Cosan SA Industria e Comercio, Brazil's largest and the world's fifth-largest producer of ethanol is in talks to buy UK-based BG Group's stake in gas distributor Comgás, in a deal reportedly worth $1.7 billion.

Following a report by Brazilian magazine Exame that BG was in talks with Cosan over the sale of BG's 60.1 per cent stake in Comgas, both companies yesterday issued a statement confirming the negotiations.

Sao Paulo-based Comgás, which is 60.1-per cent owned by BG, 18.2 per cent by Royal Dutch Shell and the remaining with the public, is Brazil's largest natural-gas distribution company.

In 1999, Berkshire, UK-based BG and Shell acquired Comgás in auction for R$1.6 billion, the highest ever paid in Brazil at that time for a state-owned energy company.

Between 1999 and 2005 BG and Shell invested around R$1.5 billion in modernising and expanding the Comgás gas distribution network, which grew by more than 2,000km.

The Comgás network comprises more than 4,000km of pipelines that deliver natural gas to over 500,000 residential, retail and industrial customers in 57 cities.

Its concession area comprises 177 municipalities in metropolitan São Paulo, metropolitan Campinas, the coastal area around Santos and the Paraíba Valley, accounting for about a quarter of Brazil's gross domestic product.

BG, the third-biggest oil and gas producer in the UK is planning to sell its stake in Comgás as part of its plan to focus on exploration and production, worldwide.

BG holds a minority stake in the country's largest oil field, Lula, where Brazil's state-owned oil giant Petrobras is the operator.

BG has also put for sale its 65 per cent stake worth $900 million in Gujarat Gas, India's largest and oldest private sector city gas distribution company.

Cosan, the $10.2 billion Brazilian conglomerate, is a producer of bioethonal, sugar, and energy. It jointly controls the world's largest sugar-cane processor with Shell.

São Paulo-based Cosan and Shell in early 2010 formed a joint venture called Raizen, which combined their operations of sugar, ethanol and the distribution and marketing of fuels in Brazil.

Raizen, valued at $12 billion, is the third largest distribution company in Brazil and the world's largest bioenergy company.