BP and Bunge have agreed to combine their Brazilian biofuel, biopower and sugar businesses into a 50:50 standalone joint venture, BP Bunge Bioenergia.

Headquarters are expected to be based in Sao Paulo and the management team will be comprised of BP’s Mario Lindenhayn and Marcus Schlosser as chairman and chief financial officer respectively, while Bunge’s Geovane Consulas will be CEO.

The UK energy group said its interest in the venture will expand its existing biofuels business by more than 50%. “In one step, this will allow BP to significantly grow the scale, efficiency and flexibility of our business in one of the world’s major growth biofuels markets,” said Dev Sanyal, CEO of BP Alternative Energy.

Brazil is the world’s second largest and most integrated market for ethanol as a transportation fuel. According to BP, around 70% of the country’s vehicles can run on ethanol and demand in Brazil is estimated to grow 70% by 2030.

The combined company will have 11 biofuel sites across five states in Brazil – three of them are in the key region of Sao Paulo – with a total crushing capacity of 32 million t/y and the flexibility to produce a mix of ethanol and sugar.

BP Bunge Bioenergia will also generate renewable electricity through its cogeneration plants, fuelled by waste biomass from the sugarcane. The electricity will power all of the company’s sites with surplus power sold to the Brazilian grid.

In 2018, the two businesses produced a total of about 2.2 billion liters of ethanol equivalent, and after powering the sites, exported 1,200 gigawatt hours of low-carbon biopower to the national grid. Together, the businesses currently employ more than 10,000 people in Brazil.

Under terms of the agreement, BP will pay Bunge $75 million, subject to customary closing adjustments and the jv will assume $700 million of non-recourse debt associated with Bunge’s assets.

The deal is expected to complete in the fourth quarter of 2019, subject to regulatory approvals and the usual conditions.

Upon completion, the companies aim to generate “significant” operational and financial synergies. These will be achieved through scale efficiencies, using best practices, and optimizing technologies and operational capabilities across the assets.

BP noted that the Brazilian government is introducing a new low-carbon transport policy called RenovaBio, which is expected to encourage continued growth in the market and support development of the country’s sugarcane ethanol industry.