Platts.com - BP signalled a major expansion of its Brazilian ethanol business Friday agreeing to buy most of Brazil's privately-held ethanol and sugar producer Companhia Nacional de Acucar e Alcool (CNAA) for some $680 million plus debt.

The move will allow BP to more than quadruple its Brazilian ethanol production capacity to some 1.9 billion liters/year, adding 1.44 billion liters/y to its existing Brazil ethanol output.

Under the deal, BP will pay $680 million to the owners of CNAA for an 83% stake in the company in addition to refinancing CNAA's existing long-term debt.

CNAA is controlled by private equity investment funds held by Carlyle/Riverstone, Goldman Sachs, Discovery Capital, Global Foods and US hedge fund DiMaio Ahmad Capital, according to its website. Commodity trader Louis Dreyfus is also listed at equity holders in the venture.

A BP spokeswoman declined to comment on the size of CNAA's debts.

"This strategic acquisition underlines BP's commitment to building material businesses in growing economies and continued expansion in Brazil through exploration and production, as well as biofuels investments," BP CEO Bob Dudley said in a statement.

Following the deal, BP will become the operator of CNAA's two producing ethanol mills in Goias state and Minas Gerais state in southeast and center-west Brazil, and also a third CNAA mill that is currently being built in Minas Gerais.

According to CNAA's website, the third mill -- known as Campina Verde -- was expected to begin production last year. The BP spokeswoman was unable to say when the third plant is now expected to come onstream.

BP said the total combined crushing capacity of all three mills, when fully developed, is expected to be 15 million mt/year of sugar cane. At full capacity each mill will be able to produce about 480 million liters/year of ethanol equivalent, BP said.

The mills will be able to supply both Brazilian and fast-growing export markets for ethanol. Each mill will also have the capacity to supply approximately 340 GWh/year of electricity to the grid.

BP has been investing in second-generation biofuels ranging from a partnership to build a cellulosic ethanol plant with Verenium in Florida to sugar-cane ethanol in Brazil.

Since 2008, BP has held a 50% stake in Tropical BioEnergia, which operates an ethanol mill in Goias state with an ethanol production capacity of 435 million liters/year.

At the time, BP said it was to build a second ethanol refinery under the venture with a total of cost of around $1 billion for both plants.

BP has said it believes sugarcane is the most efficient source of biofuel currently available, providing greenhouse gas emissions reductions of up to 80% over conventional fuels.