Brazil ethanol equipment makers ask for govt help

Mon Nov 17, 2008 5:22pm EST
By Inae Riveras
SAO PAULO (Reuters) - Brazil's equipment suppliers for the ethanol and sugar industry have asked the government for financial help as the credit crunch hit mills' investment plans and operations, a leading company said on Monday.
About 20 percent of mill expansions or greenfield projects already underway were being delayed, and 35 percent of mills that were expected to come online in 2011-2012 were halted, according to Dedini, Brazil's largest manufacturer of biofuel equipment.
"The suspension or delay in projects is affecting us deeply," said Dedini's operations vice-president, Antonio Carlos Christiano.
Investments in Brazil's sugar and ethanol sector were estimated at $33 billion from 2005 through 2012 by a range of investors including private funds, trading houses, oil and chemical companies. This year, 27 mills became operational out of the 80 mills planned through 2012.
Christiano said there were cases of mills defaulting.
"Some companies are having problems to honor their payments and this reduces our working capital. This is a problem especially considering that sometimes we also have to pay equipment suppliers," Christiano said.
Brazil's cane ethanol sector boomed in recent years due to growing local demand and prospect of rising exports.
But the sugar and ethanol industry itself has recently held talks with the federal government for credit. It has been strongly hit by the global financial turmoil, which dried up finance lines and made the existing ones more expensive.
The industry is a capital-intensive one and has leveraged considerably in recent years as companies invested to expand cane planting and the sector's crushing capacity. It also faced low sugar and ethanol prices for the last couple of years.
One of the proposals being discussed between equipment makers and officials is that resources already approved by the Brazilian Development Bank (BNDES) to be released directly to equipment suppliers -- not to mills as it normally happens.
Ministers attending the first day of the state-sponsored International Conference on Biofuels in Sao Paulo did not comment on the possibility of measures for the sugar and ethanol sector.
Brazil's Energy Minister Edison Lobao, however, said the government "is alert to the sector's interests."
Mills are in search of credit mainly to finance ethanol stocks during inter-harvest (January-March) and to export sugar.
There are still about 7 to 8 million tonnes of sugar to be shipped in the coming months until the beginning of the next crop, in April 2009, and companies rely largely on banks' and trading houses' credit lines to export.
At least one company went bankrupt in recent weeks.
Credit constraints resulting from the global financial crisis are also expected to boost mergers and acquisitions in the sector.
"The 200 existing groups today will be reduced by half in 10 to 20 years. This is not a short term prospect but the crisis will speed up this movement," said the head of the Sugar Cane Industry Association (Unica), Marcos Jank.
(Editing by Marguerita Choy)