The Inter-American Development Bank will lend $269 million and help raise an additional $379 million for three new ethanol plants in south-central Brazil, in the largest biofuel investment ever made by a development bank. The Board of the Bank unanimously approved the financing today.
The three plants are being developed by Companhia Nacional de Açúcar e Álcool (CNAA), a joint venture formed by Brazilian sugar producer Santelisa Vale, U.S. private equity firms and Global Foods, a holding company registered in the Netherlands Antilles. The IDB will provide an A-loan from its own capital for US$269 million, and will help raise US$379 million from commercial banks in a syndicated B-Loan led by BNP Paribas.
“At a time of soaring food and energy prices, it is crucial to develop renewable fuels that don’t compete with food crops,” said IDB President Luis Alberto Moreno. “After examining the social, environmental and economic dimensions of these projects for more than a year, we concluded that they will produce clean and sustainable energy and provide quality jobs—without impacting food prices in any way.”
The IDB is developing a “Biofuels Sustainability Scorecard” that will facilitate assessment by all interested parties of dimensions, such as land, climate, water use and biodiversity, in a potential biofuels project. This interactive scorecard will be posted on the IDB’s website in August.
“Brazil is blessed with some of the planet’s best conditions for efficiently producing ethanol,” Moreno added. “But several other Latin American countries also have this potential, and we intend to help them develop biofuel industries that meet the highest social and environmental standards.”
The three new plants are being built in the states of Minas Gerais and Goiás, far from the Amazon or any protected areas. Instead of purchasing land outright, CNAA will lease it from owners of medium to small-sized plots who decide they can earn a better return from sugar cane than they can from low-intensity pasture—the area’s predominant land use at present.
The new plants will use mechanized harvesters for more than 90 percent of their acreage, and they will provide some 4500 high-quality permanent jobs. They will recycle all their stillage (wastewater) as fertilizer on the cane fields.
The plants will produce up to 420 million liters of ethanol for the domestic market each year, and will generate their own electricity by burning bagasse (plant waste). In fact, the cogeneration technology they will employ is so efficient that the plants will produce enough surplus electricity to power 400,000 medium-sized Brazilian homes.
Sylvia Larrea, project team leader for the IDB loan, said the project marks a milestone in the history of financing for Brazil’s sugar and ethanol industries, which has traditionally relied on short to medium-term commercial loans backed by export receivables. “By offering an A-loan with tenors of up to 15 years, and by mobilizing private financing of a longer-term nature, we are sending a clear signal to the market regarding the viability and the prospects of the biofuels sector,” Larrea said. “This kind of financing opens the way to a new level of expansion and consolidation in Brazil’s biofuel industry, and we hope it will lead to new investment in other Latin American countries as well.”
The private sector sponsors of CNAA’s ethanol plants have already contributed nearly $300 million in equity to the project. These sponsors include private equity funds such as Carlyle-Riverstone, Goldman Sachs, DiMaio Capital, Discovery Capital and Global Foods.
According to Larrea, construction of two of the three plants is nearing completion, and ethanol production is expected to begin in September. Each of the plants (which are located in Ituiutaba and Campina Verde, state of Minas Gerais, and Itumbiara, state of Goiás) will have a sugarcane crushing capacity of 2.7 million tons per year and a 56 megawatt co-generation plant that will supply electricity to the sugar and ethanol mill and sell excess energy to the Brazilian electricity grid.
These new loans are part of a comprehensive IDB program to support the development of renewable energy and energy efficiency in Latin America and Caribbean. The Bank has financed numerous studies to help its borrowing member governments determine the viability and sustainability of biofuels as well as solar, wind and hydroelectric power.
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