Brazil's Cosan sees brighter future for ethanol

miércoles 26 de noviembre de 2014 15:42 GYT

SAO PAULO Nov 26 (Reuters) - Cosan SA, Brazil's biggest producer of sugar and ethanol, said on Wednesday that two potential upsides in 2015 could brighten the outlook for the country's ethanol sector, which has struggled with government policy in recent years.

Speaking before investors at Cosan Day in Sao Paulo, the president of Raizen, the company's sugar, ethanol and bioenergy segment, Vasco Dias, said government policy could soon boost company returns.

"There are two potential upsides to the ethanol business that are not even expressed in our guidance," said Dias.

First is the possible reintroduction of a tax on gasoline known as Cide, which would allow ethanol to regain some of the market share of the light-vehicle fuels market that it has lost in recent years, Dias said.

Over the past few years, the government has sought to contain inflation by holding down the price of gasoline and removing the Cide tax, which hurt the competitiveness of ethanol.

Sources consulted by Reuters said the government is currently considering the return of Cide on gasoline to boost tax revenue. Cide was 28 centavos a liter (42 cents/gallon) before the government eliminated it.

Additionally, Dias said the government could next year raise the ceiling of the blend range for ethanol in gasoline to 27.5 percent from the current ceiling of 25 percent, and in so doing raise demand for the biofuel.

The government is in the final stages of feasibility studies on the higher blend's effects on fuel distribution, engines in older cars and the environment, after which it is expected to raise the blend if the cane sector's production of the biofuel is adequate to meet demand.

Dias added that the sugar and ethanol milling division of the conglomerate, which also has assets in natural gas and fuel distribution as well as land management and logistics, would trim back its capital expenditures now that it had reached optimal size.

Raizen Energia's recurring capex is due to drop to 22.5 reais per tonne of cane crushed from 23.7 reais last season and 27.4 reais in 2012/13. The company crushes more than 60 million tonnes of cane a year.

Dias and other executives at the event said the company had virtually no interest in acquiring new assets in the sugar and ethanol sector that and most of its focus would be improving performance of existing assets. (Reporting by Reese Ewing; Editing by Steve Orlofsky)