Brazil’s Planned Ethanol Tax Cut Not Enough, Copersucar Says

A planned tax cut for Brazilian biofuel won’t be enough to restore investment in new sugar-cane mills, jeopardizing a 7 billion-real ($3.56 billion) ethanol- pipeline project, according to Copersucar SA.

The government is expected to soon reduce two taxes called Pis/Pasep and Cofins on ethanol to cut the price of the fuel, Paulo Roberto de Souza, president of the Sao Paulo-based sugar and ethanol trading company, said today in a telephone interview.

Brazilian ethanol has been losing market share over the last three years to gasoline, more than 10 percent of which is being imported and sold at a loss by state-controlled oil producerPetroleo Brasileiro SA (PETR4), known as Petrobras, according to Salim Morsy, an analyst at Bloomberg New Energy Finance’s Sao Paulo office.

Investments in new mills plummeted after 2008, giving Copersucar and five other companies less reason to develop the world’s biggest ethanol pipeline, Souza said.

“This measure will improve profitability in the short term, but just for mills already installed,” Souza said. “It isn’t enough on its own to incentivize investment in new production.”

The so-called PIS/Cofins taxes on ethanol may fall from 12 centavos a liter to 3 centavos, which will make the fuel about 5 percent cheaper at the pump, Morsy said. The government has also offered cane growers a 4 billion-real credit line and will boost in May the mixture of ethanol with gasoline to 25 percent, from 20 percent as a concession to mills.

Morsy and Souza declined to say when they thought the tax breaks will be announced.

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