1. outline of the project

FY 2008 CDM/JI Feasibility Study Report: Executive Summary

Title of the Study：

Study on Bio-diesel Production in Mozambique

Conducted by：

Sinanen Co., Ltd.

1. Outline of the Project

(1) Host Country and Region

Country: Mozambique

Plant location: Matola, Maputo Province

Farm site: Mabalane, Chibuto, and Bilene District, Gaza Province

(2) Outline of Project

The study is for the biodiesel fuel (B.D.F) production using Jatropha in Mozambique. The Project is

planning to conduct contract farming and new plantation for Jatropha farming in Gaza Province located

northeast of Maputo, and to construct biodiesel fuel plant using Jatropha as feedstock. Petromoc S.A.,

the project partner in Mozambique, will blend biodiesel fuel with diesel oil at the rate of 10-20% and

supply the blended oil to bulk consumers such as public buses company in Maputo City.

The outline of the project is as follows:

Project owner: BIOMOC S.A. (Special Purpose Company to be established by

Sinanen Co. Ltd. and Petromoc S.A )

Site location: Gaza Province and Maputo City in Mozambique

Candidate plant site: Matola (Suburbs of Maputo City)

Candidate farm site: Mabalane, Bilene and Chibuto Districts in Gaza Province

Counterpart: Petromoc S.A. (Petróleos de Moçambique, S.A.)

Jatropha farm area: 29,000 ha (plantation: 13,000 ha, contract farms: 16,000 ha)

Yield of Jatropha oil: 35,000 t/year (after 6 years from implementation)

B.D.F production capacity: 33,000 t/year (max 100 t/day)

Expected emission reduction of CO2: 65,847 t/year

Project start: Construction start in 2009, production start in 2011

2. Study Component

(1) Study Items

The study items conducted to prepare for the implementation of CDM project are as follows:

Confirmation of Mozambique government’s policy concerning introduction of fuel crops and

validity for biofuel in the country;

Implementation and validation systems of CDM and experiences of CDM projects in

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Mozambique;

Estimation of baseline emissions, project emissions, and emission reduction;

Preparation of monitoring plan;

Selection of and discussion with counterpart;

Site investigation of existing Jatropha nursery, Jatropha farms, and B.D.F plant;

Investigation and selection of potential land and candidate project site for Jatropha farming;

Preparation of farming plan for plantation and contract farming with location and infrastructure

information;

Household income survey and study for agricultural products of proposed areas for Jatropha

farming;

Study for land law and land acquisition system;

Study for current status and trend of fuel prices;

Study for hydrological and meteorological conditions and natural and social environments in

candidate project areas;

Confirmation of environment-related laws and regulations, procedures of environment impact

assessment, and governmental organization in charge of environmental procedure;

Study for natural and social environmental impact by the project and its mitigation measure, and

preparation of environmental management plan;

Confirmation of B.D.F consumers and possible demand;

Survey for current status of existing B.D.F projects and fuel crop growers;

Selection of candidate plant site and preparation of facility plan;

Study on B.D.F materials, electricity tariff, fuel expense, labor cost, and material procurement;

Consideration of comments made by concerned parties and organizations and holding of

stakeholder meeting;

Estimation of initial investment cost and annual operation costs;

Financial evaluation and sensitivity analysis; and

Preparation of project implementation plan and funding plan.

(2) Study Team and concerned organizations

The structure of the study team is shown in the figure below.

Sinanen Co., Ltd- Business Plan

AFRECO- Coordination ofgovernment of hostcountry and counterpart- Support for reporting- Support for site survey

Mitsubishi UFJ Securities- Selection of methodology- Support of preparation ofPDD- Support for site survey

Kimura Chemical PlantsCo., Ltd- Design of plant- Cost estimation of plant- Support of constructionsite survey

Japan HighwayLandscape Association- Farm design- Agriculture planning- Cost estimation offarming

Figure Study Team

The organizations concerned with the study and its roles in the host country are as follows:

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1) Ministry of Natural Resources and Energy: The Ministry, established in 2005, is the counterpart of

governmental side. It has the strategy of introduction of renewable energy and biomass.

2) Ministry of Agriculture (MoA) and Center for Promotion of Agriculture (CEPAGRI): The

organizations are concerned with registration of farmlands for this project. MoA has already

identified 7 million ha of potential Jatropha farming lands, and prepares land mapping.

3) Ministry of Development Planning: Concerning a multi-sectoral project such as biofuel production

which involves agriculture and energy sectors, the Ministry coordinates activities of other

ministries and agencies.

4) Ministry of Coordination and Environment Affairs: All CDM projects must be approved by a

designated national authority (DNA) under the Ministry. The Ministry is also in charge of

verification and approval of environmental impact assessment (EIA).

5) Investment Promotion Center (PCI): The project owner of a foreign investment project is

necessary to apply to PCI and obtain its approval.

6) Petromoc S.A.: The company is the project counterpart and will be a member of project owner’s

SPC.

(3) Components of the study

1) Government policy and validity of the introduction of fuel crops in Mozambique

Energy Policy of Mozambique issued in 2008 stipulates followings as its objectives:

To promote reforestation in order to increase the availability of firewood and charcoal;

To promote economically viable investment programs and to build up more efficient and

competitive business sector;

To increase the exports of energy products; and

To promote the development of conversion technologies and environmentally benign energy

uses such as solar, wind power, and biomass.

This project matches above strategy and can be concluded to be consistent to national energy strategy

in Mozambique.

2) Selection and discussion with the counterpart

The counterpart of the project is Petromoc S.A. The company, of which shareholder is 80%

government and 20% privately owned, earns the third largest profits following Mozal S.A.R.L and

Hidroeléctica de Cahora Bassa S.A.R.L in Mozambique. It is the largest petroleum company, which has

34% share in the domestic oil market.

The study team member discussed with Petromoc’s new chief executive officer (CEO), chief operating

officer (COO), chief financial officer (CFO) and persons in charge of new business development,

explained about details of the study, and confirmed the cooperation matters as being the counterpart. In

December 2008, the study team concluded the Memorandum of Understanding concerning the

cooperative framework about the study.

Petromoc is one of the key players of the strategic biofuel promotion in Mozambique. The company

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manages the distribution of biofuel and can work as an off-taker of the product. Being not only a local

oil producer, Petromoc can also be the exporter of the product. Petromoc has a clear vision of the future

not only for petroleum product but also covering entire energy sector. Petromoc is planning to explore

the potential new projects for renewable and alternative energy.

3) Site investigation of existing Jatropha nursery, Jatropha farms, and B.D.F plant

Jatropha nurseries are operated in Xaixai and Inhambane in Gaza Province. Those were started three

years ago. They sell the seedlings to South African company for its Jatropha farms in Mozambique.

They import seeds from India . At present, there are Jatropha farms in Bilene, Jagamo and a few other

places, and the study team visited Bilene. The farm started its operation in May, 2007 and cultivates

Jatropha in the farm site in 300 ha areas. The farm applies chemical fertilizer and compost. Sawdust

and rice husk are used for the material of compost.

Some plants have already started to produce B.D.F from coconut with investment from South Africa

and other countries. B.D.F plant of Ecomoz S.A., funded by Petromoc S.A and other investors, was

constructed in Petromoc’s depot in Matola in January 2007 with a production capacity of 40 kL/day.

