Cablegate: Brazil Biofuels Update - September 2006

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DE RUEHBR #2051 2691852
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TO RUEHC/SECSTATE WASHDC PRIORITY 6818
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 2973
RUEHSO/AMCONSUL SAO PAULO 8168
RUEHRG/AMCONSUL RECIFE 5539
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UNCLAS BRASILIA 002051

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E.O. 12958: N/A
TAGS: SENV TNGD KSCA EAGR BR
SUBJECT: BRAZIL BIOFUELS UPDATE - SEPTEMBER 2006

IDB FUND APPROVES GRANT FOR ALTERNATIVE BIOFUEL MARKET
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1. The Inter-American Development Bank (IDB) announced the approval
of a USD 600,000 grant to Ecologica Institute, a nongovernmental
organization in Brazil, to create alternative market opportunities
in rural areas of the state of Tocantins. The project will
implement an integrated model for the production and marketing of an
alternative biofuel produced from sweet potatoes. Compared to
sugarcane, sweet potatoes are considered by some scientists as a
faster and more efficient source of biofuel. Recent estimates from
the Brazilian Association for Industrial Machinery and Equipment
show that approximately USD 1.7 billion will be invested in
biodiesel infrastructure in the next three years.

SUGAR AND ETHANOL EXPORTS TO TOP MEAT EXPORTS
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2. Brazilian sugar and ethanol exports have never been higher and
will probably exceed meat, one of Brazil's principal commodity
exports. The Brazilian Farm Bureau (CNA), estimates that Brazil
will export approximately USD 7 billion in sugar and ethanol as
compared to USD 4.87 billion in 2005. Total sugar/ethanol export
revenues for the first seven months of this year increased more than
40% (USD 3.559 billion for 2006) when contrasted to the USD 2.536
billion revenue for the same period last year.

SUGAR AND ETHANOL REVENUES TOP USD 15 BILLION
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3. Sugar and ethanol companies in Brazil will likely end the
2005/2006 season with net revenues of more than USD 15 billion, a
10% raise compared to last season. Data provided by the Sugarcane
Producers Association of Sao Paulo (Unica) and the Brazilian
National Supply Company (Conab) show that the country will process
471.2 million tons of sugar cane producing 17.8 billion liters of
ethanol. This represents a more than 5% increase compared to last
year.

FUTURE BIODIESEL FROM COTTON IN THE STATE OF BAHIA
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4. U.S. based Crow West Company has plans to produce biodiesel from
cotton seeds in Western Bahia in order to fuel tractors and other
machinery that work on the state's expansive cotton and soybean
farms. "Demand for biofuels is rising and biodiesel from cotton is
10% more economical than from soybeans," says Carlos Freitas,
president of a consulting firm that is preparing the viability study
for Crow West's plant construction. The plant will process 76,000
tons of cotton per year and will receive an estimate USD 17 million.
The plant will be ready in August 2007.

PETROBRAS TO EXPORT ETHANOL TO VENEZUELA AND JAPAN
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5. According to Brazilian daily "O Globo", Brazil's Petrobras and
Venezuela's oil company PDVSA are working on drafting a long-term
agreement for Brazil to sell ethanol to Venezuela. While figures
revealing initial trade estimates were not disclosed, analysts
expect the sales will be reflected in Petrobras' export summary as
early as 2007. Petrobras has also been talking to Japan, which is
still analyzing the implementation of a 10% ethanol mix to the
country's gasoline.

BRAZIL EXPERIMENTING ON HYDROGEN TRANSPORTATION
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6. Brazil will start testing buses that run on hydrogen and do not
produce any kind of pollution. Five buses with hydrogen fuel cells
will be put into test in 2007 in Sao Paulo, Brazil's biggest and
most polluted city. If, after four years, the hydrogen buses
continue to be viable, the fleet will be expanded to 100 or 200.
Rio de Janeiro will implement a similar project.

AGENCY THREATENS TO CONTROL ETHANOL EXPORTS
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7. The National Petroleum Agency (ANP), through its executive
director Haroldo Lima, said that ethanol exports could come under
government control if there are threats that the domestic market
could be undersupplied between the end of the current sugar cane
harvest season and the beginning of the next one. On the other
hand, the Ministry of Agriculture issued numbers that could avoid
such government interference. Information from the Ministry points
out a 137% increase in the volume of ethanol exports for August when
compared to the same month last year and an estimated 17.8 billion
liters of ethanol exports for 2006. This last data represents an
extra billion liter of ethanol for the national demand's supply.

SOBEL

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