Sao Martinho SA
BOVESPA:SMTO3
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Sao Martinho SA
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Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to São Martinho S.A. Third Quarter of the '21/'22 crop year Earnings Conference Call. Today with us, we have Mr. Felipe Vicchiato, CFO and Investor Relations Officer; and Mrs. Aline Reigada, São Martinho's Investor Relations Manager.
The audio and the slides of this call are being broadcast simultaneously on the company's website, saomartinho.com.br/investorrelations. [Operator Instructions] We would like to inform you that some remarks made during this call may contain projections or forward-looking statements. And as such, they are subject to known and unknown risks and uncertainties, and this may lead such expectations not to materialize or be substantially different from those expressed in these remarks.
Now we would like to turn the floor over to Mr. Felipe Vicchiato, who will start the conference.
Thank you very much. Good afternoon. Thank you for participating in São Martinho's conference about the third quarter of the '21/'22 crop year. Let's start with Page #3 with the agenda.
The idea is to talk about the financial highlights and then the cash cost, the impact of prices because of Consecana and the costs that are directly related to the input and chemicals and indebtedness in the sugar and ethanol market for the next quarter. And lastly, the CapEx for the corn ethanol project that was revised.
In financial highlights, we had a quarter that was rather strong from the viewpoint of revenue EBITDA 26% increase in net revenue from BRL 1.2 billion to BRL 1.5 billion basically because of the higher prices, both of sugar and ethanol, 76% higher ethanol, 30% sugar year-on-year increase. And in spite of the fact that we showed less in terms of volume, in the case of sugar, as you can see here, the percentages on the slide on the lower part 9.9% and 23%.
And this is directly linked to the smaller and smaller crop and the adjusted EBITDA growing 37% and we reached an EBITDA margin of 58% and EBIT -- adjusted EBIT, 59% increase in the quarter BRL 556 million. In this quarter, we received another part of the IAA, the precatórios that were issued, the court ordered debt securities that were transferred to us for BRL 415 million in other operating revenues. And in the last period, it was in the second quarter of 2021.
And this comparison is [ here ]. But when you look at the 9 months year-on-year, you can see in both years, the amount that was mentioned. This is close to BRL 270 million, as we said, in the financial statement, 108% increase here and net income of 156%, getting close to BRL 5 million in the quarter.
I would like to mention 2 important points in terms of price regulation. In the BRL 1,800 in the third quarter in the price of sugar, we have about 70% of the average price going through hedge of our own sugarcane that was revised and very close to BRL 1,600 per ton. And the remainder was under the Consecana price.
In the case of ethanol, the third quarter was record in terms of prices, and we already see a reduction in prices, and I will get into details later on. But part of the volume of ethanol that will be sold in the next few months was priced at the average price of the third quarter but not yet in the hand of the client. And so there is a guarantee of better prices in the [indiscernible] market.
We have the evolution of the cash cost of the company on the next slide. In the last 9 months to make it more clear. So per TRS, it goes up 42% year-on-year comparison. BRL 924 going to BRL 1,300. Consecana was the bigger vendor here, so to say, and representing 163 or 17.7% and net of Consecana from the costs that we can manage, the manageable costs, we are talking about the unit cost going up 20.7%.
Comparing the 9 months of this year and last year, 13.4% are related to the smaller crop. As I said, we had 12% shortfall producing less TRS. And with that, we see a lower cost dilution of our fixed costs because all the operating costs regarding labor, fertilizers, diesel in order to harvest the sugarcane always related to the amount of sugarcane that you are harvesting and when you harvest less with the same cost to see this kind of dilution, a lower dilution.
If it were not for the shortfall, our unit cost in the comparison year-on-year, wouldn't go up more than 10% and the other offenders in terms of costs were the inputs, namely fertilizers. And as you know, the prices went up, they really skyrocketed this year impacted the P&L. These are -- and others as well.
One important detail in the cash cost, as you can see here, we include the operating CapEx of the company and the OpEx, the CapEx is permanent via depreciation in the next year. But for a better understanding and clarification, we prefer to show you the CapEx and the OpEx here. And breaking these down between sugar and ethanol, what we can see here is that the sugar had a compression of margins of 5.5 percentage points year-on-year. And as the average price went up 33% in the 9 months and the cost went up 42%.
