The FINANCIAL — Shell International Petroleum Company Limited (Shell) and Cosan S.A. (Cosan) announced on Feburary 1 they have signed a non-binding memorandum of understanding (MoU), with the intention to form a circa $12 billion joint venture (JV) in Brazil for the production of ethanol, sugar and power, and the supply, distribution and retail of transportation fuels.
"Under the terms of the MoU, both companies would contribute certain existing Brazilian assets to the JV (see notes to editors). In addition, Shell would contribute a total of $1.625 billion in cash, payable over two years," Shell says.
The JV would enable Shell and Cosan to establish a scalable and profitable position in sustainable biofuels – one of the most realistic commercial solutions to take carbon out of the transport fuels sector over the next twenty years – by building a market-leading position in the most efficient ethanol producing country in the world. With annual production capacity of about 2 billion litres and significant growth aspirations, the JV would be one of the world’s largest ethanol producers. In addition, the inclusion of Shell’s equity interests in Iogen and Codexis would potentially enable the JV to deploy next generation biofuels technologies in the future.
The deal would also enhance both companies’ growth prospects and market position in the retail and commercial fuels businesses in Brazil. With a network of about 4,500 retail sites and a total annual throughput of about 17 billion litres, the JV would have a leading position in the fuels retailing market in Brazil, with strong potential for synergy capture and future growth.
Mark Williams, Royal Dutch Shell’s Downstream Director, said: “Today’s announcement demonstrates the continued importance of Brazil to Shell. We're looking forward to joining with a leading company in Brazil to meet the needs of retail and commercial fuels customers in that growing market.
“We see joining with Cosan as a way to grow the role of low-carbon, sustainable biofuels in the global transportation fuel mix. The joint venture would also enable Shell to set up a material and profitable bio-fuels business, with the potential to deploy next generation technologies.”
Rubens Ometto Silveira Mello, Cosan’s Chairman of the Board, said: “Cosan’s vision is to become a global leader in clean and renewable energy. Our size, degree of sophistication and stage of development means we need a partner that not only shares our vision, but also has access to international markets to help us deliver our growth potential.
“We believe this JV would play an impactful role for the sustainability of our planet by increasing the worldwide supply and distribution of ethanol-based biofuels. It would also consolidate Brazil’s leading position in a world looking for sustainable, efficient and reliable alternatives to satisfy energy demand.”
The two parties will now maintain exclusive negotiations towards a binding joint venture agreement, which shall be subject to final transactional documentation, due diligence, agreement between the two parties on important sustainability issues, regulatory approvals and respective corporate approvals.