Brazil Government Delays Deregulation of Ethanol
The
Brazilian government has delayed the planned deregulation of ethanol prices in
the country, originally scheduled for January 1, 1997. The government will still
remove itself from the ethanol price setting business, but it will not happen
until later. Deregulation of prices will cause changes in the Brazilian ethanol
industry and present new challenges in the way ethanol is sold, according to
sources in Brazil.
Brazil's Ministry of Treasury published the change
last December. Under the new schedule, anhydrous ethanol prices will be
deregulated May 1, 1997, and hydrated ethanol will be removed from government
control May 1, 1998, said Plinio Nastari, president of DATAGRO, a Sao
Paulo-based ethanol consulting firm.
One of the major challenges
presented by deregulation is that producers will no longer have a guaranteed
price, but instead negotiate prices directly with distributing companies, said
Nastari. Anhydrous ethanol, used in 22 volume percent blends throughout Brazil,
is currently priced at $1.42 per gallon in the Centre-South region of Brazil and
$1.77 in the North-Northeastern region, he noted.
To be competitive after
deregulation, ethanol would need to be priced at a level that reflects its value
as a gasoline replacement and its value as an octane and oxygen enhancer,
Nastari said.
The government will continue to set the price that
Petrobras, the Brazilian national oil company, sells its gasoline to
distributors -- currently about $1.17 per gallon. Brazil is expected to approve
new regulations regarding Petrobras later this year, said Nastari. However, the
current price regulation will continue three years after passage of the new
legislation.
Brazilian ethanol producers are at a disadvantage because
there are no specific fuel taxes in the country, said Nastari.
"These are
major changes for the largest biomass ethanol program in the world," said
Nastari. "Ethanol producers and distributors are working hard to forecast the
consequences and adapt to this new scenario."
"However, the ethanol
market in Brazil will still be anchored by regulations requiring 22 volume
percent ethanol in all gasoline," he said.
Despite the uncertainty
surrounding deregulation, ethanol production in Brazil is booming --
particularly for anhydrous ethanol. In the Centre-South region of the country,
the major sugar- and-alcohol-producing area, anhydrous ethanol production
increased more than 46 percent. Total production in the region is just over 1
billion gallons per year. The North-Northeastern region had an even bigger
increase in production -- almost 72 percent. However, this growth is on a
smaller base.
In addition to increase in the amount produced, alcohol
production is accounting for a greater portion of the total sucrose available --
displacing some production of sugar.
Source: Oxy-Fuel News,
2/3/97