The operation was started in August, 2007. Some private food oil mills and other firms have also

installed B.D.F processing units. For instance, Fabricante de Sabao in Inhambane Province installs a

B.D.F processing unit with a capacity of 0.45 kL/day. The management of those companies report that

there is no qualitative problem on their B.D.F product. However, due to the price hike of coconut oil,

they are now reducing or suspending its production. This fact indicates that it is important to establish

the farming management systems within the project so that feedstock is steadily supplied to meet the

requirement.

4) Investigation and selection of potential land and candidate project site for Jatropha farming

Ministry of Agriculture of Mozambique prepares land mapping and calculates the potential land area

for commercial production of food and fuel crops such as corn, cassava, sugarcane, and Jatropha. The

Ministry reports that there are ‘comparatively suitable land’ for Jatropha cultivation without irrigation

at 3,300 ha in Maputo, 2,600 ha in Gaza and 525,600 ha in Inhambane.

In this project, two farming systems are applied, (i) plantation directly managed by the project owner

and (ii) contract farming. The total Jatropha cultivation area is approximately 29,000 ha, of which

13,000 ha is plantation and 16,000 ha is contract farming. The plantation is planned in Mabalane

District, located in the geographical center of Gaza Province, and contract farming is in Chibito, Bilene

and Manhica districts located in the south of Gaza Province.

5) Preparation of farming plan for plantation and contract farming with location and infrastructure

information

The study team selected Mabalane District in Gaza Province as a candidate site for plantation. The

reasons are as follows:

Recommendation of provincial governor and district government and consistence of the policy

of local governments;

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Advantages in transportation with available station of international railway which connects

between capital Maputo and Zimbabwe;

Good community and favorable society of local people;

Power grid expansion scheduled in 2009, which enables the improvement of local living

environment; and

Availability of large scale plantation site for fuel crop.

The candidate site is located along railway and farm road, and the river in the west is expected to

provide groundwater.

The location of the site is as follows:

Coordinates: S23°54”, E32°39’’

Elevation: 85 to 95m

Meanwhile, Maniça, Bilene and Chibuto in the south of Gaza Province are selected as contract farming

area. Since the population is comparatively large and the infrastructure is well maintained, it is

considered not being difficult to find large number of contract farmers. The land is considered to be

relatively fertile due to repeated past flood and deposition of soil from the Limpopo River. There is a

paved highway along the coastline in Maniça and Bilene, which enables efficient truck transportation.

Chibito is located slightly inland, but since it is the birth place of the former President Chissano, the

infrastructure such as roads and electricity is in good condition. Farmers there produce cashew nut as a

main product. Many fallow lands are available and several dozen or hundred hectares can be obtained

for contract farming.

The table below shows the result of agriculture cost estimation.

Table Summary of Agriculture Cost and Unit Cost Initial Investment

Item Amount (US$)Plantation

Subtotal 8,700,355Contingency and miscellaneous costs 1,305,053Environmental cost 20,011Value added tax 1,549,512

Total cost for plantation 11,574,932Contract farming

Subtotal 2,978,660Contingency and miscellaneous costs 595,732Value added tax 607,647

Total cost for contract farming 4,182,039TOTAL 15,756,970

Annual Operation and Maintenance CostItem Amount (US$)

Plantation Labor cost 1,402,080 Fertilizer and utility cost 994,900

Operation and maintenance cost 338,471Total cost for plantation 2,735,451Contract farming Labor cost 410,400 Fertilizer and utility cost 1,214,848

Purchase of Jatropha harvest 3,369,600Total cost for contract farming 4,994,848TOTAL annual cost 7,730,299

Total Cost SummaryItem Total farm cost Plantation Contract farming

Ten years cost (US$) 93,059,963 38,929,442 54,130,520Cost per ton (US$) 282.00 236 328Unit cost using ten years cost(US$/L) 0.254 0.212 0.295

6) Household income survey and study for agricultural products of proposed farm areas

The price of Jatropha purchase will much affect on the project feasibility. The purchase price should be

determined considering the market prices of other agricultural products in the target areas. It would be

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most reasonable to estimate the value of a commercial crop based on rice, since rice is most widely

distributed as commercial crop in the areas. In the contract farming plan, considering the average wage

of local people is 1,600-2,000 MT/month, the purchase price of Jatropha is set at 1,620 MT/ton after

estimating income and expense of farmers. This amount corresponds to 6,480 MT/ha per year. This

value is slightly more inexpenseive than rice, but about triple of maize price. However, since potential

areas for paddy field is limited and rice requires a lot of input of fertilizer and labor, the price setting of

Jatropha is expected to work as an incentive of farmers.

In contract farming, project owners cannot supervise each farmer directly. Accordingly, it is essential

to build up agricultural instructor before project starts, to provide training to farmers, and to form

organization of farmers such as cooperatives.

7) Study for land law and land acquisition system

All the land in Mozambique is nationally owned. The use of land is stipulated by the Land Act

established in 1997 and Land Regulations in 1998. Tenancy rates are generally 0.5-1US$/ha and the

land lease is granted for up to 50 years. Upon request, the land lease light can be extended up to

another maximum 50 years. Land lease application can be submitted at any time throughout the year. It

needs to pass all the examination on community, local, provincial, and national levels. It takes about 3

months to complete the examination.

8) Study for current status and trend of fuel prices

The Petroleum Law came into effect in 2001. Pricing systems of fuel are stipulated in act 26 de

Dezembro de 2006. The oil import accounts for 11% of the gross imports and for 14% of the total

exports in Mozambique. The sharp rise in fossil fuel prices in recent years has had an adverse effect on

the nation’s trade balance. The import prices of diesel oil and gasoline tripled from 2001 to 2006.

These prices rose further until the latter half of 2008, and as of November the import price of diesel oil

was 978 US$/ton, 4.7 times as high as 206 US$ in 2002.

9) Study for hydrological and meteorological conditions and natural and social environments in

candidate project areas

Rainfall in southMozambique (mm)

0200400600800

100012001400160018002000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Maputo Xai-Xai Inhambane Beira

mm

Source：Avaliação dos Biocombustíveis em Moçambique

Temperature (℃)( Monthly average during 1971-2000)

0

5

10

15

20

25

30

35

1m 2m 3m 4m 5m 6m 7m 8m 9m 10m

11m

12m

Maputo Max. Maputo Min.Xaixai Max. Xaixai Min.Inhambane Max. Inhambane Min.Beira Max. Beira Min.

℃

Source：Instituto Nacional de Meteorologia Figure Annual Rainfall and Monthly Average Temperature in the Project Areas

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The climate in the project areas is comparatively stable and the rainfall there is 700-900 mm except for

pluvial years. The climatic condition is considered to be suitable for Jatropha agriculture in whole Gaza

Province.

10) Confirmation of B.D.F consumers and possible demand

The potential bulk consumer of B.D.F in Mozambique is public bus company and railway transporters.

Given that 70% of public buses are in operation, the amount of diesel oil consumed by the buses and

minibuses nationwide is estimated to be around 610 t/day, based on the hearing from bus company

about its travel distances and fuel cost. Major diesel oil consumption is done by minibuses, accounts

for about 500 t/day. On the other hand, the quantity of diesel oil used by cargo trains is only 9.8 t/day,

very low compared to buses and minibuses. If B.D.F is to be supplied only to those bulk consumers,

blending ratio as much as B20 is needed in order to consume all B.D.F product, which is produced at

the rate of 100t/day.

