A joint venture between Shell International Petroleum Company Limited (NYSE:RDS.A) and Cosan S.A. (NYSE:CZZ) for a $12 billion joint venture was signed into a binding agreement by the two companies today.
The proposed joint venture still requires regulatory approval. When approved, the venture will produce and commercialise ethanol and power from sugar cane.
It will distribute a variety of industrial and transportation fuels through a combined distribution and retail network in Brazil. Business opportunities to produce and sell ethanol and sugar globally will also be explored.
With production capacity of over 2 billion litres of ethanol a year, the proposed joint venture would be one of the world’s largest ethanol producers. Including Shell’s interests in Iogen Energy and Codexis would enable the venture to expand next generation biofuels technologies in the future. The company will also generate electricity from sugar cane bagasse, the fibrous residue remaining after sugarcane stalks are crushed to extract their juice, in cogeneration plants at all mills. Ten cogeneration energy plants are already in operation and producing ethanol.
With total annual sales of about 18 billion litres of fuels, the proposed joint venture will have a competitive position in the Brazilian fuels distribution market built upon a network of about 4,500 retail sites.
A non-binding agreement was signed between the two companies in February. With the today’s binding agreements signed and transaction terms mutually agreed upon, before starting the new company, Shell (NYSE:RDS.A) and Cosan (NYSE:CZZ) will now be focusing on securing regulatory approvals and initial integration planning.