate and proposed E10 mandate scheduled to take effect in October 2008.

India is projected to have a surplus of 11.5 million tonnes, based on a projected 33.15 million tonnes harvest this year, which would be a world record for national sugar production. Recently, 10 sugar-producing states have agreed to a framework for a national E10 mandate. India’s sugar crop this year is expected to exceed 29 million metric tons. With domestic consumption at 19 million tons and exports at 1.5 million tons, the country is turning to ethanol production to avoid a catastrophic sugar glut.

India announced an E10 mandate that would take effect in October 2008. The Indian Minister of Agriculture previously called a meeting of sugar-producing states to establish a framework for cooperation, as chaos has descended on the sugar industry in coping with differing regulations by state. Maharashtra state will remove its interstate export fee on ethanol, to help make production of ethanol from sugar economically viable. The national government is considering reducing or removing taxes on ethanol for the same reason. But Bihar and Uttar Pradesh states have imposed a $0.20 per gallon tax on ethanol exported to other states.

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