The total amount of diesel oil consumed in Mozambique was 377,440 ton in 2006. Since the project

production is 33,000 ton/year, B20 would account for about half of the total national consumption.

11) Survey for current status of existing B.D.F projects and fuel crop growers

Thirteen numbers of Jatropha biodiesel projects and two coconut biodiesel projects have been officially

approved at present in Mozambique. According to the project list, a Jatropha project having a budget of

9.7 million US$ is under way with 9,150 ha land. In addition, six projects producing ethanol from

sugarcane have also been approved or are already under way. These projects invite foreign investment

of thousands of millions of US$.

12) Selection of candidate plant site and preparation of facility plan

Plant facilities of this project are scheduled to be constructed inside Petromoc’s depot in Matola, about

20 km south of Maputo. The plant will produce B.D.F at 100 ton/day. The plant consists of Jatropha

seed stockyard, oil expellers, methyl esterification plant, tanks, storages, diesel generators, a solid fuel

processing facility, and a compost facility. Jatropha seed cake produced as a by-product from oil

expellers is used for (i) fuel for boiler, (ii) material for solid fuel, and (iii) material for compost.

The specifications of each machine and facility are shown in the table below.

Table Specification of B.D.F Plant

Item Spec Unit Nos. NoteStockyard of Jatropha 60x130x3 m3 1Oil expeller 110 ton/day 5B.D.F plant 100 ton/day 1Tank for Jatropha oil 133 m3 4Tank of B.D.F. Product 100 m3 6Generator 1000 kW 3Compost facility 102 ton/day 1 9600 m2

Solid fuel facility 102 ton/day 1 11,400 m2

Plant Specification

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コンポスト化施設固形燃料製造エリア試験場

60M 60M

：ペトロモックの設備と共用可部分

Conceptual Draft Layout of Jatropha BDF Production Plant (100 ton/day)

事務所

用役･動力・分析・制御エリア

消化設備用役ヤード

FireProtection

FacilityＢＤＦ製造エリア

駐車場

10M

原料貯槽エリア

ＢＤＦ製品貯槽エリア

ローリー入出荷エリア

搾油設備エリア



ジャトロファストックヤード



10 M

10 M

130 M

10 M

10 M

10 M

Oil Expeller

Oil Expeller

Oil Expeller

Oil Expeller

Oil Expeller

JatrophaStockyard

Material Storage

Area forLorry Loadingand Unloading

BDF Storage

Parking

Office

Laboratory

BDF Production Plant

Power Supply, Analysis, and Control Room

Compost Facility Area for Jatropha Solid Fuel Production

220 M

390 M

240 M

60 M

160 M 190 M 10 M10 M

Figure: Layout of Plant Facilities

13) Study on materials of B.D.F, electricity tariff, fuel expense, labor cost, and material procurement

Methanol, potassium hydroxide, and sulfuric acid are the materials of B.D.F. Those are not produced in

Mozambique and these materials will have to be purchased from South Africa through trading

companies. Price of methanol will especially affect the cost of operation and maintenance.

Table Annual Operation and Maintenance Cost of B.D.F Plant Item Amount ($/year) Remarks

Transportation cost 2,549,363Costs for plant operation

Labor costs 355,200 Operation and supply costs 71040 20% of labor cost Welfare expense 71,040 20% of labor cost incl. 4% social security tax

Electricity tariff 970,776Diesel oil cost for generation 996,554Fuel cost (heavy oil) -B.D.F material cost 4,802,842Water expense 698,280General administration costs

Maintenance costs 1,621,328 5% of initial investment cost Fixed asset tax 32,427 0.1 % of initial investment cost

Total O&M costs 12,168,849 The breakdown of initial investment cost of the plant is shown in the table below. The amount is 3.24

billion yen.

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Table Initial Investment Cost of B.D.F Plant

Item Unit Price(million Yen) Qty Unit Amount

(million Yen) Specification

Oil expellers 100 5 Unit 500 20 ton /day × 5 units, 24 hours operationBDF production facility 1500 1 Set 1,500 100t/day, 24 hours operationStockyard 100 1 Set 100 Buildings includedCompost processing facilities 100 2 Set 200 200t/day×2 setsSolid fuel processing facility 50 1 Set 50 Building onlyDiesel generators 20 3 MW 60 200$/kWSubtotal 2,410Engineering cost 5 % MM 121Contingency 10 % 241Value added tax 17 % 471Environmental costs 0.7 % 19.4 EIA: 0.5%, Environmental license: 0.2%Total 3,243Total (US$) 32,426,550

14) Estimation of Initial Investment and Annual Costs

The overall initial investment and annual cost of the project are estimated as follows:

Table Initial Investment Cost of the Project

Item Amount (US$)B.D.F. Plant 32,426,550Direct Plantation 11,574,932Contract Farming 4,182,039Total 48,183,520

Table Annual Operation and Maintenance Cost of the Project

Annual cost(US$) 2010 2011 2012 2013 2014 2015 2016 andthereafter

Plant 390,353 4,154,597 6,158,160 8,161,723 10,165,286 12,168,849 12,168,849Plantation 1,636,763 1,856,500 2,076,238 2,295,976 2,515,713 2,735,451 2,735,451Contract farming 1,625,248 2,299,168 2,973,088 3,647,008 4,320,928 4,994,848 4,994,848Total 3,652,363 8,310,265 11,207,486 14,104,707 17,001,927 19,899,148 19,899,148

3. Project Operation

(1) Project boundary and Baseline setting

The spatial etent of the project boundary encompasses:

■ Transportation of feedstock to the B.D.F production plant. The transportation from the field to the

B.D.F plant is included.

■ B.D.F production plant at the project site, comprising the esterification facility, storages, blending

facility and Jatropha oil mill.

■ Transportation of B.D.F to the blending facility where the B.D.F is blended with the diesel oil.

■ B.D.F blending facility (The owners of these facilities may not be a project participant.)

■ Transportation of mixed B.D.F to the final consumer (end-user)

■ Vehicles where the blended B.D.F is consumed

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Baseline Scenario

The baseline scenario in the absence of the project:

(1) Continuation of current land use without Jatropha farming;

(2) No investment in construction of B.D.F plant; and

(3) Continuation of diesel oil consumption.

At present, in Mozambique, the use of diesel oil by public transportation system is conventional and widely

accepted practive. Some of the public transportation such as bus companies are now condiering natural gas,

which is produced rather abundantly in the country, as an alternatie source of fuel.

Mozambique has its own natural gas reserves and although CNG can be derived domestically, it is not a

realistic move in the near future as the only existing pipeline is dedicated to exporting the gas to South

Africa. The lack of necessary infrastructure has created a technological barrier for any project involving

vehicles running on CNG.

The baseline and monitoring methodologies which are applicable to the project activity is

AM0047 ver. 03 “Production of biodiesel based on waste oils and/or waste fats from biogenic origin or

from oil seeds cultivated in dedicated plantations for use as fuel” which is a draft revision to ver 02 of the

methodology.