In the case of ethanol, the average price 75% increase and the cost 41%. The price [ 71% ]. And in the total cash cost of sugar, we have Consecana and within Consecana, we have ethanol. So in practical terms, if you exclude from the total cash cost of Consecana when you talk about the sugar, what is Consecana of ethanol, the cash cost of the sugar could go up 30%. The cash cost for ethanol on the other hand, would be going up 44%, 48% approximately. But to be more rigorous we preferred not to do this adjustment and only explain the impact that is only for accounting purposes.
Now we talk about the indebtedness of the company. Net debt BRL 3.3 billion, 24% higher than March '21. On the lower part, you can see our debt from March '21 to December '21, the operating cash flow was BRL 1.1 billion, which is basically the EBITDA less the operating CapEx and Copersucar BRL 195 million -- BRL 144 million positive here, decreasing our debt, working capital right now, BRL 610 million. Once in December '21, we had more or less BRL 1.9 billion in inventory at the market value. And the number that you see here is the accounting. BRL 595 million CapEx, expansion CapEx and improvement CapEx and the bulk of the expansion CapEx is the [ corn ] CapEx and the cogeneration CapEx because we're making investments. In the financial statement you have all the details.
And lastly, here, we can see the dividends that were paid during this period, BRL 808 million, of which BRL 300 million related to the previous period, and it was decided in the July meeting and paid in August and the remainder paid in December, part as dividends or prepaid dividend and part as interest on equity in December, given the profitability of the company.
The company today has 93% of the debt in Brazilian currency and the remainder in dollar. And so that we could have the possibility of hedging the commercial area as soon as they decide, and then we will be hedging. We have the debt schedule, BRL 1.5 billion in December '21 corresponding to 2 years approximately of debt maturities from 0 to 24 months.
On Page #7, we talk about the sugar and ethanol market and our hedge position. In December, we had 80% of the remaining crop that will be built for '21, '22 to be hedged. So 228,000 tons of sugarcane hedged at BRL 1,964 and 64 -- were so open from -- for '22, '23 crop, we have a hedge of [ 60% ] approximately of our own sugarcane at BRL 2,122 per ton.
From September on we changed a little bit because of the reasonable exchange rate and better sugar prices as well. And for this reason, we were able to get better prices. Having said that, when we compare what we had in the company's P&L, sugar prices of our owned sugarcane in the 9 months of this crop year, you can see BRL 1,636 per ton and already hedge for next year at BRL 2,100 per ton. Based on my hedges of December, I already have a price increase contracted for next year for the billing of the sugar, given the hedge that we have and the current price of sugar is more less in this range, close to more or less BRL 2,000 per ton sugar.
It depends on the screen and exchange rate, 5%, 5.3%, if you take the current 1 plus the interest rates that are inbuilt. In regards to ethanol, ethanol was strong during the whole crop year, with very high consumption and the record of ethanol consumption was in November, 2.1 billion liters, and the price went up to BRL 2 to BRL 4 per liter with the average price of hydrous and anhydrous. And when we hit BRL 4, we saw a drop in the consumption in December, going down to about 2 billion liters, 1.7 billion liters in January. And the drop in the consumption of ethanol from December to January is very much attributed to the parity that went up quite steeply and the lower purchasing power of the population, and then the price went down and the price to the producer is close to BRL 3.1 per cubic meter.
And then the parity going down in São Paulo and other places below 70%. So consumption is picking up again, and we understand that the worst is already water under the bridge. As we said, we had an inventory to be sold -- a reasonable amount of inventory still -- to be sold still during this crop year. Then we have already sold 25% of the inventory. And in the next quarter, we will be writing this down with already the prices of the previous quarter.
And it's interesting to see that at a point in time, there existed the possibility of having a shortage of ethanol because of the strong consumption and also because of the shortfall. But what happened was that the price went up and consumption went down and there was no need for exports -- for import and the market self-regulated, in fact, and this is the good side of having a free market.
On the next slide, to finalize my presentation, talking about the material fact that we published yesterday, the company announced in December of 2020, our investment in the corn ethanol plant. At that time, the investment was close to BRL 640 million. And we would be processing -- producing 210,000 cubic meters of ethanol, 150 of DDGS and 10,000 of corn oil.
And we revised to BRL 740 million, BRL 100 million more basically due to 2 factors. The first factor for this review represented 30% more, 30 or about BRL 30 million more of the BRL 100 million. It was because of the inflation that was higher than we expected. From December '20 up to now the price of inputs and -- went up more than we anticipated, and we had to revise our CapEx.
