Brazilian ethanol makers incensed by increased gasoline subsidies; last gas price rise 2005

May 1, 2008

In Brazil, the ethanol industry is up in arms after the federal government lowered a gasoline tax, making gasoline more affordable and reducing the spread between ethanol and gasoline prices that drives demand for ethanol. Ethanol makers typically market their fuel at 30 percent less than gasoline, and say that the government’s refusal to increase gasoline prices, combined with increased tax breaks, is stressing their business models to the breaking point.

Petrobras has not raised gasoline prices since 2005, despite an 85 percent increase in global crude oil prices.

In Brazil, Petrobras, the state oil company and Cosan, the largest ethanol producer, have locked horns over a Petrobras plan to build a state-owned pipeline to transport ethanol. “If Petrobras has the logistics, it will have control of the sector and this we don’t want,” said Rubens Ometto Silveira Mello, Cosan’s controlling shareholder and chief executive officer, told Agencia Estado. The proposed ethanol pipeline will run from Goias state to Sao Paulo.
Cosan has acquired ExxonMobil’s 1500 Brazilian service stations (under the Esso brand) in an $826 million deal. The company said that it is buying the stations to assure itself of a distribution network for its ethanol products. Ethanol consumption increased 29 percent since 2003 and last year exceeded gasoline sales. The deal gives Cosan a 7 percent share of retail fuel distribution in Brazil. Cosan had said it was aggressively seeking opportunities in the United States.