Brazil’s Planned Ethanol Tax Cut Not Enough, Copersucar Says

A planned tax cut for Brazilian biofuel won’t be enough to restore investment in new sugar-cane mills, jeopardizing a 7 billion-real ($3.56 billion) ethanol-pipeline project, according to Copersucar SA.

The government is expected to soon reduce two taxes called Pis/Pasep and Cofins on ethanol to cut the price of the fuel, Paulo Roberto de Souza, president of the Sao Paulo-based sugar and ethanol trading company, said today in a telephone interview.

Brazilian ethanol has been losing market share over the last three years to gasoline, more than 10 percent of which is being imported and sold at a loss by state-controlled oil producer Petroleo Brasileiro SA, known as Petrobras, according to Salim Morsy, an analyst at Bloomberg New Energy Finance’s Sao Paulo office.

Investments in new mills plummeted after 2008, giving Copersucar and five other companies less reason to develop the world’s biggest ethanol pipeline, Souza said.

“This measure will improve profitability in the short term, but just for mills already installed,” Souza said. “It isn’t enough on its own to incentivize investment in new production.”

The so-called PIS/Cofins taxes on ethanol may fall from 12 centavos a liter to 3 centavos, which will make the fuel about 5 percent cheaper at the pump, Morsy said. The government has also offered cane growers a 4 billion-real credit line and will boost in May the mixture of ethanol with gasoline to 25 percent, from 20 percent as a concession to mills.

Morsy and Souza declined to say when they thought the tax breaks will be announced.

Less Investment

In February, Energy Minister Edison Lobao told reporters the government was considering cutting the PIS/Cofins taxes.

Investments in new ethanol projects fell from a peak of $6.4 billion in 2008 to $256 million last year as ethanol margins flattened and debt burdens locked a substantial amount of the producers out of capital markets, Morsy said today in a telephone interview.

Logum Logistica SA, in which Copersucar owns a 20 percent stake, will only build all 1,300 kilometers (808 miles) of its pipeline project linking the center-west region to consumption hubs and ports on the coast if there are the customers to use it, Souza said.

“There’s no point in having transport infrastructure if you don’t expect there to be product,” he said. Petrobras, Raizen Energia SA, Odebrecht TransPort Participacoes SA each own 20 percent of Logum. Uniduto Logistica SA and Camargo Correa SA each hold 10 percent.

A first section of the pipeline linking ethanol-producing region Ribeirao Preto and the municipality of Paulinia in Sao Paulo state will be inaugurated in April, Souza said. Logum’s shareholders have approved a second tranche connecting Ribeirao Preto to Uberaba in the neighboring state of Minas Gerais.

“Each section gets approved when we’re guaranteed supply of,” ethanol, he said.

Before it's here, it's on the Bloomberg Terminal.