biofuels - perspective for africa

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Financing BioFuels and Jatropha Plantation ProjectsAccra, Ghana-November 13, 2006

Learning from the Indian experience andthe BioFuels industry in India

Rajan K. Paradkar Sr. General Manager

Armaco Consultant Pvt. Ltd.,

Mumbai, India


NOT AN OFFICIAL UNCTAD DOCUMENT




EXPRESSES THANKS TO YOU,HONOURABLE CHAIRPERSON,

FOR THE KIND INVITATIONEXTENDED TO DELIVER THIS PRESENTATION AND WELCOMES THE PARTICIPANTS TO THIS

WORKSHOP




•CDM is a mechanism to monetize environmental value of pro-environmental projects established in response to global climate change.

•CDM enables developed countries with high CO2 reduction costs, tomeet the shortfall of allowed emissions at a lower cost than achieving the

reduction domestically.

•To Developing countries, the CDM presents an opportunity to attractinvestment from developed countries to environmentally sound projectsassisting in sustainable development.

•Optimum size of the project for CDM financing to be analyzed. This is interms of CER’s per year (I.e. Certified Emission Reductions OR Tons of CO2 per year).




Petrol Diesel Import Bill Domestic

2011-2012 13 MMT 67 MMT ? ?

2006-2007 10 MMT 52 MMT US $ 43.3 BillionDoubled in 2 years

30%




Ministry of Agriculture

Ministries of Railwaysand Road Transport

Co-op. Sugar Sector,

Industry Houses, SME’s

Ministry of Petroleum

& Natural Gas

Govt. of India

Ministry of

Environment & Forests

Ministry of Rural Development

Ministry of non-

conventional energy

PlanningCommission

Ministry of Finance

Governments

of States

Ministry of

Science & Tech.




qPoverty reduction by employment generation with productive degraded lands.Integration with rural development and employment guarantee scheme

qAcquire / develop elite Tree Borne Oilseeds (TBO’s) varieties having high oilquantity, quality and disease resistance, nursery raising, plantation of TBO’s, JV’sfor contract farming on leased government land, preservation of seed & oilwithout altering quality and village education & awareness.

qBioFuel purchase policy, mandatory blending, evaluating tax breaks and massawareness through Petroleum Conservation Research Association (PCRA).

qDrip irrigation subsidy thru state governments (with a ceiling), refinance to thebanks at a concessional rate of interest for wasteland development with TBO’s,re-finance support for BioDiesel expeller units, co-finance for BioDieselmanufacturing.

qR&D Focus on efficient & cost effective processing plant with feedstockflexibility and studies on products in the BioFuel link chain.

qSetting up BioMass based power plants for rural electrification in a cluster of remote villages.




qCapital Goods for BioFuels mfg. to be exempted from duty & tax payments byunion & state governments and municipalities. Raw Materials / Ingredients for BioFuels mfg. to be exempted from duty & tax payments till local availability isensured.

qNotification for classifying TBO’s as an Agricultural Crop with recommendedinterest rate, moratorium for repayment, rebate in electric power tariff & insurancepremium and guidelines to banks for priority sector funding.

qFair & Reasonable minimum support price and timely payments for TBO seeds.

qAccepting the fact that trade in BioFuels can play an important part in helpingcountries meet their BioFuels requirements without jeopardizing the localindustry. In 2004, India imported 447 million liters of Ethanol from Brazil.

qBased on estimated diesel consumption of 70 million tons in 2011-2012, the bio-diesel required for 20 per cent blending would be 14 million tons. Obtaining

BioDiesel of this amount involves about 14 million hectares of land under TBOcultivation. After decades, the land currently under sugarcane cultivation is 4.36million hectares. Even considering less water requirement for TBO’s, India mayhave to import BioDiesel or vegetable oil feedstock or even oilseeds.




qOne hectare of Jatropha plantation generates around 200 person days of employment during the first year and about 50 person days in the subsequent years.

qAbout 50 million sugarcane farmers and agricultural laborers are involved insugarcane cultivation and ancillary activities. Besides, the industry providesemployment to about 2 million workers. (19 MMT Production/4.36 M.Hectares land).

qBiotechnology involving enzymatic saccharification and fermentation has made it

possible to use readily available cellulosic material such as rice straw, bagasse, cornstover and other crop residue for ethanol production sufficient for 10% blending. Theuse of energy-efficient ethanol dehydration methods like pressure-swing adsorptionand membrane separation can reduce production costs.

qSubsidy towards drip irrigation to be offered to TBO Plantation without ceiling.

qSuitably equipped Govt. test laboratories to be available to small BioDiesel

producers. Oil seed grading & testing method to be specified by BIS.qDenatured Ethanol to be classified as a Petroleum Product for smooth interstatemovement for blending with petrol. This is linked to the state tax on potable ethanol.




qThe infrastructure in seed collection & processing and oil extraction must beestablished before the industry can be placed on a rapid-growth track.

