Abu Dhabi sovereign wealth fund Mubadala is backing a major leap forward in aviation by funding a US$2.5 billion project to build a sustainable fuel plant in Brazil.
The plant in Bahia state will be managed by Mubadala Capital subsidiary Acelen and start construction in Q1 2024 with production commencing in Q1 2026. The fuel is based on hydrotreated vegetable oil and is set to reduce carbon emissions by up to 80%. It will be based at the Mataripe Refinery which currently produces petrochemicals.
Mubadala has previous experience of Brazil’s refinery sector. Acelen also owns the 333,000bpd Mataripe refinery (formerly the Landulpho Alves Refinery (RLAM)) which Mubadala bought for US$1.65 billion in 2021 and put under the control of Acelen. The Abu Dhabi fund has invested in renovation to raise capacity utilization from 70% to 100%. The purchase aroused controversy with Brazilian trade unions lodging legal challenges over "possible damage to the public interest", arguing that the price was below the market value; they claim it is worth US$3.2-3.8 billion. Before he was elected president in October, Workers Party (PT) leader Lula da Silva warned refinery buyers that deals struck by state oil company Petrobras could be revoked under his presidency.
However, da Silva is also prioritising domestic industrial development and diversification, including the reduction of greenhouse gas emissions and the development of low carbon fuels, and he is unlikely to snub Mubadala’s investment sustainable aviation fuel. Additionally, bilateral relations between Brazil and the UAE are growing, alongside rising trade and investment ties; in 2022 non-oil trade between the two states rose by a third to more than US$4 billion.
Mubadala is one of Brazil’s most active inward investors, focusing notably on distressed assets. In the past three years, it invested in O&G (the RLAM refinery), Infrastructure (MetrôRio), Renewables (Renova) and Real Estate (Medical Campus), and raised US$322 million for country-specific fund BSOF I. Last year, Mubadala said it was ready to spend US$3 billion, in addition to the US$5 billion it already has.
That target would make it the largest SOI in the country, taking over from Norway’s NBIM, which has US$6 billion invested in Brazilian bonds and equities. NBIM and Mubadala are followed by CDPQ, with US$5 billion, and CPP, with US$4.3 billion. The Canadian funds have offices in Sao Paulo, very close to Singaporeans GIC and Temasek, which were the first ones to open in 2014 and 2008, respectively.
Mubadala first started looking at Brazil around 2010. Its entrance was marred with costly problems. Soon after Mubadala’s multi-billion investment, Eike Batista’s empire (EBX Group) vanished into thin air and the investigation of “Lava Jato” prompted the country’s largest-ever corruption probe. However, Mubadala managed to fight and to turn around the portfolio, selling some of the assets including Hotel Gloria and Rock in Rio, and keeping some others, including part of Zamp’s stake and the executive tower that hosts the fund today in Leblon.
Global SWF analysis finds that sovereign wealth funds and public pension funds have invested more than US$17.6 billion in Brazil from 2016 to date with real assets comprising nearly 79% of the total SOI investment in Brazil. Around two-thirds of the SOI investment is in infrastructure assets while real estate is the second most favored sector, representing 12.0% of capital deployed. In the real estate sector, trends point to increasing interest in logistics, following a global trend that has been stimulated by changes in distribution networks in response to a rise in e-commerce and home delivery.
In terms of sub-sectors within infrastructure, oil and gas sector dominates (51.9%) with chunky investments in midstream and downstream assets, notably the Nova Transportadora do Sudeste (BCI, CIC and GIC) and the Transportadora Associada de Gás (CDPQ) pipelines and the Mataripe refinery (Mubadala). Opportunities to invest in oil and gas infrastructure are also likely to dry up as there is only a limited number of oil and gas assets. Other areas of interest are water and sanitation utility companies, renewables, and roads and transport, which represent 6.2%, 5.1% and 3.5% of investment since 2016, respectively.