Brazil to let mills sell ethanol directly to gas stations

BRASILIA/SAO PAULO (Reuters) - The Brazilian government on Tuesday paved the way for ethanol makers to sell the fuel directly to gas stations, by passing a resolution to boost fuel industry competition, although additional legislation is required to bypass fuel distributors.

The resolution by CNPE, the energy policy council, includes the option for direct sales by mills. Brazil’s Economy Ministry would have to issue tax-related regulation within 180 days for the change to take effect.

Some groups representing sugar and ethanol mills had argued for the change for years, saying it would lower prices for consumers and increase profit margins for producers.

Many cane mills in Brazil, the world’s largest sugar producer, can switch easily between producing the ethanol and the sweetener, and the change could divert cane away from sugar output. Hydrous ethanol competes directly with gasoline at pumps due to a nationwide fleet of flex-fuel cars.

Advocacy of direct sales is not unanimous in the ethanol industry. Brazil’s largest ethanol association, Unica, argues that it could complicate the rollout of a national program to boost biofuel use, RenovaBio, which is scheduled to start next year.

RenovaBio will give fuel distributors targets to cut carbon emissions linked to the amount of biofuels they use. If mills sell ethanol directly, distributors may struggle to increase volumes of ethanol.

The move has also raised questions about taxation. Mills and distributors share payment of the federal PIS/Cofins tax on ethanol. Mills might have to pay that tax in full if they sell directly to gas stations.

Groups in favor of direct sales, however, say mills are desperate to improve profit margins as sugar prices hover near decade lows.

Brazilian mills allocated a record 65% of the cane processed last season to ethanol production, which offers better returns than sugar.

Reporting by Marcela Ayres and Marcelo Teixeira; editing by Brad Haynes, Christian Plumb and Richard Chang