But looking at a total of BRL 640 million, BRL 730 million, representing the inflation and it could have been much more if we had not already contracted the equipment, the suppliers, et cetera, and the additional 70% or BRL 70 million were adaptation of the project. When we announce a project, we announce the project in a phase in which we do not have all the details identified. And when we go ahead, we -- in this case, we saw the possibility of -- we were talking about the possibility of supplying energy to the plant.
Just to give you an idea, the main changes here will be the following: Boa Vista corn ethanol plant will produce and the other one, sugarcane will produce only hydrous. And today, the plant produces ethanol, and it will only produce ethanol and the corn plant will only produce this. And with a small additional investment, we saw that we would be able to generate anhydrous with a small expense of energy. It's rather technical, but a technical -- but a standard plant, you have 1.5 kilos of steam per -- and in the corn ethanol, it will be 0.1 for each liter of anhydrous produced.
So the consumption of energy will be much lower. But in order to do this or to achieve this, we had to make additional investments. And with these additional investments, the plant will be prepared, let's say, the company decides to double the size of the corn production to an additional 220 in the future. Should we decide to do that, we will not need to have wood chips, we'll have additional -- we will have enough energy to take this ahead, and we can produce more anhydrous. So the energy efficiency becomes very good.
So this was the main reason. And then the plant will be ready so that in the case of our approving this project, we are still studying that. We will already be halfway in the sense of energy supply, which is the most complicated item. Well, these were my initial remarks about our results and about the project. And let's open for questions.
[Operator Instructions] The first question comes from Mateo [indiscernible] from UBS.
Talking about capital allocation given the low level that you have in spite of all the projects that you have announced, you still have a major cash for the company. How should we see this? How should we look at that in the medium run in terms of dividend or extraordinary payout or buybacks or investment in other business lines, increase in the area planted or diversification? So could you give us some additional color after you conclude the projects that are already underway?
And my Second question, I would like you to give us some color about the expansion of the corn ethanol plant. You talked about doubling the capacity, but how much of the additional BRL 100 million investment would be dedicated to that? Or we start to see the development of the harvest that will start in April with an estimate of recovery of 6% to 7% in the Center-South in terms of crushing.
What about changes in the current scenario? Will you be following this estimate of the Center-South? Will you be at the average of the market, so to say, in this regard or upwards or downwards?
Let's start by your last question. In relation to the crop year, the last estimate that we saw, and we track this, is an increase in crushing to 560 million tons, which would be 6%, 7% that you mentioned yourself. On the other hand it will have a lower TRS. The TRS was very high because of the weather, and you lose about 2% of the TRS. So you have a growth in terms of product which is ultimately what is really valid as far as the price dynamic is concerned.
You still see a small increase, 4% and based on a low comparison. Having said that, São Martinho historically outperformed the sector in the crop recovery due to the investments that we make. And we have the [ A&B ] environment mostly and they are located in a more -- in a better kind of land.
This should be seen around April, May. I wouldn't like to say anything at random because we still have a long way to go. Today is February 15, so we have to wait until the end of February and the whole month of March. And we expect to start the harvest in the first weeks of April -- in the second half of April, in fact. And this is when we will have more information. But looking at this sector, we do not expect a very strong growth in production.
The first question regarding capital allocation. Last year, up to December, we distributed 100% of the company's net income, because the company was generating quite a lot of cash and the leverage was low. And of course, today, we will be debating this when we end the crop year. The project that we have, cogeneration and corn, they are already being financed. And the company's strategy is to grow in ethanol. And this is the reason why we invested in corn ethanol. This is why we mentioned the study about doubling the production capacity of the corn ethanol, but we do not have anything yet to tell you about that. No decision has been made. But as the price scenario is better because in December '20, when we announced the project, with all the capital allocation will go to this kind of project.
Regarding how much I have already spent and how much I will not spend in the future. In fact, I have already mentioned that 30% was inflation and 70% was the additional energy efficiency that we need in practice. If we didn't spend this money now in the current plant, I would have a higher expenditure in terms of energy, and I would be selling less energy in the grid.
