e y e r h t r o l b a w 2008 f k o r ener g r · a r g e n t i n e r e n e w a b l e. ener. g ies...

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Includes: Current state of the Argentine biodiesel industry, past, present and future. Argentine biodiesel production in global context. List of plants with size and location. Internal demand requirements. Argentine biofuels law. Recommendations.

Cámara Argentina de Energías Renovables Viamonte 524, Suite 102

Buenos Aires Argentina ‐ C1053ABL

[email protected] Tel/Fax: +54‐114‐515‐0517

October 2008

© 2008 Argentine Renewable Energies Chamber of 27

Outlook for the Argentine Biodiesel Industry

Page HIGHLIGHTS .................................................................................................................... 3 INTRODUCTION .............................................................................................................. 4

Graph 1: Evolution of Argentina’s Biodiesel Production Capacity................................ 6 BEGINNINGS OF AN INDUSTRY.................................................................................. 6

Table 1: Biodiesel Production capacity, 2006 ................................................................ 7 Table 2: Biodiesel Production Capacity, 2007 ............................................................... 8 Table 3: The Ten Largest Biodiesel Producers in 2007.................................................. 9

A KEY YEAR: 2008 .......................................................................................................... 9 Table 4: Biodiesel Production Capacity, 2008 ............................................................. 10 Table 5: Companies Authorized by the Secretariat of Energy to Produce Biofuels..... 11 Graph 2: Biodiesel Productive Capacity by Province, 2008......................................... 12

2009: BEFORE THE INTERNAL MARKET REQUIREMENTS BEGIN .................... 13 Graph 3: Biodiesel Productive Capacity by Province, 2009......................................... 13 Table 6: Biodiesel Production Capacity, 2009 ............................................................. 15

THE NEAR FUTURE ...................................................................................................... 15 Graph 4: Average Size of Biodiesel Plants in Argentina.............................................. 16

INTERNAL MARKET: THE B5 REQUIREMENT ....................................................... 16 Graph 5: Biodiesel’s Value Chain ................................................................................ 18

ARGENTINA IN THE WORLD...................................................................................... 19 Table 7: Estimated World Biodiesel Production by country, 2008 .............................. 19

CONCLUSIONS AND RECOMMENDATIONS ........................................................... 21 Table 8: Evolution of Argentina’s Biodiesel Installed Capacity, 2006-2011............... 25

MAP OF ARGENTINA ................................................................................................... 26 Biodiesel Plant Locations, 2010 ................................................................................... 27


“In 2008 Argentina will produce more than 10% of the world’s biodiesel, establishing itself as the third largest producer and sales in excess of US$1.5 billion. However, to guarantee the industry’s full potential in Argentina -- and establish itself along with Brazil as a biofuels powerhouse -- the industry needs to be nurtured and protected far more than has been done thus far. This is a strategic issue for Argentina.” Carlos St. James, President, Argentine Renewable Energies Chamber

HIGHLIGHTS

In 2008 Argentina will produce over 10% of the world’s biodiesel.

Total annual production for 2008 is estimated at 1.2 million tons, making it the third largest producer after Germany and the United States.

In 2008 total installed capacity will grow 150% from the previous year,

with similar growth expected during 2009.

New production capacity will increase 840,000 tons in 2008 to a record total of 1.4 million tons.

Virtually all Argentine biodiesel production is exported, primarily to

Europe -- albeit with a quick dash to the United States first.

One of Argentina’s greatest attractions is their abundance of feedstock (Argentina is the largest exporter of soy oil in the world) coupled with its low cost: soy oil exports pay an export tax of 32%; biodiesel made in Argentina doesn’t pay that tax, giving the country an enormous cost advantage on feedstock over producers anywhere else in the world.

The province of Santa Fe has established clear leadership in biodiesel

production, with 85% of installed capacity located in that province.

By the end of 2008 Argentina will have 18 commercial biodiesel plants in operation, and by the end of 2009 there will be 34 plants. The average size of these plants is trending upwards and stands at 83,000 tons/year in 2008.

In 2010 Argentina’s B5 internal requirement kicks in, creating a market

for 625,000 tons of biodiesel a year.