The revision of ver. 02 of AM0047 has been under discussion since it was proposed in the 30th UNFCCC

Methodology Panel meeting. However, as of now, it is yet to know how the revision will finally be

approved. While waiting for the discussion by the Methodology Panel leads to conclusion, we have

considered submission of the proposal to revise the methodlogy specifically for this project. Development

of new methodology for the project was also sought, however, in view of recent trend of CDM Executive

Board decisions and recommendations, it is considered best to take an approach of revisions to the existing

methodology instead of presenting any counterproposal. With this background, this study and report was

prepared following the draft revision to the AM0047, ver. 03.

According to the methodology, the amount of emissions reduced is determined as follows:

Baseline emissions

), consumption of biodiesel (BDMost conservative value among production of biodiesel (PBDy y) and

consumption of blended biodiesel by the captive consumer times blending fraction (C *fBBD,y PJ,y). Only

blended biodiesel complying with the applicability conditions shall be considered and that which is

consumed by identified in-country consumers to substitute petrodiesel in the year y.

Project emissions

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yFPyFerNONyBCyWyTryMeOHyelecj

yjfuely PEPEPEPEPEPEPEPEPE ,,,2,,,,,,, +++++++= −∑

(1) Project emissions from combustion of fuels (i.e. for required steam) in biodiesel production in year y (PEfuel,y)

(2) Project emissions from electricity consumption in the biodiesel plant in year y (PE ) EC,y

(3) Project emissions from combustion of fossil fuel derived methanol in the biodiesel ester in year y (PE ) MeOH,y

(4) Project emissions from transport of both feedstock to the project site and biodiesel to the facility where the blending takes place in year y (PE ) Tr,y

(5) Project emissions from waste water treatment in year y (PE ) w,y

(6)-1 Project emissions from fossil fuel consumption for agricultural operations (PEfuel,BC,j,y)

) (6)-2 Project emissions from electricity consumption for agricultural operations (PEElec,BC,,y

(7) Project emissions associated with N2OEmissions from the application of fertilizers (PE ) N2O-N,Fer,y

(8) Project emissions related to the production of synthetic fertilizer that is used at the dedicated plantation

(PE ) FP,y

yPDyWOFyMeOHy LELELELE ,,, −+=Leakage

(1) Leakage related to the avoided production and transportation of petrodiesel (LE ) PD,y

) (2)-1 Leakage from excavation of crude oil (LEEXT,y

) (2)-2 Leakage from long-distance carriage of crude oil to refining facilities (LELDTR,y

) (2)-3 Leakage from production of diesel oil (LEREF,y

) (2)-4 Leakage from local distribution of diesel oil (LERDTR,y

(2) Monitoring Plan

Under this project, the project company will prepare manuals for monitoring, which is to be implemented

in accordance with the applicable methodology. The project company will assign a monitoring supervisor

to perform such tasks.

For purposes of efficient and effective monitoring, the parameters such as the amoung of B.D.F

production (PBD y), amount of B.D.F consumption (BDy), and amount and blending ration of B.D.F with

diesel oil (CBBD,y*fPJ,y) are crutial in oder to determing the baseline emissions.

Since the project company is a joint venture corporation of Petromoc, which is the largest petrol company

in Mozambique, it is expected that the project company has enough capacity to implement an appropriate

monitoring activities. However, it is necessary to develop a comprehensive monitoring plan and structure

in order to ensure that the reduction of emissions will not be claimed by many end users of B.D.F produced

by the project.

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(3) GHG emission reductions

In the project, the harvest of Jatropha will gradually increase year by year. The volume of B.D.F

production accordingly will grow starting from 20% in the first year of the B.D.F plant operation, 40% in

the second year, 60% in the third year, on and on. The calculated amount of emission reductions from the

project are shown in the table below.

Increase rate of

production 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year

20% 40% 60% 80% 100% 100% 100% B.D.F production

(ton) 6,600 13,200 19,800 26,400 33,000 33,000 33,000

Total emission reduction (tCO

12,867 26,338 39,507 52,676 65,847 65,847 65,8472）

(4) Project life and crediting period

Participants in CDM projects may choose either of the following two crediting periods:

(i) Fixed Credit Period

The fixed credit period of a CDM project cannot be renewed or extended once the effective date and term

of the project is determined. The maximum period is 10 years.

(ii) Renewable Credit Period

One renewable credit period of a CDM project is up to 7 years, but the period can be renewed twice.

Therefore, the maximum period will be 21 years in total.

Considering the operational life time of the project facilities, the renewable crediting period was selected

for the project. The maximum credit acquisition period would be 21 years after the project starts.

The starting date of project acticity is sheduled for January, 2010 when the construction of the B.D.F plant

begins. The crediting period is to start in July 1, 2011 after completion of the performance test of the

project plant for commercial operation.

(5) Environmental and other Impact

This project is classified as category A, which requires conducting environmental impact assessment

(EIA). It is necessary for the project to study the environmental impacts of multiple sectors including

farming activities and plant facilities. It needs to assess the impact especially for the effect of

large-scale monocultivation on ecology and possible depletion of land fertility in the farm areas.

By-product treatment and waste water from B.D.F plant also needs to be assessed.

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Table: Possible Environmental Impacts and Mitigation and Management Plans Category Environmental

consideration Potential Environmental Impact Environmental Mitigation and Management Plans

Plantation Impact of large-scale monocultivation

Maintain ecological diversification by inter-cropping cashew nuts, beans, vanillas and other suitable plants with Jatropha.

Farming

Soil Adverse effect of Jatropha cultivation on soil fertility of nitrogen-deficient farmland

Nitrogen content of soil should be properly maintained by the application of composite fertilizer or urea. If available, bio-fertilizer containing nitrogen fixation bacteria can also be applied. Green manure crop such as soybeans, pigeon peas, etc., should be inter-cropped with Jatropha in order to supply nitrogen. Simple soil test should be carried out regularly to monitor nutrient levels.

Social Environment

Affect on living environment due to large number of temporary workers employed during peak farming season such as harvest seasons

Wells should be constructed for supply of daily water. Simple housing should be provided with appropriate toilets and drainage facilities for temporary workers.

Local Economy Influence on local economy and change of employment condition

The project has a positive influence of creating jobs and increasing incomes of local workers. The optimum purchase price of Jatropha should be set considering the present standards of market prices of other commercial crops so as not to disturb current agricultural activities.

Gender Increased workload on women labors

Current emigrant walkers to South Africa should be prioritized to be employed or contracted for farming. Proper system should be established so that workload on women can be reduced.

Waste Water Pollution caused by waste water from washing process of B.D.F The waste water may contain alkaline KOH and high concentrate fatty acid (about 50,000 ppm ).

All the waste water after washing B.D.F should be used for fermentation of compost. During the process of aerobic fermentation, potassium will be used as nutrients and fatty acid will be degraded into CO2 and water by biological activities.

Plant

Waste Material Glycerin produced as by-product of B.D.F with high concentration of alkaline and high water content (60% or more).

Glycerin, which can be a source of carbon and potassium of fertilizer should be used for compost fermentation together with waste water.

Exhaust gas Exhaust gas from oil expellers and boilers of the B.D.F plant

Jatropha seed cake produced as a by-product will be used for boiler fuel instead of heavy oil, thereby reducing the emissions of CO2 (The carbon component of Jatropha seed cake is fixed from carbon dioxide in the air and therefore it can be said to be carbon neutral). Since the level of sulfur in the seed cake is 1/10 or less than that in heavy oil, the emissions of sulfur oxide will be reduced.

