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Brazil sees surge in ethanol-related investment

By Reese Ewing

SAO PAULO, June 1 (Reuters) - Brazil has long dominated the global sugar market but until recently its ethanol potential was an afterthought.
Now the pressure on existing world energy supplies, particularly oil, has transformed the ugly duckling of Brazil's cane industry into a swan.
It is the world's biggest ethanol exporter and the leading producer of cane-based ethanol.

"On an even playing field, nobody can compete with our ethanol industry, whether it be in terms of production cost, energy efficiency, environmental impact, available land, sun, water," the outgoing president of Brazil's Cane Industry Association, Eduardo Pereira de Carvalho, said recently.

The metamorphosis will be evident when Brazil hosts its first Ethanol Summit in Sao Paulo on Monday and Tuesday (
Speakers include billionaire George Soros, former Brazilian President Fernando Henrique Cardoso and the president of the state oil and gas company Petrobras, Jose Sergio Gabrielli.

The importance of Brazil's ethanol industry can also be seen in the weight of investments entering the market.

Industry sources said more than $15 billion dollars are being invested in new ethanol mills now under construction or soon to be in the next year or so or in the expansion of 300-odd existing mills.

A further 90 or more projects are under study for construction in the medium term.

"About 15 percent is foreign capital," de Carvalho said.
Earlier this year, Japan's Mitsui <8031.T> and Mitsubishi <8058.T> and a group of large Chinese investors announced joint ventures with local mills in ethanol.

George Soros will become one of the biggest foreign investors in Brazil's ethanol boom through his company Adeco.

Private equity fund Infinity Bio-Energy Ltd., which recently raised investment capital on the London AIM exchange and has backing from U.S. investment company Kidd & Co., has already purchased four mills.

Brazilian Renewable Energy Company Ltd., also known as Brenco, with backing from U.S. investors such as Sun Microsystems Inc.'s founder Vinod Khosla, supermarket mogul Ron Burkle and the co-founder of AOL Steve Case, announced recently it is investing $200 million in the sector.

Even Russian billionaire Boris Berezovsky is said to be negotiating with the Brazilian government to possibly inject $2 billion in ethanol production and infrastructure.

KPMG Corporate Finance partner Andre Castello Branco, who specializes in the sector, said that prices for existing assets in the cane industry have increased in value so much that there are many more greenfield investments than acquisitions.

Petrobras recently expanded its official title to include the word "bioenergy" and announced that it plans to become a major player in the world's emerging ethanol market. It is in the process of commissioning ethanol-designated tankers.

The company has been making regular shipments of ethanol to Venezuela and Nigeria. It sent its first cargo of ethanol to the U.S. market in late April and is hoping to woo Japan soon into making regular orders of the Brazilian cane-based fuel.