INTRODUCTION In the last few years, the Argentine press has published a number of articles regarding investment taking place in the nascent biodiesel industry in the country, indicating potential investor groups, estimated investment amounts, and installed capacity, present and future. But few of the myriad projects announced and described in these press releases and articles actually come to fruition, lending to significant confusion regarding the country’s actual and future biodiesel production capacity. Many of these projects continue seeking sponsors, especially in light of a difficult year between the farm sector and the Argentine government; many remain on standby. Some also appear duplicated under different names, resulting in even greater confusion. The Argentine Renewable Energies Chamber has therefore decided to complete the industry’s first full report regarding Argentine biodiesel production; this is a summary of what will be reported in full at the end of the year. In order to gain true figures, it has been necessary to these plants along with technicians around the country. Only this way have we been able to distinguish the true existence and capacity of biodiesel plants in Argentina, and gain an understanding of the status and likely startup dates for those under construction. We have also interviewed many investors, both foreign and local, and physically viewed many of these projects to gain a sense of their commitment to the market. Needless to say, the geographical diversity of plant location, various technologies used (virtually all first generation) and the rapid growth of the industry has made this an arduous although necessary task. But it is also important to highlight that this is a rapidly evolving industry with numerous starts and stops, and final figures are constantly under revision. This study represents a summary of the full analysis which will be published by year end 2008 in Spanish and English under the name, The State of the Srgenytine Renewable Energies Industry: 2008 (“El estado de la industria de energies renovables: 2008”) and will include a detailed analysis of the biodiesel, ethanol, wind, solar and biomass industries in Argentina, which also have great potential for development. We want to thank the support and information provided to us by the Argentine Secretary of Energy’s office, the Agricultural Secretary’s office, and the various smaller biofuels associations that operate on a province by province basis, as well as the many professionals that have added insight and assistance. However, the opinions expressed in this report are those of our Chamber, and the errors and omissions are ours alone. This summary report is also available in its original Spanish language version – where it has received enormous interest from the local press for its accuracy and


simplicity, on our website, www.argentinarenovables.org, under the section entitled Info, Ensayos y Estudios, as “Panorama de la industria argentina del biodiesel.” About the Chamber The Argentine Renewable Energies Chamber is a non-profit industry association dedicated to developing solid foundations for a nascent industry that has great potential for Argentina and the world. We are supported primarily by membership fees and currently have over 60 members, comprised of an equal split of Argentine and foreign-based corporations. While our goal is to develop the Argentine industry, our viewpoint is global in nature. We pride ourselves on working ethically, inclusively and with transparency. Federico Spitznagel Institutional Relations Argentine Renewable Energies Chamber

http://www.argentinarenovables.org/


Graph 1: Evolution of Argentina’s Biodiesel Production Capacity

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BEGINNINGS OF AN INDUSTRY The Argentine biofuels law (“Ley de Biocombustibles”, known by its number, 26.093) was sanctioned by the legislative branch of government (the “what”) in April 2006 and its regulations published by the executive branch (the “how”) in February 2007, as Decree #109/2007. The complete texts of each of these are available on our chamber’s website, www.ArgentinaRenovables.org, and in copies of the Argentine Renewable Energies Directory, published annually by our Chamber.1 However, even before there was a legal framework from which to work, a number of visionary and bold individuals and enterprises had begun to build biodiesel plants, with some smaller plants operational in the year 2000. One case in point is that of Mr. Jose Luis Martinez Justo (today head of Soyenergy SA as well as vice president of our chamber), who established one of the first commercially viable biodiesel plants in the province of Entre Rios. The year 2006 ended with an installed capacity of 155,000 tons of biodiesel (174 million litres; 46 million gallons) produced by six companies: Vicentin SA; 1 Copies of the Directory can be ordered by e-mailing [email protected].

http://www.argentinarenovables.org/


Biomadero SA; Pitey SA; Advanced Organic Materials SA (normally know by their initials, AOMSA); Biodiesel SA, and the aforementioned Soyenergy SA. That year, 45% of installed capacity was based in the province of Buenos Aires, even though it is only the third largest producer of soy in Argentina (after Santa Fe and Cordoba provinces). Since then the industry’s growth has taken off and leadership has passed onto the province of Santa Fe, soy and soy oil production capital of Argentina.

Table 1: Biodiesel Production capacity, 2006 # Company Province Location 2006 1 Vicentin SA Santa Fe Avellaneda 48,0002 Biomadero SA Buenos Aires Villa Madero 30,0003 Pitey SA San Luis Villa Mercedes 30,0004 Soyenergy SA Buenos Aires Villa Astolfi Pilar 24,0005 Advanced Organic Materials SA Buenos Aires Pilar 16,0006 Biodiesel SA Santa Fe Sancti Spiritu 7,000 Total production capacity in tons 155,000

