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Rediff.com  » Business » 3 oil PSUs hold $600-mn investment in Brazil

3 oil PSUs hold $600-mn investment in Brazil

January 13, 2009 15:05 IST

Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum have put on hold investing $600 million in sugarcane farms in Brazil for producing ethanol that was to be mixed with petrol for sale domestically, because of cash crunch.

The three firms had planned to jointly buy or lease plantations and related units for producing ethanol, a by-product of sugarcane that is doped in petrol to reduce dependence on imported oil.

"We explored the possibilities of acquiring sugarcane acreage and putting up ethanol manufacturing units in Brazil. But unfortunately, due to the resource crunch, we have had to put the investments on hold," an official said.

The three firms have suffered a Rs 14,700-crore (Rs 147 billion) net loss in the first-half of the current fiscal and were living on borrowed money as they lost heavily on retail fuel sales domestically.

They had very little surplus cash after the government forced them to sell fuel at prices lower than the cost of production.

"Feasibility study for ethanol operations in Brazil was conducted. The project was found feasible and strategic for the Indian oil industry," the official said, adding "However, in view of economic slowdown and resource crunch, the companies are not contemplating any investment in Brazil now."

IOC, BPCL and HPCL were working on deals to acquire 15-35 per cent stake in two of the largest Brazilian integrated ethanol players -- Louis Dreyfus Commodities Bioenergia and Infinity -- and 50 per cent equity in new plantations/projects of smaller firm Rezek.

Indian oil firms were to form a joint venture company for ethanol investments and share half of the equity in it.

The remaining half ownership was to be offered to the Brazilian partners.

Brazil, world's biggest sugarcane grower, allows foreign ownership of sugarcane acreages, which are rain-fed and require little irrigation. The plantations are mechanised with integrated sugar mills.

Several European firms have acquired acreages and taken up ethanol manufacturing for captive use back home.

India has been pushing for doping 10 per cent ethanol in petrol and once enough quantities are available to double this blending.

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