So the decision to make to do this was a project within the project because of energy savings, but I cannot tell you anything about that because I don't even have the budget for the plant and for the next plant and certainly, the budget for the next plant will be higher because all the equipment, et cetera, will be impacted by the inflation in this period. And in December '20, I was able to sign a contract with most of these suppliers and the equipment. So it's going to be different.
Lucas Ferreira, JPMorgan.
Hello, Felipe. My question is about capital allocation as well. Does it make sense to you? Because it seems to me as a given because of the corn ethanol and everything that you have already referred to and a doubling of the size, but does it make sense to you to consider greenfield or M&A or another region or something close to where you are already? Is it too early to talk about that?
And my other question is about the first phase or the first plant. So could you give us an update? Does it change the start-up date? And what about your sources of corn and the breakeven of the plant? All this change that we saw in corn prices that we saw in the last few months. So how do you see the economics of the plant?
Lucas, thank you for the question. I will start by the second one. We have already guaranteed the price of corn for this harvest. So the total volume of corn that I will be buying already has a price locked in. And up to the beginning of the next one. So we are rather comfortable in terms of the prices of corn for the beginning of our operations. This is one point.
The plant will not be delayed. It should be starting in October -- from October to February for 5 months during this first phase, maybe getting into March a little bit. And then we have a maintenance stoppage and then we resume in April. So it should be 80,000 cubic liters, give or take. In weeks, this volume could change. And we are on schedule and we already have the storage, the warehouses. And once we receive the warehouses, the suppliers of corn will bring their corn to the warehouses and the economics of the beginning of the plant have not changed. The return continues to be very attractive. Even if you consider a more conservative oil price around $65 or $70, we will still have a return of about 20%, 25% a year.
In relation to your third question regarding capital allocation, greenfield for sugarcane. No, the answer is no. Today, a greenfield for sugarcane is very expensive and it takes quite a long time because you have to plant all the sugarcane, you plant the raw material. It's different from corn because you don't have the planting of the corn, but you have to form the nursery and you have to form and stabilize the field and the initial CapEx is very high. So we understand that's not worth it.
M&As, well, M&As are always a possibility, but you don't really do an M&A at the peak of the cycle because the valuations are very high of some companies that are not really worth the valuation. So we have a lot of discipline in terms of our capital allocation. However, this is always a possibility.
And corn, well, we have to look at the organic project besides corn. We have an obsession here 24 million tons of processed sugarcane in São Martinho. We have a deficit of 3 million, 4 million tons to get there, and we are working on that, and we expect to get there. And of course, the weather conditions -- well, the weather conditions will not really hinder us if we are able to get to this objective.
And we have to think about the dilution of fixed costs always because when you get more cane in the same hectare, of course, the benefit is huge. It's over half the cost or the dilution of our fixed costs. So this is sinequanon. We have to be very focused in terms of increasing the yield of the sugarcane. And for that, we have a very big team. And besides investing in the agricultural part, we look at the other varieties with a higher yield and we are improving the efficiency, and we are growing new varieties that could help. And in this crop year, in this harvest, we will have 30% of the harvest will be a first cut and this will help us in terms of the average of yield. So this is an agenda that we are following very closely.
For corn, we are studying investment in the project of Boa Vista corn, but we have barely begun our analysis in this regard. And another similar project would be to this -- to do this in São Martinho because São Martinho with the equipment that we are placing and that will start next year, it gains efficiency. And from the industrial viewpoint, we would be able to place a corn unit there, but the challenge is when the corn would get to São Martinho the cost. So you have the freight that has a negative impact, bringing the corn from Mato Grosso to Goiás to São Paulo, but you have the benefit of a bigger market and with better prices. São Paulo accounts for 55% of the ethanol demand in the country.
And if we analyze this, the price is always higher than the average of Goiás and Minas and the Center-West or the Midwest. And it might make sense, and this is another way for us to grow ethanol. But this is more in the longer future. In 2, 3 years' time, we will think about it in terms of capital allocation.
Great. Felipe, 2 follow-ups. Could you talk about the price of corn that you were able to achieve for the ethanol that you are producing now. And if you have already sold the [ DDGs ]?
No, we have not sold the [ DDG ] yet. This is, in fact, a proxy of the soybean price plus a premium. So the price of corn is between 10%, 15% less than what you see in the market today approximately.
Leonardo Alencar XP Investment.