By then the vegetable oil industry had taken note and many of its larger players begun to build biodiesel plants of their own, using internationally-recognized technology such as De Smet and Lurgi. Thus, during the following year two 200,000 ton capacity plants were inaugurated, one a joint venture between Vicentin and Glencore with the name Renova SA, in the township of San Lorenzo, Santa Fe, and another one jointly owned by Bunge and Aceitera General Dehesa under the name Ecofuel SA, in the township of Puerto San Martin, Santa Fe. Like most of the crushing industry of Argentina, these are on the shores of the Parana River that runs from Brazil to the Rio de la Plata (River Plate) and out to the southern Atlantic Ocean and serves as the gateway for Argentina’s vegetable oil exports. Also, a smaller plant was completed in the interior of the country in the province of San Luis with the name Energía Sanluiseña Refinería Argentina SA (colloquially known as “Derivados San Luis”) with a capacity of 30,000 tons/year.


Table 2: Biodiesel Production Capacity, 2007 # Company Province Location 2006 2007 1 Vicentin SA Santa Fe Avellaneda 48,000 48,0002 Biomadero SA Buenos Aires Villa Madero 30,000 30,0003 Pitey SA San Luis Villa Mercedes 30,000 30,0004 Soyenergy SA Buenos Aires Villa Astolfi Pilar 24,000 24,0005 Advanced Organic Materials SA Buenos Aires Pilar 16,000 16,0006 Biodiesel SA Santa Fe Sancti Spiritu 7,000 7,0007 Renova SA Santa Fe San Lorenzo 200,0008 Ecofuel SA Santa Fe San Martin/Terminal 6 200,0009 Energia Sanluiseña Refin. Arg SA San Luis Parque Ind. San Luis 30,000 Total production capacity In tons 155,000 585,000

By the end of 2007, Argentine productive capacity of biodiesel reached 585,000 tons/year (655 million litres; 173 million gallons). Actual production, however, was 180,000 tons that year (all of it exported) primarily because most of these new plants began production towards the end of the calendar year. It is important to note that by then the rest of the world had also begun to build plants at a fast pace, typically assisted by tax incentives, subsidies, and access to attractive financing. The mature economies are enormous consumers of energy and they saw in biodiesel a way to produce cleaner fuel and reduce dependency on Middle East oil. Western Europe began rapid industry growth, using rapeseed oil (also known as canola) as feed stock. Germany was the established world leader in biodiesel, producing 2.9 million tons2 in 2007, followed by the United States with a million and a half tons of actual production. Yet Argentina -- with neither tax incentives, subsidies, nor access to financing -- suddenly found itself the sixth largest producer in the world,3 beating out many European countries (see Table 3, below). It was also in this year that innumerable biodiesel projects began to be announced in the Argentine press, some with enormous figures and obscure technologies. While many of the projects were lead by serious entrepreneurs and had viable backers, many lacked what is clearly the key link in an emerging market economy: solid and dependable financial backing to make their projects come to fruition. Many of these continue seeking sponsors. Our chamber has found that biodiesel capacity investment can prove very profitable in Argentina if investors partner with credible and knowledgeable counterparts in Argentina.

2 Although its productive capacity is much larger. 3 It is worth reminding readers the difference between productive capacity and actual production. In 2007, for example, Argentina produced 180,000 tons of biodiesel, while by year its productive capacity was a much higher 585,000 tons.


Investors’ interest in Argentina stems from its position as a low-cost producer coupled with an abundance of feedstock: Argentina is the world’s largest exporter of soy oil, exporting over 95% of production. In addition, soy oil pays an export tax (known as a “retencion”) of 32%. Thus, the internal price of soy oil is actually just two-thirds of the international price. Put another way, a farmer or crusher is indifferent, from an economic standpoint, if they sell their oil overseas or internally to a biodiesel producer: either way they pocket only about two-thirds of the international price. This, along with low cost labor, is what attracts so many investors into the country.

Table 3: The Ten Largest Biodiesel Producers4 in 2007

Country Production* 1 Germany 2,890 2 USA 1,521 3 France 872 4 Italy 363 5 Austria 267 6 ARGENTINA 180 7 Portugal 175 8 Spain 168 9 Belgium 166 10 UK 150

