Petrobras' 1st ethanol pipeline, mill ready in '09

SAO PAULO, June 12 (Reuters) - Brazil's state-run oil company Petrobras said it will complete its first of two ethanol-only pipelines and first ethanol mill in 2009, a company official said on Thursday.

It will be Petrobras' first step into ethanol production although the company for decades has been a leading player in Brazil's distribution and retail of the biofuel.

Petrobras (PETR4.SA)(PBR.N) said it signed its first contract in May with a local ethanol company to build a distillery that will come on line next year and produce biofuel that will be directed to the export market.

Petrobras' downstream director, Paulo Roberto Costa, said two companies will be created to operate each of the two pipelines the company intends to build.

The first one, to be concluded in 2009, would run between the center-west state of Goias and Paulinia, in Sao Paulo state.

Japanese trading house Mitsui (8031.T) and Brazilian construction company Camargo Correa S.A. are Petrobras' partners in the project.

Petrobras also plans to build a second pipeline between the center-west state of Mato Grosso do Sul and Paranagua port, in the southern state of Parana. State governments are expected to participate in the investment.

The pipelines aim to improve efficiency and reduce producers' costs in transporting ethanol to the ports from Brazil's countryside.

Brazilian producers believe external sales will grow in coming years as more countries adopt the sugar cane-based biofuel as an alternative to fossil fuel.

Petrobras has plans to export 4.7 billion liters of ethanol per year from 2012. To achieve this goal, the company intends to sign a total of 20 contracts with local ethanol groups and build several of distilleries in partnerships.

About $200 million will be invested in the first plant, whose output is expected to reach 200 million liters per year.

The controlling shareholder at this distillery is the Itaruma Group, from Goias state, while Petrobras and Mitsui have each a 10-percent stake in the new company.

(Reporting by Denise Luna, Translated by Inae Riveras; Editing by David Gregorio)