Along the same lines in Consecana that could hinder more in the future, plus the pressure of fertilizers. What is your view about that? And how do you intend to mitigate these costs? And now talking about your hedge position for '23, '24, I think you still have a bigger amount to be hedged. So what are the variables that justified this?
Thank you for the questions. In the case of sugar, we did 70% at [ 2.1 ]. In Brazil, in our view, the sugar production shouldn't be going up steeply and they still have India with the possibility of transforming their harvest into ethanol. The sugar story is very positive. And I believe that the trend is that we will be seeing healthy prices for sugar for the next year, but we already have hedged 60% or 70% of the harvest.
Looking at the cost, the big offenders for the next year will be fertilizers. Fertilizers, that should be going up about 15% coming from a higher base this year already and accounting for about 6%, 7% of my total cost. Diesel, which is the second offender should be going up around 15% because the bulk of the diesel we buy during the harvest, if you take the average of the harvest the price of oil at the time was much lower. And now as of April, it will be $90 more or less with about 15% increase in diesel. So these are the 2 big offenders. But this represents a percentage of my total cost. 8%, I think. And the sector will be more under pressure. But we understand that cost increase will be offset by higher production. In the case of São Martinho.
And the recovery of yield. What about the recovery of yield? Well, the higher recovery will be in São Paulo because São Paulo was more hindered because we had frost in São Paulo. We had more dry weather in São Paulo. So you will see a higher recovery in São Paulo because the base will be lower and we have already had good rainfall in the summer, and you will see a higher recovery in São Paulo.
Christian Audi, Santander.
Hello, Felipe. I would like to know your outlook about first, the price of ethanol. As you said yourself, at the beginning, we had a drop in the parity, and it has been dropping. So how do you see for the beginning of the year? And what do you believe could happen in terms of ethanol prices, mainly because of the oil prices? They have not adjusted the prices yet. So this is my first question.
The second question, how do you see the price dynamic in terms of tax cuts on gasoline, like the ICMS tax and other taxes, what will be the effect on ethanol?
And going back to capital allocation. You have been maximizing dividend payout, 100% of your net income, as you said. So given this dynamic, which is very positive in terms of prices, both of sugar and ethanol. Do you expect to have extraordinary dividends being paid? Or are you going to use this money to expand your corn production or corn ethanol production.
Thank you, Christian. Extraordinary payment of dividend or in total equity is not on our radar screen because in June, we already report our total volume for the year. So from today up to June, it will be very difficult to have any extraordinary dividend payment. We are getting to the end of our fiscal year, an additional 45 days only. And these figures have to be studied by our Board and then only after that, we can talk about this.
And after June, we will have a better visibility in terms of our capital allocation, where we are going to allocate and maybe announce something extraordinary. But more looking from June on, when we have the end of our crop year. In relation to the price dynamic of ethanol, we believe that this drop from 4 to 3, the cubic meter was very strong, but it has already accommodated, so to say. And looking at the price of gasoline at the pump, a parity of 70%, more or less.
Today in São Paulo, you see a difference of about BRL 2, and in these BRL 2, we're seeing that the consumer tends to consume more ethanol without doing a lot of math regarding parity. Not everybody does that when we go to the gas station or the fuel station. But we believe that the consumption of ethanol could recover very quickly. And when it goes up and when we start the new harvest, we expect the price to be around BRL 3,000. This is what we expect. Supposing the price of gasoline at the pump as it is regardless of Petrobrás increasing or having price increases.
Now looking at the tax side, what we see is a discussion. It started with the PIS and COFINS which are federal taxes for both gasoline and ethanol, and now the talks are focused on the ICMS. In the case of PIS and COFINS, we would have to -- well, the impact would be from [ $0.10 to $0.15 ] per liter and the ICMS as far as I can see, it has to do with freezing, so to say, at the current levels because the ICMS is proportional. And the discussion now is about not raising the ICMS.
What I mean is that our objective is the following: we talk to the whole team about that, and we try to be the lowest cost producers in the sector and be ready to face any scenario that might come. And if you have a low production cost, you can do this. And also this PIS and COFINS came into [indiscernible] our commercial area, anticipated this, and they sold the ethanol before. But if you think at the medium and the long run, our objective is to have the lowest cost once the corn plant is ready, it will be one of the least expensive ones. And with the lower cost of production of corn ethanol, although the corn in Goiás is more expensive than the Mato Grosso corn, you have the benefit of selling the ethanol at higher prices there. So this more than offsets this difference. And also you have the non-reliance on buying or producing wood chips for the boilers.