* in thousands of tons

A KEY YEAR: 2008 In 2008 biodiesel production capacity will almost triple once again, ending the year at 1.4 million tons (1.6 billion litres; 415 million gallons). Thus far not a single one of these plants has registered to produce for the internal (Argentine) market, which has a legally-mandated B5 requirement beginning in 2010 and creates an annual market for an estimated 625,000 tons of biodiesel. (See discussion below on the internal market: companies must register with the government and comply with numerous requirements – such as shareholder restrictions and price regulations – in order to supply the internal market. Companies have elected to remain less regulated and sell product into the overseas markets, which have the added benefit of paying in hard currency.) We estimate that by year end there will be 18 commercial biodiesel plants operating or ready to commence operations in Argentina, and that a dozen of 4 Sources: include European Biodiesel Board, National Biodiesel Board, American Biofuels Council, Canadian Renewable Fuels Association, Fundacao de Apoio a Universidade de Sao Paulo, Biodiesel 2020, Argentine Renewable Energies Chamber


these will also have formal authorization from the Secretary of Energy’s office to operate (also known as “Application Authority” according to its name under the biofuels law). Those that still do no appear on the government’s website list as “Authorized” will be completing testing and finalizing paperwork to comply with government requirements.

Table 4: Biodiesel Production Capacity, 2008

# Company Province Location 2006 2007 2008 1 Vicentin SA Santa Fe Avellaneda 48,000 48,000 48,000 2 Biomadero SA Buenos Aires Villa Madero 30,000 30,000 30,000 3 Pitey SA San Luis Villa Mercedes 30,000 30,000 30,000 4 Soyenergy SA Buenos Aires Villa Astolfi Pilar 24,000 24,000 24,000 5 Advanced Organic Materials SA Buenos Aires Pilar 16,000 16,000 70,000 6 Biodiesel SA Santa Fe Sancti Spiritu 7,000 7,000 7,000 7 Renova SA Santa Fe San Lorenzo 200,000 200,000 8 Ecofuel SA Santa Fe San Martin/Terminal 6 200,000 200,000 9 Energia Sanluiseña Refineria Arg SA San Luis Parque Ind. San Luis 30,000 30,000

10 LDC Argentina SA Santa Fe General Lagos 300,000 11 Unitec Bio SA Santa Fe San Martin/Terminal 6 200,000 12 Explora Santa Fe Puerto San Martin 120,000 13 Molinos Rio de la Plata SA Santa Fe Rosario 100,000 14 Diferoil SA Santa Fe Alvear 30,000 15 Ricard Set Energias Renovables SA Buenos Aires Malvinas 18,000 16 Hector Bolzan & Cia. SA Entre Rios Parana 7,200 17 Energias Renovables Argentinas SA Santa Fe Piamonte 6,500 18 B.H. Biocombustibles SRL Santa Fe Calchaqui 4,000 Total year end production capacity In tons 155,000 585,000 1,424,700

There are currently ten companies authorized to produce biodiesel by the Application Authority (see Table 5, below).5 Note that all of these companies are biodiesel producers; there are no ethanol producers formally authorized to operate in Argentina at this writing. The conflict over export taxes6 between the farm sector and President Cristina Fernandez’s government did not affect those projects already under construction. However, it had a palpable effect on those projects still on paper and gestating, as many investors, foreign and domestic alike, took a wait-and-see attitude. The primary alternative destination for biodiesel investment after Argentina is Brazil.

5 Biodiesel SA, a very small producer in Santa Fe province since 2006 was on the list until recently when it ceased operations. 6 In March 2008 President Fernandez tried to impose a large increase in export taxes on grains and oils (in the case of soy oil, from 32% to a sliding scale that exceeded 50%), but after strikes and marches, the increase was withdrawn and returned to original levels.


Table 5: Companies Authorized by the Secretariat of Energy to Produce Biofuels

1. Vicentin SA

2. Energía Sanluiseña Refinería Argentina SA

3. Soyenergy SA

4. Advanced Organic Materials SA

5. Biomadero SA

6. Renova SA

7. Ecofuel SA

8. Unitec Bio SA

9. LDC Argentina SA

10.Molinos Río de la Plata SA

Source: Secretaría de Energía. Data as of September 30, 2008 Fully 85% of the increased production capacity in 2008 will come from four plants, all of them in the province of Santa Fe:

• LDC Argentina SA, in city of General Lagos, 300,000 ton capacity7; • Unitec Bio SA, in Puerto San Martin, 200,000 tons; • Explora SA, Puerto San Martin, 120,000 tons; and • Molinos Río de la Plata SA, Rosario, 100,000 tons.

While companies such as LDC Argentina (Louis Dreyfus Commodities) and Molinos represent investments by crushers with an abundance of feedstock at their disposal, the Unitec Bio and Explora projects represent investments from non-crushers without long term ties to the industry. But 2008 is also the year in which the province of Santa Fe establishes clear dominance of the industry. The province of Buenos Aires (see also map at the end of this report), which began the race as leader in 2006, now has only 10% of all production capacity and only one new plant since then.8 (However, AOMSA, in Pilar, Buenos Aires, with one of the industry’s best management teams, has built on its track record to increase production capacity considerably during 2008. See detail in Table 4, above.)

