Raízen's Crisis Exposes Limits of Brazil's Ethanol Investment Cycle

Over a decade ago, major global oil companies and grain traders made significant inroads into the Brazilian ethanol market through a series of deals. Now, one of the most emblematic of these partnerships, Raízen – a joint venture between Shell and Cosan – is beginning to unravel, reflecting a cooling enthusiasm for the sector. Raízen, once the country's largest biofuel supplier, is facing a credit crisis that last week led to a debt restructuring agreement of approximately R$65 billion (US$12.3 billion). This development is expected to alter the nature of the partnership between the oil giant and the Brazilian group known for its agricultural expertise. Cosan has withdrawn from capital injection negotiations, and its stake in Raízen may be diluted following disagreements over a proposal to split the fuel distribution business from the unit that produces ethanol. Brazil is the world's second-largest ethanol producer, after the United States. The decline of this most prominent biofuel company marks the end of an era of significant investment in the once-dominant sugarcane fuel. It also underscores how corporate expectations for profits from a global effort to reduce transport emissions have not materialized as quickly as anticipated. A senior advisor commented, "There was a vision of a world where renewable energies would grow faster and occupy a larger space."