Brazil's Cosan, Shell To Boost Output At Raizen Ethanol Venture

Brazilian sugar and ethanol group Cosan Industria e Comercio SA (CSAN3.BR) and Royal Dutch Shell (RDSA.LN) disclosed more details Monday about the $12 billion ethanol joint venture the companies formed last year, which will be called Raizen.

"We are one of the most-competitive sustainable energy companies in the world," said Raizen Chairman Rubens Ometto during a news conference in Sao Paulo. "The organization was born big."

Despite still being in its infancy, the joint venture will expand its production capacity over the next five years, Cosan and Shell said. The added output aims to meet a growing demand for fuel at the company's 4,500 service stations across Brazil.

Raizen will boost sugar-cane-crushing capacity to 100 million metric tons a year, up from current output of 60 million tons, Raizen Chief Executive Vasco Dias said. Ethanol production is expected to more than double over the next five years to five billion liters a year. Raizen now produces about 2.2 billion liters annually.

"With our global reach and investments, our plan is to consolidate sugar-cane ethanol into an international commodity," Dias said.

While the executives declined to put a value on the investments needed to boost output to the expected levels, Chief Financial Officer Luis Rapparini said that the company will sell bonds overseas to fund the investments. The executive declined to give any further details about the possible bond sales.

Raizen represents a huge step in the consolidation of Brazil's fractured ethanol sector, where many of the sugar cane mills are family owned. That's made the sector ripe for picking for foreign investors flush with cash and a desire to enter Brazil's biofuels segment.

Cosan and Shell's creation of Raizen was followed by two separate deals made by Brazilian state-run energy giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras. In May 2010, Petrobras invested nearly $1 billion for a 46% stake in local sugar group Guarani, the country's fourth-largest sugar miller. Petrobras then paid about $240 million for a 49% stake in Nova Fronteira Bioenergia SA--a joint venture with local sugar producer Sao Martinho SA (SMTO3.BR).

Previously, consolidation in the Brazilian biofuels sector had been limited to smaller deals between rivals or investment funds. U.S. company Bunge Ltd. (BG) in December 2009 acquired Usina Moema Participacoes SA, which owns a Brazilian sugar-cane mill and has ownership interests in five others. France's Louis Dreyfus Commodities in October 2009 took control of giant sugar and ethanol group SantelisaVale. Cosan snapped up local milling group NovAmerica in early 2010.

-By Rogerio Jelmayer and Jeff Fick, Dow Jones Newswires;

55-21-2586-6085; jeff.fick@dowjones.com

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