7 The largest plant in the country. 8 Ricard Set Energias Renovables SA, in Malvinas Argentinas, capacity 18,000 tons/year.


Given the importance of its leadership position, the government of the province of Santa Fe is signing an agreement with the Argentine Renewable Energies Chamber to help advise its leaders on the industry’s direction and prospects. Their intent is to develop a clear vision of the possible effects that the usage of new feedstocks, such as jatropha or algae, as well as the reduced concentration of the crushing industry away from the existing oligopoly, may have on the province’s industry. The agreement also includes development of biomass, solar and wind energy for Santa Fe.

Graph 2: Biodiesel Productive Capacity by Province, 2008

Entre Rios 7,200 tons, 1%

San Luis 60,000 tons, 4%

Santa Fe 1,215,500 tons,

85%

Buenos Aires 142,000 tons,

10%

Total: 1.4 million tons

Source: Argentine Renewable Energies Chamber From January through September 2008, producers have exported approximately 750,000 tons of biodiesel from Argentine ports, plus another 60,000 tons of glycerol, the primary sub-product from the production of biodiesel. Over 90% of this production makes a first stop in the United States, where it is mixed with US-made biodiesel and allowing for the entire shipment to qualify for the local subsidy. From there it typically leaves again for its final destination, Europe, but with far more attractive margins.9

9 See a detailed description of this maneuver, known as “splash & dash”, on page 23.


2009: BEFORE THE INTERNAL MARKET REQUIREMENTS BEGIN During 2009 the province of Córdoba (the country’s second largest producer of soy oil, after Santa Fe) makes its appearance on the biodiesel producer’s list, with up to eleven smaller plants that have a combined capacity of 260,000 tons (see Table 6, below). Many of these projects have been set up from a legal perspective in a way that conforms to the internal market requirements, and in theory may qualify to supply the internal (Argentine) market beginning in 2010 if they elect to register as such. This group could supply more than a third of the market’s needs. (The requirements include, for example, control of the company by establishments coming from the farm sector.) Development of these biodiesel plants comes from the excellent work done by the Biofuels Chamber of the province of Córdoba, which established a model program that attracts the best of each component: incentives from government; university support for technological solutions; the farm sector for feedstock and startup capital; and local development banks for financing. We believe that the Córdoba model is one which other provinces should study to find ways to replicate: it represents an unusual level of cooperation by Argentine standards.

Graph 3: Biodiesel Productive Capacity by Province, 2009

Entre Rios 7,200 tons, 0%

Santiago del Estero

100,000 tons, 4%

Cordoba 260,000 tons,

11%

San Luis 60,000 ton, 3%

Buenos Aires 242,000 tons,

10%

Santa Fe 1,701,500 tons, 72%

Total: 2.4 million tons



Obtaining solid evidence of production capacity or stage of project development is often a challenge. This year’s farm sector/government conflict did no favors to the country’s often marred reputation, and added another element of uncertainty to an industry that should be nurtured and supported like few, especially since the country is on the brink of an energy crisis. Ironically, Argentina has very distinct comparative advantages in many renewable energies, not only in biodiesel but in wind, solar and biomass energies as well. Nonetheless, predicting production capacity in 2009 is relatively easy since much of the construction has already begun: we are estimating fifteen new plants, which includes a doubling in productive capacity of the aforementioned Renova SA plant to 400,000 tons10. In 2009 we will also see the commencement of large world-class plants such as Patagonia Bioenergía SA in Santa Fe province, at 250,000 tons capacity, as well as the Viluco SA plant in Santiago del Estero province at 100,000 tons capacity (see Table 6, below). All this comes out to another 982,000 ton capacity increase to a new total of 2.4 million tons (2.6 billion litres; 700 million gallons) estimated by year end 2009. (See Table 6, below.)