Plant Site Influence of plant on soils and By constructing plant inside existing depot facility of Petromoc, environmental impact will be much reduced compared to building a new plant.

rivers

13

(6) Stakeholders comment

Comments made by stakeholders in this study are summarized as follows:

Table Comments of Stakeholders Interested Partied

Comments

・ The project is welcomed. Ministry of

Natural Resources and Energy

・ We are promoting biodiesel business and willing to approve biodiesel projects. ・ Our government regard that the energy crop cultivation project is the second priority. The first

priority is solving food crisis matter. ・ It is not permitted to use existing farmland and inhabited areas for the project. ・ We would like to coordinate the standards for biofuel in cooperation with South Africa,

Tanzania, and other countries considering the distribution of the fuel in South African Development and Cooperation (SADAC) member nations, since the domestic market is limited.

・ We are also willing to support the project if Jatropha is used as fuel for supplying electricity to rural areas.

・ We would like to support the project. Private investment for large-scale farming is under way. Promotion of biofuel is one of important governmental strategies, but issues of food crisis and high food prices are the top priority to tackle. Cultivation of energy crops comes second.

Agricultural Promotion Center of

・ There is no problem in exporting fuel as part of the project. Ministry of

・ It would be a good idea to intercrop Jatropha with coconut and other plants. Agriculture ・ We think that Gaza Province is the right place for the project.

・ We suggest that forest farmland should not be used for the cultivation of Jatropha. ・ The annual output at 33,000 ton B.D.F is too large to be consumed in this country and it is

necessary to confirm if there is sufficient domestic demand for that quantity. ・ Petromoc has been instructed by the government to work for the promotion of biofuel in

Mozambique. We can make arrangements for distribution and management of biofuel and we will work as an off-taker. We are regional producer and exporter. We can provide storage for biodiesel in our tanks for sale to other companies.

Petromoc S.A.

・ It is important to consider the influence of biofuel on food. Due to price hike of coconut oil, it becomes very difficult to obtain feedstock for coconut B.D.F.

・ The vision of Petromoc is extended not only conventional fuels but also total energy supply. We would like to develop new projects for renewable and alternative energies.

・ We want to decide whether or not to use Jatropha as fuel for public buses after examination of past examples in other countries and considering the advantages compared to diesel oil. We think that it is difficult to use Jatropha if its price is higher than diesel oil.

TPM (public

bus company

in Maputo) ・ It would be possible to have a new purchase contract of biodiesel if it is all right to continue buying diesel oil from other companies according to conventional contract.

・ We welcome the project in Gaza. We are much interested in Jatropha project. The biggest concern is whether it can lower B.D.F price than fuel prices.

Governor of

Gaza Province ・ Though Mabalane is far from Maputo, the advantages are: (i) railway is available for

transportation, (ii) people in the community have a strong sense of solidarity and are cooperative, and (iii) the grid is extended next year.

・ Food is the top priority in the nation. Large portion of land in the province is not suitable for food crop and can be used for Jatropha farming. Some land in coastal area has been provided for Jatropha farm in the past.

・ It is important that all farmers there must receive training for Jatropha farming. ・ It would be impossible to secure 10,000 ha of land at a time near Xaixai or Maputo, but it

would be possible to reserve for the project a total of 500 ha of land in the southern vicinity. Respective agricultural techniques should be applied for the southern, central and northern parts of Gaza considering climates of those areas are different, and that it is recommended to grow Jatropha on a small-scale basis for trial purposes in the first stage of the project.

14

Interested Partied

Comments

・ We are willing to accept the project. As a local government development plan, we would like to contribute to environmental protection and pollution prevention.

Government of

Mabalane District

・ We point out that Mabalane is not a northern remote district as it may seem but located in the central part of the province. There are no other competitive projects. Large land is available for Jatropha farming. It is possible to reduce transportation and labor costs since railway is available.

・ There are some farmers with experiences of Jatropha cultivation, who can help the project.

(7) Project Implementation Framework

Sinanen Co., Ltd. in Japan and Petromoc (Petróleos de Moçambique, S.A.), which is one of the largest

companies in Mozambique, will jointly establish a Special-Purpose Company (SPC) for the

implementation of this project. The SPC will construct and operate B.D.F plant, oil expeller, solid fuel

processing facility, and other equipment. The SPC also procure materials and sell the products. After

the project is formally approved as a Clean Development Mechanism (CDM), they will select other

investors and determine equity of shareholders. The project implementation framework is shown in the

figure below.

Investors

Public/private bank

Other finances

SPC

Contract farming and plantation

Public bascompany in

Maputo

Investment

Loan/investment

Sinanen

Other companies

Petromoc

O&M

Sale

Seed

Oil Expeller

・BDF plant・B5-20 blend facility・Solid fuel facility

Crude

oil

CakeGlycerin

Solid fuel

Contractfarming

Contractfarming

Plantation

Jatropha Farm

Figure Project Implementation Framework

The project implementation schedule is shown below.

Table Project Implementation Schedule Item Year 2008 2009 2010 2011

CDM/JI Project study CDM Verification Registration Jatropha planting BDF plant construction Plant test operation Production of crude oil BDF supply

15

(8) Financing Plan

In this project, the production amount of Jatropha B.D.F will be 33,000 kL/year, all of which will be

sold to Petromoc. Petromoc will blend the B.D.F with diesel oil at the blending weight ratio of 10 to

20% (B10 to B20 respectively), store the blended fuel in the tanks in its depot, transport the product by

lorries to filling stations in Maputo and other districts, and sell the product as a fuel for consumers such

as public bus company. Given that the selling price of B.D.F is 0.95 US$/L, the annual sales are

expected to be 34.1 million US$.

Table B.D.F Product Sales Plan

Projectyear

Fiscalyear

Productionscale

B.D.F. salesamount (ton)

Sales (US$)

Outflow (US$)

1 2010 0% 0 0 48,183,5202 2011 20% 6,600 6,825,604 19,899,1483 2012 40% 13,200 13,651,208 19,899,1484 2013 60% 19,800 20,476,813 19,899,1485 2014 80% 26,400 27,302,417 19,899,1486 2015 100% 33,000 34,128,021 19,899,148

7 2016or later 100% 33,000 34,128,021 19,899,148

The initial investment of the project is 48.2 million US$, of which 38.5 million US$, accounts for

about 80% of the investment, will be loaned from financial institutions. Therewithal, 3.28 billion yen,

which accounts for the remaining 20% plus annual cost for three years, will be prepared from own fund

and other private investment. It is planned that Sinanen and other Japanese companies will invest 30%

of capital and Petromoc will share 70%.