With the new corn plant -- besides the corn plant. Is there fundamentally different that you would do in your expansion or maintenance CapEx, cost structure, something very different? No. Not right now. We have the adjustment for the distillery and the [indiscernible] of consuming less steam for the production of ethanol.
And we have already taken the necessary actions. But let's say the plant is approved, then we will need an additional investment in tankage. But right now, we have not invested in tankage because we have a surplus in Boa Vista. But for the second plant, we will have to invest something for the tankage of ethanol. Otherwise, we will have an issue regarding inventory.
And we are talking about Boa Vista, depending on the yield of our sugarcane. We are talking about 650,000 cubic meters of ethanol, okay, in 1 single year. In sugarcane tons, it's something close to 8 million tons. So you need to have the necessary tankage for the product for the ethanol. Today, we do have, but if we double the size of the corn plant, we will have to have proportionally more tankers as well.
Gabriel Barra, Citibank.
You mentioned at the beginning of the Q&A...
[ The question -- the audio of the question is getting very distorted to the interpreter. ]
[Technical Difficulty]
I would like to understand the scenario, how much of this drop was supported because last year, for '22, '23 -- could you talk about that?
[ The interpreter apologizes because the sound is totally distorted here from this analyst. ]
[Technical Difficulty]
What about the increase in your CapEx?
Thank you for the question, Gabriel. Let's start by the Meiosis. We plan to annually -- 40,000 hectares, of which 80% are in PSS with Meiosis. 4, 5 years ago, we started this and it was not 80% at the start. It was about 20%, 30%, then 40% and stronger in 1 unit and less strong in another unit. But today, 80% of the sugarcane planted is PSS with Meiosis.
What is the benefit of this kind of planting? You save once you produce your own seedling, you save or you don't have to take the first cut sugarcane that should be crushed in order to produce sugar and ethanol. You take this sugarcane and you crush instead of using it for conventional planting. So this is the thesis behind it.
Let's say, we didn't have this technology of PSS with Meiosis. In this harvest, we would have crushed 700,000 tons of sugarcane less. I would have 19.3 instead of 20 in a ballpark figure. Once we do have this technology, I can preserve that. And looking ahead, what is the advantage PSS with Meiosis? Is 18-month sugarcane you plant during the summer and it is only harvested in the following harvest year. At the beginning, when you implement this technology, you end up losing some sugarcane at the beginning because you change from 12 to 18.
But when you think in the long run, the 18-month sugarcane usually has more TRS and more TSH -- TCH. So the sugarcane that I am harvesting now is the 1 that was planted with the PSS with Meiosis technology. And when you look ahead in a few years' time, when in my field, I have 70% of my sugarcane being harvested. And this technology, the trend is to have more regardless of any weather conditions. So this is what we are seeking and that we are going to get to our target because of the technology that we have implemented. And I lose some sugarcane at the beginning, but as of now, we will go up to the moment we get to 24.
And the second question about CapEx. Such as is the case with the corn ethanol, we signed with the suppliers before. We have less suppliers in terms of equipment or boilers for corn, and we do not anticipate an additional CapEx at the UTE plant. It will start in '23, '24, 200-megawatt hour, more or less, for the TPP, the thermal power plant. So it doesn't change what we announced in the material fact that we published. Maybe I have forgotten about -- well, it changed quite a lot because the corn at the time was something close to BRL 40 entity shares is a proxy of soy. At the time, the project gave a return of about 20%. And today, the new figure is a devalued project -- deleveraged.
Werner Roger, Trígono Capital.
Congratulations for the results. You were talking about the diesel cost and the fertilizer cost here in Brazil, which basically follow the international market, whereas in Europe, the same costs they evolve the cost of energy. If I'm not mistaken, they use natural gas in order to make beetroot sugar and in the United States, they also use or they have cogeneration to make the corn ethanol.
And in Brazil, the advantage that you have, you have the biomass energy or even wood chips. But given the scenario of cost increases, and also in India and other countries they do suffer the impact of the cost of fertilizers, et cetera. And in this case of energy, don't you think there will be a pressure on costs, not only for sugar, but also for ethanol in the United States because of the energy costs and price increases of oil, do you think they are going to have an impact on the prices of sugar as well?
