Bloomberg News

Brazil Ethanol Maker GraalBio to Get $294 Million From BNDES

January 21, 2013

GraalBio, a Brazilian cellulosic- ethanol maker, will get a 600 million reais ($294 million) investment from development bank Banco Nacional de Desenvolvimento Economico e Social as the biggest sugarcane growing nation struggles to meet domestic demand for the fuel.

BNDES, as the lender is known, will disburse the funds through 2020 in exchange for a 15 percent stake in the closely held company and a seat on its board, GraalBio President Bernardo Gradin said today on a conference call. GraalBio is a unit of Grupo Graal Investimentos SA, a holding company for the Gradin family.

Making fuel from discarded stalks and leaves, as GraalBio plans to do, will be 30 percent cheaper than so-called first- generation ethanol because it doesn’t require planting on new land, Gradin said in a telephone interview. Companies aren’t building enough sugarcane mills in Brazil to meet projected demand because producing ethanol from the crop’s juice doesn’t yield sufficient returns to justify investments, he said.

“The industry has reached a level of maturity so that the returns, when you consider the cost of the land and agricultural costs, make investments in first-generation ethanol unattractive,” Gradin said. “Our technology gets 45 percent more fuel from the same land.”

A first facility with an annual capacity of 82 million liters (21.6 million gallons) planned for the state of Alagoas is expected to start operating at the start of 2014, he said. Novozymes A/S (NZYMB) will supply enzymes for the facility.

No Investments

No investments were made in new Brazilian ethanol mills last year compared with a peak of $7.4 billion in 2008 as rising production costs and poor harvests prompted companies to shelve or abandon projects, Salim Morsy, an analyst at Bloomberg New Energy Finance in Sao Paulo, said today in a telephone interview. Brazil won’t produce enough light-vehicle fuel in 2018 to meet demand if investments don’t increase.

Claire Curry, an analyst with Bloomberg New Energy Finance, said it’s unlikely that GraalBio or any other company in Brazil will be able to produce ethanol from organic waste cheaper than from cane juice without subsidies.

The high cost of enzymes and equipment necessary to break down tough crop residues into fermentable sugars makes cellulosic-ethanol production more expensive than making fuel from cane juice in Brazil or corn starch in the U.S., Curry said today in a telephone interview.

That said, the nation may be first to produce cellulosic ethanol competitively with other fuels.

“There’s definitely a case for it in Brazil,” where an abundance of cane residues and low engineering costs make production cheaper, she said. “It currently makes more sense to do it there than anywhere else in the world.”

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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