June 25, 2012 / 4:03 PM / 7 years ago

UPDATE 1-Opportunities limit Petrobras' ethanol investments

* Petrobras says investment opportunities are limited in ethanol

* Investments in ethanol declines in new five-year plan - CEO

RIO DE JANEIRO, June 25 (Reuters) - Sparse opportunities in Brazil’s ethanol sector have limited the number of new biofuel projects in the five-year investment plan of the state-led oil company Petrobras, Chief Executive Maria das Gracas Foster said on Monday.

Petrobras hopes to become the world’s largest exporter of ethanol over the next decade and one of Brazil’s largest producers by forming minority partnerships with milling groups here.

Investments in Brazil’s ethanol industry have dried up over the past few years after a boom that peaked in 2007-2008 which brought tens of billions of dollars in investments into the industry.

The credit crunch that followed the 2008 financial crisis sent many heavily leveraged local milling groups into the arms of larger, well capitalized rivals. The consolidation of the industry has consumed much of the capital available to mills and left new ethanol projects collecting dust on drawing boards.

The rising costs of ethanol production and a government policy of containing gasoline prices from rising at the pump since at least 2006 have also held back new investments.

The government, which is the controlling shareholder in Petrobras, said it would allow the company to raise gasoline prices at the refinery by 7.83 percent starting on Monday to help offset massive losses in its distribution business.

But the government also cut a so-called CIDE tax on the fuel that will keep the price of gasoline from rising at the pump. Without a rise in the price of gasoline at the pump, ethanol producers are likely to continue to struggle in Brazil.

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