10 Which will make it the largest plant in the country once operational in 2009.


Table 6: Biodiesel Production Capacity, 2009

# Company Province Location 2006 2007 2008 2009 1 Vicentin SA Santa Fe Avellaneda 48,000 48,000 48,000 48,000 2 Biomadero SA Buenos Aires Villa Madero 30,000 30,000 30,000 30,000 3 Pitey SA San Luis Villa Mercedes 30,000 30,000 30,000 30,000 4 Soyenergy SA Buenos Aires Villa Astolfi Pilar 24,000 24,000 24,000 24,000 5 Advanced Organic Materials SA Buenos Aires Pilar 16,000 16,000 70,000 70,000 6 Biodiesel SA Santa Fe Sancti Spiritu 7,000 7,000 7,000 7,000 7 Renova SA Santa Fe San Lorenzo 200,000 200,000 400,000 8 Ecofuel SA Santa Fe San Martin/Terminal 6 200,000 200,000 200,000 9 Energia Sanluiseña Refineria Arg SA San Luis Parque Ind. San Luis 30,000 30,000 30,000 10 LDC Argentina SA Santa Fe General Lagos 300,000 300,000 11 Unitec Bio SA Santa Fe San Martin/Terminal 6 200,000 200,000 12 Explora Santa Fe Puerto San Martin 120,000 120,000 13 Molinos Rio de la Plata SA Santa Fe Rosario 100,000 100,000 14 Diferoil SA Santa Fe Alvear 30,000 30,000 15 Ricard Set Energias Renovables SA Buenos Aires Malvinas 18,000 18,000 16 Hector Bolzan & Cia. SA Entre Rios Parana 7,200 7,200 17 Energias Renovables Argentinas SA Santa Fe Piamonte 6,500 6,500 18 B.H. Biocombustibles SRL Santa Fe Calchaqui 4,000 4,000 19 Patagonia Bioenergia SA Santa Fe San Lorenzo 250,000 20 Viluco SA Sgo. del Estero Pinto 100,000 21 Buenos Aires 100,000 22 Molyagro SA Cordoba Tancacha 40,000 23 Sojacor SA Cordoba Oncativo 40,000 24 Rosario Bio Energy SA Santa Fe Roldan 36,000 25 Santa Fe Bioenergy SA Santa Fe Alvear 36,000 26 Fideicomiso Pilar Cordoba Rio Segundo 20,000 27 Cooperativa Productores del Sur Cordoba Jovita 20,000 28 Alimentos Tancacha Cordoba Tancacha 20,000 29 La Campina Agroenergia SA Cordoba Chalacea 20,000 30 Pronor SA Cordoba Obispo Trejo 20,000 31 Agroalimentos Laboulaye SA Cordoba Laboulaye 20,000 32 Exporsoja SA Cordoba James Craik 20,000 33 Bisudecor SA Cordoba Marcos Juarez 20,000 34 Agrocereal SA Cordoba Viamonte 20,000

Total production capacity year end in tons 155,000 585,000 1,424,700 2,406,700

THE NEAR FUTURE With respect to 2010 and 2011, our chamber – together with the other institutions mentioned earlier -- has taken the time to study the projects that have been announced in the press. After a series of interviews, trips and much internal debate, we have established a list of those projects which we feel have greater chances of coming to fruition. Some have asked us to keep their names anonymous for the time being. Our estimation of probability of success in what is a complex country includes weighing the credibility and seriousness of the sponsors; their access to funding; technology used, among other factors. At the


end of the day this analysis has an element of the subjective, but is the only way we feel we can estimate credibly the future productive capability of biodiesel in Argentina. We forecast that by the end of 2010 there will be another five world class biodiesel plants added during that year, each with a production capacity of no less than 200,000 tons, thus taking total industrywide capacity to almost 3.7 million tons (four billion litres; one billion gallons). It is this last forecast that needs to be analyzed periodically and keep abreast of its evolution. However, our chamber believes that they have a high probability of coming to fruition. We also make note of the tendency towards larger plants. While the industry was borne with a handful of small plants, the entry of the large crushing complex into the industry and foreign investors with an ability to generate large projects, has created a trend towards larger and larger facilities. Graph 4 (below) shows the average size of biodiesel plants in Argentina. The small drop in 2009 is due to the expected inclusion of a number of smaller plants in the province of Cordoba.

Graph 4: Average Size of Biodiesel Plants in Argentina

29,600

102,30088,911

72,718

72,250

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INTERNAL MARKET: THE B5 REQUIREMENT Beginning in January 2010, a legally mandated internal market requirement will begin (known in Spanish as “Cupo Nacional”), which means that all fossil-fuel diesel sold must contain a 5% biodiesel component; hence the denomination “B5”. (The same occurs with ethanol and an “E5” requirement.) Industry estimates are that in that year the total diesel market will reach some 14 billion


