Q&A: Brazil's BBF plots course for green growth

Sao Paulo-based palm oil, biodiesel and electricity producer Brasil BioFuels (BBF) will spend around R2.2bn ($416.287mn) on an ambitious expansion project that includes a 500,000 m³/yr (8,671 b/d) green diesel (HVO) and sustainable aviation fuel (SAF) biorefinery, scheduled to come on line in 2025. The company owns around 75,000 hectares (ha) of palm trees planted in previously degraded areas and will soon start growing cocoa to take advantage of those trees' shade. Argus talked with president Milton Steagall about the firm's plans to raise funds to produce ethanol-based biodiesel in Amazonas state. The project will aim to begin renewable input production and is designed to compete with petrochemical-based products in the cosmetics, food and agricultural sectors. BBF expects 2023 revenues to reach R2bn and plans to debut in capacity reserve auctions. The move will expand the company's operations, now concentrated in isolated systems spread across 25 operational thermoelectric plants with another 13 in the pipeline. Edited highlights follow.

BBF will invest R2.2bn to produce HVO and SAF. How is Brazil preparing for the new biofuel frontier?

The government took the lead and made specifications for these fuels. We have everything to take the lead in this market, which has received large investments in Europe and the US.

The North American strategy was to retrofit old refineries to process vegetable oil, but it's expensive, despite being faster because it uses idle or old plants. The efficiency of these assets has yet to be proven. Global demand will increase, and Brazil, a major vegetable oil producer, has everything to lead this race.

Where will funding come from?

It's a long-term project. Obtaining the funds is under discussion with a consortium of institutions led by [Brazil's state-owned development bank] BNDES.

We cultivate the palm to have the vegetable oil inside the house. Origination is essential to advance in the production of HVO and SAF because we will not run out of raw material and be exposed to the commodity's [price volatility].

Brazilian palm oil producer Agropalma, controlled by the Grupo Alfa conglomerate, is selling around 39,000ha of land planted with palm trees. Is this deal on BBF's radar?

It is important to emphasize that there is legislation from 2010 that determines the agroecological zoning of palm cultivation and 31mn ha of degraded land in the Amazon forest were made available. Embrapa [Brazil's state-owned agricultural research agency] classifies these areas as preferential, regular and marginal.

In the project with domestic fuel distributor Vibra Energia, BBF will develop another 100,000ha of palm. We want to recover [these degraded areas] and create jobs in this region where 30mn people live.

Areas deforested after December 2007 will be used for cocoa farming, which is native to the region, perennial and cannot be mechanized. Despite the peculiarities of each culture, the practices are similar. Cocoa needs shading in the first two to three years, so the strategy is to plant on the contours of the quadrants. Both products are commodities traded on the stock exchange. That doesn't mean BBF is unaware of a possible M&amp;A, but our purpose is to expand the planted area.

What will the cocoa planting project look like?

With the palm, we build a crushing industry to extract the oil, a thermoelectric plant to burn the pulp byproduct, and we generate energy in a region lacking electricity. It will be the same with cocoa. We will use part of the oil extraction value to dry [the grain]. There are a lot of synergies and we will be able to develop the workforce.

The biodiesel blending mandate, currently at 10pc, is scheduled to increase to 15pc next month. What is the outlook for that increase ?

The validity of the arguments for reducing the blend of biodiesel has already expired. We should recover the mixture because the country imports diesel oil, which is expensive.

Soybean prices dropped from R200/bag to around R150/bag. Brazilian industry can meet demand without a hiccup. In this way, we will increase bran production instead of exporting raw soybeans, adding value to the product and increasing inputs for animal confinement. I believe that the government will increase the mixture. People talk about 12pc. Hopefully, by March 2024, it will be at 15pc.

Does BBF have a biodiesel plant in Rondonia and another under construction in Amazonas?

We have a biodiesel plant in Ji-Parana [in Rodonia state], which we will finish expanding capacity to 200 m³/d. The unit being built in Manaus [in Amazonas state] is an ethanol-based process, a patent resulting from a study proposal from [Brazilian state-owned innovation agency] Finep. We won this subsidy and registered two patents.

Finep will finance the construction to produce ethanol-based biodiesel, which is 100pc renewable because it uses fat, oil and ethanol as inputs. The unit will have the biochemical part of BBF BioTech, producing inputs for cosmetics, health care and bioinsecticides. We will compete with petrochemicals. The inauguration will be in the second half of this year.

BBF has 25 thermoelectric plants. When does the company plan to start operations at the other 13 in its portfolio?

Most of these plants will start operating this year. The largest, Forte Sao Joaquim [in the state of Roraima], will start operating by the middle of the year and will have [installed capacity of] 56 MW. There will be another ten plants in Para state, six of which will replace assets from the old Guascor and four are being built from scratch.

Hydroelectric reservoirs are at higher levels this year. Do you believe that thermoelectric generation will still be necessary?

Today, BBF operates exclusively in the isolated system, so the hydroelectric cycle does not enter our equation. But this year, we should debut a new energy contract model within BBF — capacity auctions. The system needs base energy balance alternations when wind, solar and hydroelectric sources can't fulfill their roles.

There are huge opportunities for us to do on-demand generation. When the Brazilian grid operator [ONS] orders it, we will start the plant's engines to generate energy from crude vegetable oil. It is cheaper than gas-fired thermoelectric.

BBF had revenues of R1.4bn in 2022. What is the perspective for growth this year? Are there plans to do an IPO?

We should reach R2bn in 2023, as all the projects start operating.

Many banks and financial agents tease us about the IPO. I believe we have a spectacular prospect, but we will take one step at a time. We want to deliver biodiesel and thermoelectric plants. We will dive headfirst into the project with Vibra to be Latin America's largest HVO and SAF producer.

When all this is ready, three or four years from now, we will be able to expand more aggressively, and we will need intensive capital. We will think about the IPO, not to plant 100,000-150,000ha but 10mn-20mn ha in a country that is still waiting for an adequate environmental solution.

By Alexandre Melo

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