Shell and Cosan have signed a non-binding memorandum of understanding (MoU), with the intention to form a circa $12 billion joint venture in Brazil for the production of ethanol, sugar and power; and the supply, distribution and retail of transportation fuels.

Under the deal, both companies would contribute certain existing Brazilian assets to the JV, whereas Shell would pour out a total of $1.625 billion in cash, payable over two years. The ultimate goal is to establish a scalable and profitable position in sustainable biofuels by building a market-leading position in the most efficient ethanol producing country in the world.

With annual production capacity of about 2 billion litres and significant growth aspirations, the JV would be one of the world's largest ethanol producers. In addition, the inclusion of Shell's equity interests in Iogen and Codexis would potentially enable the JV to deploy next generation biofuels technologies in the future.

The two parties will now maintain exclusive negotiations towards a binding joint venture agreement, which shall be subject to final transactional documentation, due diligence, agreement between the two parties on important sustainability issues, regulatory approvals and respective corporate approvals.

[source: Shell]