Initial investment: 48.2 million US$

Loan: Japan Bank for International Cooperation (JBIC) export credit and commercial banks, in

total 38.5 million US$ (repayment period: 10 years, base interest rate: 15.73%)

16

Table Fund Procurement and Repayment Plan Interest: 15.52% Annual Repayment: 8,552,254 US$

Loan Investment Total Locan Repayment Balance Income Expenditure Balance Accum. profit* US$ US$ US$ US$ US$ US$ US$ US$ US$

1 2010 0% 38,546,816 32,806,819 71,353,635 48,183,520 44,529,282 5,982,466 38,546,816 0 3,652,363 13,535,285 13,535,2852 2011 20% 44,529,282 5,982,466 38,546,816 6,825,604 8,310,265 -7,467,127 6,068,1583 2012 40% 44,529,282 5,982,466 38,546,816 13,651,208 11,207,486 -3,538,743 2,529,4154 2013 60% 44,529,282 5,982,466 38,546,816 20,476,813 14,104,707 389,640 2,919,0555 2014 80% 44,529,282 5,982,466 38,546,816 27,302,417 17,001,927 4,318,024 7,237,0796 2015 100% 44,529,282 5,982,466 38,546,816 34,128,021 19,899,148 8,246,407 15,483,4867 2016 100% 44,529,282 5,982,466 38,546,816 34,128,021 19,899,148 8,246,407 23,729,8938 2017 100% 44,529,282 5,982,466 38,546,816 34,128,021 19,899,148 8,246,407 31,976,3019 2018 100% 44,529,282 5,982,466 38,546,816 34,128,021 19,899,148 8,246,407 40,222,708

10 2019 100% 44,529,282 5,982,466 38,546,816 34,128,021 19,899,148 8,246,407 48,469,11511 2020 100% 24,091,760 44,529,282 8,552,254 35,977,028 34,128,021 19,899,148 -18,415,141 30,053,97412 2021 100% 41,560,663 8,552,254 33,008,410 34,128,021 19,899,148 5,676,620 35,730,59413 2022 100% 38,131,315 8,552,254 29,579,061 34,128,021 19,899,148 5,676,620 41,407,21314 2023 100% 34,169,732 8,552,254 25,617,478 34,128,021 19,899,148 5,676,620 47,083,83315 2024 100% 29,593,310 8,552,254 21,041,057 34,128,021 19,899,148 5,676,620 52,760,45316 2025 100% 24,306,629 8,552,254 15,754,375 34,128,021 19,899,148 5,676,620 58,437,07217 2026 100% 18,199,454 8,552,254 9,647,201 34,128,021 19,899,148 5,676,620 64,113,69218 2027 100% 11,144,446 8,552,254 2,592,193 34,128,021 19,899,148 5,676,620 69,790,31119 2028 100% 2,994,501 2,994,501 0 34,128,021 19,899,148 11,234,372 81,024,68320 2029 100% 0 0 0 34,128,021 19,899,148 14,228,873 95,253,55721 2030 100% 0 0 0 34,128,021 19,899,148 14,228,873 109,482,430

TOTAL 38,546,816 32,806,819 72,275,280 131,237,189 109,482,430*Return for the investment is not included.

Year FY Projectscale

Cash-in Investmentplan

Repayment Project income and expenditure

(9) Financial Analysis

Financial analysis was conducted for the baseline of the project cash flow, net present value,

benefit-costs ratio (B/C), and financial internal rate of return (FIRR). The results are shown in the table

below. Given that the base interest rate is 15.73%, FIRR is calculated to be 15.33% and B/C is 0.99. In

this base case scenario, it is hard to say that the project is feasible, since B/C is less than 1.0 and FIRR

is lower than the base interest rate.

17

Table Result of the Financial Analysis Net benefit

BDF Income Initial Investment O&M Total CostUS$ US$ US$ US$ US$

1 2010 0% 0 48,183,520 3,652,363 51,835,884 -51,835,8842 2011 20% 6,825,604 8,310,265 8,310,265 -1,484,6613 2012 40% 13,651,208 11,207,486 11,207,486 2,443,7224 2013 60% 20,476,813 14,104,707 14,104,707 6,372,1065 2014 80% 27,302,417 17,001,927 17,001,927 10,300,4906 2015 100% 34,128,021 19,899,148 19,899,148 14,228,8737 2016 100% 34,128,021 19,899,148 19,899,148 14,228,8738 2017 100% 34,128,021 19,899,148 19,899,148 14,228,8739 2018 100% 34,128,021 19,899,148 19,899,148 14,228,873

10 2019 100% 34,128,021 19,899,148 19,899,148 14,228,87311 2020 100% 34,128,021 43,990,908 43,990,908 -9,862,88712 2021 100% 34,128,021 19,899,148 19,899,148 14,228,87313 2022 100% 34,128,021 19,899,148 19,899,148 14,228,87314 2023 100% 34,128,021 19,899,148 19,899,148 14,228,87315 2024 100% 34,128,021 19,899,148 19,899,148 14,228,87316 2025 100% 34,128,021 19,899,148 19,899,148 14,228,87317 2026 100% 34,128,021 19,899,148 19,899,148 14,228,87318 2027 100% 34,128,021 19,899,148 19,899,148 14,228,87319 2028 100% 34,128,021 19,899,148 19,899,148 14,228,87320 2029 100% 34,128,021 19,899,148 19,899,148 14,228,87321 2030 100% 34,128,021 19,899,148 19,899,148 14,228,873

Total 614,304,376 48,183,520 396,754,873 444,938,393 169,365,983NPV(Benefit)= NPV(Cost)= 134,159,729

FIRR= 15.33%RoI= 38.07%

NPV= -1,274,133 B/C= 0.991

CostYear FY Project

scale

Benefit

Sensitivity analysis is conducted to clarify how the variation of the certified emission reduction (CER)

price, initial investment, and B.D.F sales price will affect to FIRR.

Given that the amount of emission reduction in this project is 65,847 ton-CO2/year, FIRR fluctuation

was analyzed for the change of CER value between 10-30 US$/ton-CO2. If the CER price is 20

US$/ton-CO2, FIRR is increased from 15.33 to 16.90%. If the CER price is 30US$/ton-CO2, FIRR

becomes 17.66%. It is concluded, therefore, that CER will improve profitability of the project and CER

income makes the project feasible.

Meanwhile, FIRR variation with the initial investment is analyzed. If the initial investment is increased

by 20%, FIRR becomes 12.79%. When the investment is doubled, FIRR is decreased to be 6.13%.

Therefore, it is necessary to keep the initial investment at the present level.

Then, FIRR variation with the change of Jatropha yield is calculated. When yield is decreased by 25%,

FIRR will be 6.8% and when yield is increased by 25%, FIRR will be 22.02%. If supposedly lean crop

year comes once a four year of which yield is decreased by 50%, FIRR becomes 12.65%.

In addition, FIRR variation is calculated with the change of B.D.F sales price. If the price is decreased

by 20%. i.e., from base price of 0.95US$/L down to 0.76 US$/L, FIRR drops to 5.41%. On the other

hand, if the price increases by 30% to 1.24 US$/L, FIRR rises to 26.13%. Consequently, the B.D.F

price will affect FIRR more than any other factors

Figure below shows the variation of FIRR with above factors.s

18

Sensitivity Analysis for CER, Initial Investment, and B.D.F. Sales

0%

5%

10%

15%

20%

25%

30%

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%

FIRRCER (0％ at 20US$/ton-CO2)Initial investmentB.D.F salesJatropha yield

Figure Variation of FIRR with Factors

In addition, sensitivity analysis is conducted for B.D.F material of seedlings, fertilizer, methanol, price

of Jatropha purchased from farmer, and diesel oil. The most sensitive material is methanol, followed by

fertilizer and Jatropha. Accordingly, it needs to settle procurement price of those materials as low as

possible to improve project financial viability. Meanwhile, the slope of price of seedlings and diesel oil

is relatively small, which indicates that affect of fuel and seedlings price is relatively small.