qBy-products: Alternative means for utilizing the excess availability of glycerol fromBioDiesel production. The viability of producing BioGas from oilseed cake andBioMass power, hydrogen and other chemicals from BioEthanol manufacturing.

qIntercropping with commercial / vegetable / medicinal / herbal crops to optimizefarm income.

qFor economical yield of TBO’s, the rainfall requirement is 500 to 1200 mm.

qFuture of BioEthanol program depends on parity of Ethanol pricing with that of Petrol on ex-refinery basis. Tax concessions on the sale of BioFuel blended petrol /diesel.

qFlexibility instead of Quota for the sugar manufacturing by regulating theproduction of sugar & ethanol according to the market demand.




qTrade liberalization

$It is necessary to make it possible for BioFuels from developingcountries to benefit from accelerated world trade liberalization.

$Developed countries and international organizations such as theUNCTAD have a key role to play in achieving this objective.

qImpact of BioFuel crops

$Meeting the EU’s BioFuel target of 5.75% of road transport energyuse by 2010 would require 13% of its total agricultural area if the crops weregrown on EU soil.

$This would have potentially ‘drastic negative impacts on Europe’sfood production, biodiversity and landscapes’ (UNEP, 2006).

qWorld Trade

$Any future large-scale intervention in the Fossil Fuels market due tothe generous support to the BioFuels sector, is likely to be resented as a tradedistorting mechanism.

$Some Fossil Fuel Producers will enter the BioFuels Industry.




qFor every $10 hike in the cost of a barrel of crude, the economy of an oilimporting Country in sub-Saharan Africa is impacted in multiples of the impacton the US economy. As a result, important gains reaped from debt forgivenessinitiatives are being wiped out by rising energy costs (IEA). The impact is inmultiples of what the government expects to spend on education and healthcare combined.

qGeneralized System of Preferences (GSP)-Exports from LDC’s enter duty freeor at reduced rates in the developed countries. Duty free and quota free marketaccess for 32 LDC’s by 2008 (WTO-Doha declaration).

qHuge land for plantation.

qCurrently Seed and Germplasm export. Potential export market for BioFuels indeveloped & developing countries.

qDue to major price fluctuation, hardship to LDC,s. Commodity agreementsutilizing buffer stocks &/or quotas are established to stabilize prices (UNCTAD).




The model to measure the potential economic effects of the BioFuels industrytakes into account economic variables, such as:

– gross domestic product, the consumer price index, the exchange rate;

– inputs, such as fuel, equipment and machinery;

– crop prices and volumes;

– livestock sector prices and volumes;

– the behavior of farmers concerning the substitution of crops;

– global markets and import parity.

The model has improved government’s and business’s understanding of the

sector for the national BioFuels strategy to kick-start large-scale Production.

*(jointly by a U.S. and South African University)




qNew investors “comfort” with the industry has improved.

qCommodity moving up the value chain, by creating value & sustainablemarkets for byproducts.

qHigher term debt to be structured with revolving component to

accommodate cash flow.

qNo direct correlation between finished product values and feedstock.

qFrom the viewpoint of financial sustainability, industry - farmers partnership

models have scored over other models. R& D has emerged as an area wherethe corporate private sector has a real and demonstrated comparativeadvantage. Laws in some countries discourage ownership of vast tracts of land by private entities.




Provides financial services to low-income clients, usually landless marginal farmers.

q For reasons of institutional bias or otherwise, more than 95 percent of poor households are excluded from access to the institutional financial services.

q Due to their irregular and unpredictable income, the poor need access to affordablcredit and safe savings for consumption smoothing and insurance against the debttraps that frequently accompany sickness, ill health & emergencies.

q Reduction of transaction costs through group-based operations, the substitution osocial for physical collateral.

q The greater financial discipline of women is also used in microfinance since theycomprise the majority of clients.

q Operations frequently depend for the success in mobilizing and organizing the pooso that they can develop sufficient confidence to save, borrow, and invest. Sensitivand trusted agencies must be used for this task.

q Supporting persons to become sustainable, who after initial assistance can suppor their own growth.




Sustainability

Supply Security Air Quality - Climate change

Employment Opportunities Social Development Minimum Support Price

Govt.-Industry-Farmer Co-op. Microfinance-Empower Women

Cost Effective Plants

By-product Utilization

Market Penetration

Mandatory Blending

Tax Incentives, Soft Funding, Subsid

Buffer Stocks

Profitability CDM Finance

Research & Devpt.

Technology Transfer

Supply Chain Partnerships

Intercropping with other crops

Entry of Fossil Fuel players

Generalized System of Preferences

CompetitivenessIntra-Zonal trade

Leveraging

BioFuels Business




www.armaco.inFor Queries, write to:

[email protected]

q The views expressed in this presentation are those of the author and

do not necessarily reflect the views of the United Nations Conference

on Trade & Development and the Ecowas Bank for Investment and Development.

q This presentation has been compiled based on the information from numeroussources. While replying to queries, we will acknowledge the specific sources.

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