Brazil "throws cold water" on ethanol sector-Unica

By Inae Riveras

RIBEIRAO PRETO, Brazil, April 30 (Reuters) - Brazil's ethanol industry cried foul on Wednesday after the government lowered a fuel tax on gasoline to limit the impact of a price rise at the refinery on consumers.

The government's move shattered the industry's hopes of improving its margins with the widely expected 10 percent hike in domestic gasoline prices that came from the state-run oil company Petrobras earlier on Wednesday. [ID:nN30543835]

Ethanol prices stay at or below 70 percent of the price of gasoline due to the lower mileage a liter of ethanol gets compared with gasoline, but gasoline prices have been held artificially low by the government which controls Petrobras.

The last time Petrobras raised prices was in 2005 when oil was at $60-$65 a barrel. It is now nearly double that.

"The government preferred to lose millions of reais in revenues from the Cide fuel tax to not expand the ethanol market," Antonio de Padua Rodrigues, the technical director of the Brazilian Cane Industry Association, said expressing the bitterness in the sector.

Ethanol prices are about 25 percent below what they were a year ago, due to the increase in production from heavy investment over the past few years, and in many regions have fallen to or below production costs, producers said.

Rodrigues said the government's decision to not allow improved revenues for the ethanol producers essentially "throws a bucket of cold water" on the industry's expansion. (Writing by Reese Ewing; editing by Carol Bishopric)