Sensitivity Analysis for B.D.F. Material

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-75% -50% -25% 0% 25% 50% 75% 100%Variation

FIRR

SeedlingFertilizerMethanolSeed purchaseDiesel oil

Figure Variation of FIRR with Material Prices

(10) Demonstration of Additionality

As per the methodology, the most likely baseline scenario among all realistic and credible alternatives is

identified by applying steps of the “Tool for the demonstration and assessment of additionality”. Where Step 2 of the Tool (Investment Analysis) is used, the investment analysis should include a sensitivity analysis of the biodiesel sales price, the feedstock costs and fuel costs. As described below, the project baseline was determined and the additionality demonstrated for each of the three project activities of the project; the production of fuel (P), the consumption of fuel (C) and

land use (L).

19

1. Production of Fuel (P)

Step 1: Identification of alternatives to the project activity consistent with current laws and

regulations.

Sub-step 1a: Define alternatives to the project activity:

At the production level, the following realistic and credible alternatives are identified:

P1 Continuation of current practices with no investment in biodiesel production capacity (continued

production of petrodiesel);

P2 The project activity implemented without the CDM; and

P3 Investment in any other alternative fuel, such as CNG or LPG replacing partially or totally the

baseline fuel.

Sub-step 1b: Consistency with mandatory laws and regulations:

All three alternatives scenarios are in compliance in existing laws and regulations of Mozambique.

Step 2: Investment analysis:

Step 2 is not carried out as the option to carry out Step 3 is selected. As per the methodology, Step 3 can be

used as Biomoc is not producing any other type of fuel.

Step 3: Barrier analysis:

Sub-step 3a: Identify barriers that would prevent the implementation of the proposed CDM project activity

The following barriers have been identified as the realistic and credible barriers that would prevent the

implementation of the proposed project activity from being carried out, in a CDM project activity.

Investment barriers

Technological barriers

Barrier due to prevailing practice

Sub-step 3b: Show that the identified barriers would not prevent the implementation of at least one of the

alternatives.

In terms of the production of Jatropha biodiesel, Scenarios P2 and P3 face barriers in the following manner.

P1: Continuation of current practices with no investment in biodiesel production capacity (continued

production of petrodiesel);

There are no barriers preventing the continuation of current practice as petrodiesel production or in the case

of Mozambique, its import is an accepted practice that does not require any new investment or introduction of

a new technology.

P2: The project activity implemented without the CDM

Production of Jatropha biodiesel without the support of the CDM framework faces investment and

technological barriers as well as barrier due to prevailing practice.

Firstly, the profitability of the project activity falls short of what is considered benchmark as elaborated in

Section B.5. Without the additional financial benefits from CER sales, there is no incentive for the project

20

proponent, a private commercial entity to implement the Project. The increased revenue brought by the

CDM status will also make the Project more attractive to financiers.

Secondly, the technology to produce BDF is still new in Mozambique. Although there are several projects

underway, there are no projects that produce BDF commercially to domestic consumers to date. Many of

the equipment have to be imported from abroad including the main equipment which will be imported from

Japan. Extensive training will be required for the workers before the implementation of the Project. In all,

the Project entails significant technological risks. Again, without the CDM status of the Project helping to

overcome such risks, the project proponent will have no incentive to implement the project activity.

Thirdly, although it is expected to grow in the future, BDF production is not yet an accepted practice in

Mozambique as previously explained. As this is a first-of-a-kind project activity, the risk is too great for the

Project to be implemented without the support of the CDM framework.

P3: Investment in any other alternative fuel, such as CNG or LPG replacing partially or totally the baseline

fuel.

Investing in CNG or LPG instead of BDF faces investment and technological barriers.

Mozambique has its own natural gas reserves and although CNG can be derived domestically, it is not a

realistic move in the near future as the only existing pipeline is dedicated to exporting the gas to South Africa.

The lack of necessary infrastructure has created a technological barrier for any project involving vehicles

running on CNG.

As for the LPG, it is a petroleum derived product like petrodiesel. As previously mentioned, petroleum

products are imported to Mozambique and are priced high. Again, without the benefits gained from the

CDM status for which a LPG project will not qualify, there is no incentive for the project proponent to switch

from petrodiesel, the current fuel of choice.

Based on the barrier analysis, only Scenario P1, continuation of current practice does not faces any barrier.

2. Consumption of Fuel (C)

Step 1: Identification of alternatives to the project activity consistent with current laws and regulations

As per the methodology, the following alternatives are considered in relation to the consumer. In the case of

the project activity, the consumer is a local bus company of Maputo for blended biodiesel.

C1 Continuation of petroleum diesel consumption (continuation of current practice);

C2 Consumption of biodiesel from other producers;

C3 Consumption of other single alternative fuel such as CNG or LPG, etc;

C4 Consumption of a mix of above alternative fuels;

C5 Consumption of biodiesel from the proposed project plant.

Step 2:Eliminate alternatives that are not complying with applicable laws and regulations

All identified alternatives are in compliance with existing laws and regulations.

Step 3:Eliminate alternatives that face prohibitive barriers.


21



Investment barriers




alternatives.

In terms of the consumption of Jatropha biodiesel, Scenarios C2, C3, C4 and C5 face barriers in the following

manner.

Scenario C1: Continuation of petroleum diesel consumption (continuation of current practice)

The use of petrodiesel is by public buses is the conventional and accepted practice in Mozambique. There

are no public or private incentives to switch to different fuel or vehicle type. Although BDF is produced and

used on pilot project basis, it is not commercially available on large scale. There are no barriers facing the

continued use of petrodiesel.

Scenario C2: Consumption of biodiesel from other producers

The consumer faces investment barrier under Scenario C2. The BDF market is not yet mature in

Mozambique. Biofuel production so far has been on experimental or self-consumption basis. The two

coconut oil-based BDF production facilities in Mozambique have either significantly reduced or terminated

their production due to high price of coconut oil. Under these circumstances, the only avenue available for

the consumer of the project activity, TPM, the local bus company of Maputo to source biofuel would be to

import it from overseas implicating a huge increase in cost of fuel procurement. Also, TPM would be the

first major-scale commercial user of biofuel for transportation in Mozambique. The barrier to engage in a

“first-of-its-kind” project is considerably high without the support of the CDM framework provided by the

project proponent. As such, Scenario C2 can be eliminated.

Scenario C3: Consumption of other single alternative fuel such as CNG or LPG, etc;

The consumer faces investment and technological barriers under Scenario C3. Currently, the entire bus fleet

of the consumer bus company operates on petrodiesel. Although CNG can be derived domestically, it is not

a realistic move in the near future as the only existing pipeline is dedicated to exporting the gas to South

Africa. Also, for the consumer to switch to other single alternative fuel such as CNG or LPG, the consumer

would have to purchase a whole new bus fleet that runs on CNG or LPG incurring an extremely high-cost

investment as well as familiarization with a new technology. As such, Scenario C3 can be eliminated.

Scenario C4: Consumption of a mix of above alternative fuels

Scenario C4 can be eliminated for the same reason as C3 as described above.

Scenario C5: Consumption of biodiesel from the proposed project plant.

Scenario C5 faces technological barrier and barrier due to prevailing practice. Switching the entire bus fleet

to biofuel is a major challenge to the consumer. Although no major changes to the vehicles are required, the

drivers as well as mechanics will need to deal with an unknown fuel that may be associated with new

technological difficulties. They also need to familiarize themselves with the characteristics of the new fuel.

