BRAZIL BIOFUEL UPDATE, JANUARY 2007

UNCLAS SECTION 01 OF 02 BRASILIA 000169 SIPDIS SIPDIS STATE FOR OES/EGC GTHOMPSON STATE FOR EB/ESC MMCMANUS AND JIZZO STATE FOR WHA/ESPC FCORNEILLE AND WHA/BSC WPOPP E.O. 12958: N/A TAGS: SENV TNGD KSCA EAGR BR SUBJECT: BRAZIL BIOFUEL UPDATE, JANUARY 2007 BRASILIA 00000169 001.2 OF 002 LARGEST ETHANOL PRODUCTION IN HISTORY -------------- ¶1. According to data from Brazil's Ministry of Agriculture, Brazil produced more ethanol in 2006 than any other production period. The 2006 harvest produced a total of 17.8 billion liters compared to a 16.9 billion liter production from the period before. According to Angelo Bressan, Director of the Ministry's sugar-cane production office, the rise in production will avoid the ethanol price variation that took place in Brazil during the non-harvest period last year. The country's total planted area of sugarcane increased 6%, reaching a total of 6.19 million hectares. ETHANOL IN BRAZIL PRODUCTION TO BE STANDARDIZED -------------- -- ¶2. Brazil's Industrial Production Quality Institute (INMETRO) and several other government agencies have signed an agreement that seeks to standardize the production of ethanol in the country. Under the agreement, INMETRO will produce reference materials and production standards in order to raise Brazil's export of ethanol, and with an eye toward avoiding technical and international barriers for the product abroad. In September 2006, INMETRO and the U.S National Institute of Standards and Technology (NIST) co-sponsored a workshop to explore cooperation on metrology and standards for biofuels. During that workshop, INMETRO officials said developing standards for the production of ethanol, both in Brazil and globally, was a key step in promoting ethanol as a commodity. BRAZIL'S TOP ETHANOL PRODUCER PLANNING TO EXPAND -------------- --- ¶3. Brazil's largest sugar and ethanol producer, the Cosan group, headed by Rubens Ometto, has announced plans to double its current production capacity of 40 million tons a year and to reach 20% of Brazil's exports for those two products over the next eight years. The company has 17 production plants in Brazil and plans to invest in India and in the United States, two of the world's top consumers and producers. PLANT WITH BIOFUEL POTENTIAL -------------- ¶4. Brazil is considering the use of the Pupunha palm (known as the "peach-palm" in English) to increase the production of biodiesel in Brazil. According to Lidio Coradin, Genetic Resources Coordinator �A;at the Ministry of Environment, the Pupunha palm produces 20 tons of oil per hectare, four times more than the African palm, which is second in terms of sources of world vegetable oil consumption. Cultivation of Pupunha palm, found in the Amazon region and Central America, has been expanding to provide heart of palm, but not yet for its vegetable oil, which can be used to make biodiesel. It is one of 775 native species with economic potential identified by the Ministry, which will publish this information in five volumes, starting this year, in a bid to encourage their sustainable use. FRENCH GROUP TO INVEST 100 MILLION EUROS IN BRAZIL -------------- ¶5. Due to the reduction in subsidies for sugarcane production in Europe, French Group Tereos plans to invest 100 million Euros in Brazil over the next four years. The company's goal, according to media reports, is to process 17 million tons of sugarcane into sugar and ethanol by the year 2010. Tereos, which is already a major stockholder in one of Brazil's top eight ethanol-producing companies, will add two other power plants in Brazil to the three they already own. The first of the two plants is planned to be online in August 2007 and will cost approximately USD 35 million. BRAZILIAN COMPANY INVESTS IN BIODIESEL IN THE U.S -------------- -------------- ¶6. Brazilian company Incobrasa said it will invest USD 12 million in a biodiesel production plant in the state of Illinois. This is the first reported instance of a Brazilian owned company investing in biodiesel in the U.S. This is the first significant investment that the company will make in the U.S. since 1997 when its soybean pressing plant was built in the state of Illinois. The pressing plants process 2,000 tons of soybeans a day. The biodiesel plant will be built next door to the soybean plant because 60% of the total pressed soybean product will be used to produce the biodiesel. JAPAN TO USE BRAZILIAN ETHANOL IN 2010 -------------- ¶7. According to media reports, Japan plans to use ethanol, produced by Brazilian state-owned company Petrobras, in some of the countries' electric energy plants. Approximately two thirds of Japanese energy production for thermo stations comes from fossil fuels. Petrobras will work with Japanese importer Mitsui to reach an export goal of 3 billion liters to Japan. BRASILIA 00000169 002.2 OF 002 BRAZIL TO TEST HYBRID FUEL - CELL AND BATTERY-POWERED BUSES -------------- -------------- ¶8. Brazil's Mines and Energy Ministry and Sao Paulo's Metropolitan Urban Transport Company (EMTU) have launched a USD 16 million pilot project to put five hybrid buses into operation by the year 2009 that will be powered by rechargeable batteries and hydrogen fuel cells. Meanwhile, the agency is also developing catalytic converters for its buses to cut down on emissions. The buses, which will get 70% of their power from fuel cells and 30% from batteries, will be the first of their kind to be used commercially in Latin America, says Marcio Schettino, an EMTU manager heading the project. The effort will include the construction of a hydrogen production plant. SOBEL