litres (14 million cubic meters), thus establishing an annual market for some 700 million litres of biodiesel (625,000 tons). Here is where we see one of the many paradoxes of Argentina: while there are sporadic shortages of diesel in the Argentine market – ironically, typically during the grains harvest season – no companies have signed up to produce for the internal market. This is a situation that often confuses foreign investors and begs answers that seldom satisfy. The Argentine biofuels law has been set up in way that an entrepreneur must choose before commencing construction – before even incorporating, actually – which of two market segments its wants to supply: export or internal. By law, it cannot access more than one market through the same plant. There is also a third segment, called Self-consumption (“Autoconsumo”), which is geared towards the farm community for their own usage. The small scale farm sector that this segment represents is indeed building and producing its own biodiesel with very small plants, but they prefer to remain anonymous and operate without registering with the government. This lack of confidence in the government puts the industry’s reputation at risk, since it becomes impossible to access the quality of the biofuels being produced and assuring a minimum quality standard. We estimate that actual production in Argentina is about 1-2% higher that the figures we publish in this study, coming from the unacknowledged self-consumption segment. The fact that until now virtually all capacity has been slated for export markets and none of it (formally) for the upcoming internal market requirement could be interpreted as a failure by the government to offer a credible solution: investors simply are not convinced that it is a viable alternative.11 The heart of the matter lies in the subsidies given to energy in Argentina, both electric and fuel. For example, while a litre of diesel retails for the equivalent of US$0.62 in Argentina at this writing, in the United Status it sells for US$1.10/litre (US$4.12 a gallon) and for the equivalent of US$1.95/litre in Europe. This is, unquestionably, the primary reason for the lack of investment in the energy industry for local consumption. The Argentine government finds itself in the very uncomfortable position of having to allow the price of fuels to increase12, which will at the same time elicit higher inflation levels, already an economic and public relations problem.

11 The year end study will include investment figures as well. 12 The retail price of fuel is not regulated; however, downstream oil companies have learned that increasing prices at the fuel pump causes reprisals from the government.


Nonetheless, the Secretariat of Energy continues to stand by the scheme whereby those ultimately “approved” to supply the internal market will have 100% of their production sold during the following fifteen years at a price to be established by the government itself (at a price or even formula yet to be published at this writing), but guaranteeing a return on investment over the long haul. The structure is conceptually not unlike that of a utility bond. The difficulty lies in that a fifteen year promise by the Argentine government does not elicit much response in the capital markets at this juncture. Nor does it help that shareholder control of a business dedicated to producing biodiesel for the internal market must – by law – be in hands of a person or business that is “dedicated primarily to agricultural production”13, or that the market will be far from free: the government will establish the sales price of biodiesel within the country.14 Because the government has not yet published the price or formula to be used in this exercise, potential investors find it impossible to project cash flow or yields since they are missing a key piece of the puzzle, beyond the fact that the law indicates that they will assure a “reasonable return to investors”. But even if the number is ultimately an attractive one, it would be comprised of a subsidized figure, and once again the Argentine consumer will have another tax burden to shoulder. These are just a few of the reasons why none of the oil companies operating in Argentina have built biodiesel or ethanol plants. Also, given the conflict between the farm sector and government during 2008, much of the Argentine farm sector feels safer taking one of two paths: producing biodiesel on a small scale for self-consumption and remaining under the radar without announcing their capacity to the government, or else entering the industry on a large scale as part of the upstream (supplying soybeans or oil) for a larger plant focused on export markets.

Graph 5: Biodiesel’s Value Chain

Feedstock production

Oil extraction: crushing

Trans- esterification (biodiesel)

Blending and

Distribution Final markets

13 Article 13 (c) of Law 26.093. See also Article 19 (a) of Decree 109/2007. 14 See Article 12 of Decree 109/2007.


ARGENTINA IN THE WORLD According to the F.O. Licht World Ethanol and Biofuels Report, world biodiesel industry should be growing a 10-12% annually. We estimate that in 2008 total world production will reach some 10 million tons of biodiesel. Over half of this total will be produced in Europe, primarily Germany; 15% from the United States, which is expected to produce 1.5 million tons in 2008, and 12% from Argentina. Brazil, with production at slightly less than one million tons, will have a 9% global market share of biodiesel. Argentina will produce between 1.1 and 1.3 million tons of biodiesel in 2008. This means that in a very short period of time, our country will have grown from six small plants to 18 biodiesel plants, many among the world’s largest. This in effect places Argentina as third largest producer in 2008, after Germany and the United States, and surpassing France and Italy (see also Table 3, page 9).