22

Additionally, the consumer in the project activity is the first major bulk consumer of biofuel in Mozambique

using biofuel for public transport, making the project “first of its kind”. As such, Scenario C5 can be

eliminated.

As shown in the analysis above, Scenario C1, the continued use of petrodiesel is the only scenario that does

not face any prohibitive barriers, therefore the baseline scenario of the project activity is use of petrodiesel,

the continuation of current practice.

Step 4: Compare economic attractiveness of remaining alternatives

This step is not carried out as all alternatives but one has been eliminated in Step 3.

3. Land Use (L)

Step 1: Identify all realistic and credible alternatives for the land use

As per the methodology, the following alternatives are considered in relation to land use.

L1 Continuation of current land use, i.e.:

- For under-utilized land: Agricultural land continues to lie idle for several months per year. Grazing

land continues to be under-utilized (extensive grazing).

L2 Conversion to plantations of the oil crop.

L3 Conversion to another plantation (annual or perennial).

Step 2: Eliminate alternatives that are not complying with applicable laws and regulations

All identified alternatives are in compliance with existing laws and regulations.

Step 3: Eliminate alternatives that face prohibitive barriers.




Investment barriers




alternatives.

Scenario L1: Continuation of current land use (Agricultural land continues to lie idle for several months per

year)

Currently, there is no national strategy in place to increase oil seed cultivation for biofuel use. As previously

explained, oil seed production for biofuel use is still in its infant stage while the domestic market is almost

non-existent and overseas market access has not been tested. As a result, there are no public or private

incentives to change current use of land. Scenario L1 does not face any of the prohibitive barriers

mentioned above.

23

Scenario L2 and L3 face prohibitive barriers.

Scenario L2: Conversion to plantations of the oil crop.

Scenario L2 faces investment barrier, technological barrier and barrier due to prevailing practice. The

planned plantation site is an under-utilized agricultural land where crops are cultivated just part of the year by

small-scale farmers who lease their land from the government. No oil crop has ever been cultivated in the

vicinity of the site and without the initiatives of the CDM project bringing together a target consumer, there

will be no capital or technical expertise provided to the farmers to plant and cultivate an oil crop. As such,

Scenario L2 can be eliminated.

Scenario L3: Conversion to another plantation (annual or perennial)

Scenario L3 faces investment barrier, technological barrier and barrier due to prevailing practice. Currently,

no commercial interests can be seen in the vicinity of the area for the development of another plantation.

All the land in the area including the planned project site is government owned land leased to small-scale

farmers to cultivate some cash crops or has remained vacant for a considerable amount of time. Without the

initiatives of the CDM project bringing together a target consumer, there will be no capital or technical

expertise provided to the farmers to develop a new plantation. As such, Scenario L3 can be eliminated.

As shown in the analysis above, Scenario L1, the continuation of current land use is the only scenario that

does not face any prohibitive barriers, therefore the baseline scenario of the project activity is use of land as

the underutilized agricultural land, the continuation of current practice.

Step 4: Compare economic attractiveness of remaining alternatives

This step is not carried out as all alternatives but one have been eliminated in Step 3.

The methodology indicates that the methodology, AM0047 is only applicable if Scenarios P1, C1 and L1can

be demonstrated to be the baseline scenarios for projects where biofuel is produced from oil seeds. As the

baseline scenario of the project activity is the combination of P1, C1 and L1, AM0047 is the applicable

baseline methodology.

(11) Issues of the Project

1) Issues of Jatropha farming

In Mozambique, Jatropha has been cultivated by farmers in the past on trial base. Since the B.D.F

market was not established, however, the farmers could not obtain income from Jatropha and they

abandoned Jatropha farming. The reason for this is considered to be (i) luck of Jatropha market (ii)

absence of supply chain of Jatropha product, and (iii) absence of quality standard, related regulations,

and promotion policy.

In this project, the market is confirmed since Petromoc will purchase all product of the project and the

supply chain including transportation to Petromoc is totally covered in the project.

2) Location of farms

It is important to plan the positional relationship of Jatropha farm lands, B.D.F production plant, and

24

sales and other facilities, considering maximum economic efficiency so as to keep the B.D.F price low.

Particularly, the location of farms needs not only to meet agricultural requirements such as rainfall and

soil condition but also to be situated as close as possible to Matola and Capital Maputo where the

B.D.F plant will be constructed and the largest consumption is expected. In this study, Mabalane

District was selected for plantation site. In order to improve financial feasibility, it is better to secure

other farmland in Maputo Province or Gaza Province where main roads are located and larger traffic

advantage is expected.

3) Incentives and regulations for promoting the introduction of B.D.F

For facilitating the production of B.D.F, it is preferable to have regal framework for incentives such as

mandatory or policy target for the introduction of B.D.F, in such manner that EU member nations and

United States do.

As for standard and regulation, “Mozambique Biofuels Assessment” instructs to consolidate in the

National Biofuel Program. Since the document will be applied to the policy for introduction of biofuel

in Mozambique, it is considered that the standard and regulations of biofuel will be prepared by the

Government of Mozambique soon. The document also suggests the promotion policy of biofuel such as

establishment of National Biofuels Development Fund (NBDF) using fuel tax, duty exemption for

biofuels, and mandatory blending of biofuels to conventional fuels. It needs to observe the stream of

government for introduction of those promotion policy and subsidiary scheme which provides better

condition for the project implementation.

4) B.D.F demand and consumption

Other than petrol station, the identifiable consumer of B.D.F is public transportation services such as

buses, minibuses, and freight trains. Blending ratio of B5 or B10 will not be enough for the

consumption of B.D.F produced by the project and B20 needs to be introduced. It is necessary to

mandate the use of B20 when monitoring the specific demand. The government should give incentives,

for instance, a lower tax rate than diesel oil. If the B.D.F amount is too large for the domestic

consumption, it is possible to have regional supply to SDAC countries such as South Africa or

European countries. Mozambique has an advantage of corridor country that has international port. In

this regard, it is highly possible that CER is not counted for exported B.D.F.

5. Co-benefits in Host Country

(1) Assessment of pollution prevention

In Maputo City, air pollution is becoming more and more serious. Exhaust gas from many diesel cars

with poor maintenance such as old buses, minibuses, and trucks is a serious problem.

The main air pollutants contained in exhaust gas from diesel cars are nitrogen oxide (NOx), sulfur

oxide (SOx), particulate matter (PM), carbon monoxide (CO), and total hydrocarbon (HC). When

blending percentage of B.D.F increases, NOx increases slightly, but PM, CO, and HC decreases.

Therefore, air pollution is likely to be reduced by blending B.D.F with diesel oil. The amount of sulfur

(source of SOx) contained in Jatropha B.D.F is less than 1/10 compared to that of diesel oil.

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Accordingly, it is expected that the use of B.D.F for diesel cars contributes to the reduction of air

pollution.

(2) Proposal of co-benefit indicators

University of Eduardo Mondlane is currently measuring the values of air pollutants. When the data is

published, it can be used as the default values of air pollution. If the concentrations of pollutants are

measured continually during the term of the project, those can be the indicator to assess the effect of

co-benefits with comparison of before and after the introduction of B.D.F

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1. outline of the project

Documents