Because there is the outlook for a strong reduction in the cost of diesel in the short run, such as is the case of gas, natural gas as well. And you referred to India, using the blend with gasoline and how they have the flex technology. Don't you think this creates a new demand in India, channeling production more towards ethanol than towards sugar? And with the new level of prices for sugar and also for -- could you comment on that, please?
Werner, thank you for the question. You are correct. This is our view as well. In the case of sugar in Europe, the beetroot sugar, the recent figures that we saw, the cost was close to $0.20, and it continues to go up consistently, because of the energy cost that has a very big impact.
And in the case of corn ethanol in the United States, if you look at the environmental side, the Brazilian one is much better than the American one for the reason that you referred to because we are self-sufficient.
In the case of São Martinho, we are not going to use any wood chips, additional wood chips. We are going to use the sugarcane by gas producing 50% more ethanol from the same plant. So we adjusted the energy efficiency in order to consume less steam and having a higher production. So structurally speaking, the new level of oil, it does impact the cost of many world producers. For instance, India is following this path or most of the sugar that they would be producing, they are channeling this to ethanol. And besides decarbonization and the environment, you have the cost in India.
So not only for environmental reasons. So I don't think there is a way back for this trend. And structurally, we would have a price of sugar much better than the one that we saw in recent years. Just to give you an idea, with the drop of ethanol 3.1 with a discount vis-a-vis gasoline at the pump, which is lower than the price of oil.
With a 15% discount in the parity, we are saying that sugar operate with a premium close to 8% to 10% only. This is not a premium that really incentivizes production here in Brazil because in the case of sugar, we have logistics involved. Producers have to transport the sugar up to the ports and logistics are more expensive now because in most of Brazil, it's highways and not railways. So it should be a sugar alcohol mix.
In terms of the sugar prices that have a premium vis-a-vis ethanol, and also you have to consider the major drop that we saw in ethanol in the Brazilian market. I don't know whether I have forgotten something.
No, Felipe. Perfect. But could you give us some color about your balance sheet and the provisions that you probably have already made regarding the precatórios or the court ordered debt securities and also about the IAA court ordered debt securities and yes, I understand you have another lawsuit regarding the IAA and monetary restatement. Could you tell us what the amount -- the overall amount is? And what is the percentage of São Martinho in this overall lawsuit?
The remainder of the precatórios or court ordered debt securities with Copersucar, it would be an additional BRL 2 billion, if I'm not mistaken. And we have 13% of the rights over this amount. But it is not uncontroverted yet. So we still have some time until this is solved, and the bulk has already been solved.
And we have an additional 3 installments to be received until '25, it's '22,'23 and '24, '25. All the precatórios that we receive from Copersucar, Copersucar collect the PIS and COFINS, they withhold the PIS and COFINS, and they make a judicial deposit and they start a judicial discussion that should not have PIS and COFINS. And the counsel that is defending Copersucar is the same that won the IAA lawsuit.
And so Martin what refers to the precatórios net of PSN COFINS has to collect the ISS. And then we have to discuss a thesis of [indiscernible], the same lawyer. And we understand that we should not be collecting this tax at all, and we have just started to have this discussion.
And if you think about the number of years that it took to have this discussion about the precatórios, we don't expect this to be solved in the short run. We do not have an idea of a time frame.
Are you talking about the [ Selic ]?
Yes. Like a financial investment. Yes, we have already provisioned.
Perfect. And in case you are successful, in terms of this indemnification and indemnification is not subject to taxes, correct? And let's say, you are successful in your claim what would be the amount, the initial amount and it would have a cash effect because the -- you wouldn't have this recovery with the Union. Let's say, this is released to cash and then you would revert in the provision in other operating expenses, but there would be a positive impact on your bottom line.
Yes, BRL 734 million, the total up to December. And should the company be successful, this will be posted to our results as soon as a decision is made and then we would have the result in other operating expenses. But it gets into the accounting EBITDA, but we also adjust in order to look at the normalized EBITDA.
[Operator Instructions] There are no more questions. I would like to turn the floor over to Mr. Vicchiato for his closing remarks.
Thank you very much for participating in our call, and we remain available to you should you have any -- should you need any additional information. And of course, should we have anything new to impart to you, we will be publishing material fact. Thank you very much.
São Martinho conference call has come to an end. Thank you very much for participating, and I wish you all a very good day. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]