Table 7: Estimated World Biodiesel Production by country, 2008

Production* Europe 5,500 United States 1,500 Argentina 1,200 Brazil 900 Rest of world 900 ----------- Total 10,000

* in thousands of tons

This is a significant achievement and reflects the creative, commercial and technological abilities of Argentine entrepreneurs working in a complex political environment, with no government incentives, no subsidies nor access to viable financing. We believe that these companies and their leaders deserve the admiration and respect of all Argentines – including the government – for being the founders of an industry with so much potential for the country. But this market reality happened in a year where the global biofuels industry is going through its first crisis. During the first half of 2008 there was an “anti-biofuel” wave spearheaded by interest groups adverse to biofuels, to which many institutions adhered to -- many of these with downright irresponsible comments. As a result, a complex issue such as food vs. fuel was oversimplified, with some organizations stating that they were “in favor of humanity and food” in apparent contrast to renewable energies. Looking at only one aspect of a situation should


not detract form a very real need: finding alternative energies to polluting fossil fuels, and among the current best options include development of biofuels. But the wave seems to have past and our industry continues to grow. We are becoming very quick and able to respond quickly and effectively to these challenges, and our chamber has established a network of sister organizations – fellow non-profits -- around the world with whom we are coordinating efforts such as these. Argentina is looking to take a leadership role in this industry on a global basis through its industry representative, the Argentine Renewable Energies Chamber. The European Union has established a goal of 5.75% biofuels mix beginning in 2010. Our chamber has signed an agreement with the European Commission as part of a consortium of nine very prestigious institutions to study biofuels in Latin America and their effects and both markets, seeking new joint research opportunities.15 Europe’s ability to meet its own targets is closely linked to their ability to obtain feedstock from regions such as Latin America and biodiesel from countries like Argentina. This is yet another attractive option regarding the development of the industry: access to attractive and long term markets. However, installed biodiesel production capacity in Europe and the United States is much higher: in both cases their industries are operating at less than half of installed capacity. This is due to a combination of reasons that came together in quick succession and hit these markets hard: the increase in the price of feedstock such as soy or rapeseed oils; the elimination of certain subsidies to the German industry; and unfair trade practices by the United States in a tax reimbursement scheme known colloquially as “splash & dash”, which used U.S. taxpayer money to subsidize foreign biodiesel (although the gains typically went to traders and not the foreign biodiesel producers). Splash & dash refers to an aspect of the U.S. government’s incentives to develop the American biodiesel industry which had left open a loophole. The incentive offered a US$300/ton reimbursement for biodiesel which allowed traders to import foreign biodiesel and at port add 1% U.S.-made biodiesel to the cargo, thereby allowing the entire shipment to qualify for the reimbursement. This in effect lowered the overall cost16 of the shipment which was then re-exported to Europe at below-market prices.

15 The project’s website, known as “BioTop”, is www.top-biofuel.org 16 Assuming a typical shipment of 10,000 tons, this represents an almost US$3 million reimbursement.


CONCLUSIONS AND RECOMMENDATIONS There is an enormous amount of work to be done so that the Argentine biodiesel industry remains competitive in the long run in a rapidly evolving 21st century. For example, we must prepare for the sustainability requirements that Europe will impose on itself and all imported biofuels beginning next year; establish clear and uniform biofuels quality standards; and improving the legal and regulatory framework, to mention just three issues. The Argentine biofuels industry is working the sustainability issue directly with Europe through our chamber’s contract with the European Commission known as “BioTop”. We have involved some of the country’s greatest talents as members of the project’s advisory board, most recently travelling in September 2008 to Brasil for a round of discussions with Europe. We seek to continue to attract the best and brightest minds of Argentina to this issue which will have an enormous effect on the industry. Our chamber has also established a Biofuels Quality Committee, headed by a renown executive in the industry that has over 30 years experience working on quality issues and was one of the founding members of the petroleum quality committee for Argentine standards institution, IRAM. With respect to the legal and regulatory framework, in the last two years our chamber has had numerous meeting with the Undersecretary of Fuels of the Argentine Secretariat of Energy to discuss the matter. Unfortunately, the post is currently open and thus negotiations are at a standstill. We continue to talk on a regular basis with legislators to help them gain understanding of the industry’s potential to Argentina. Members of our chamber’s Executive Committee also meet regularly with political leaders of Argentina. But the immediate challenge is to prepare the country for the B5 requirement that begins in 2010, and that means focusing on the fundamentals. For example, we believe attention should be focused on correct implementation of the B5 biodiesel requirement, postponing the E5 ethanol requirement and making it voluntary (as opposed to mandatory) until 2012. Unlike the biodiesel industry, ethanol production capacity is growing more slowly and gasoline/ethanol consumption in Argentina is much lower than diesel/biodiesel. Additionally, the sense of urgency to find alternatives to diesel is greater: many gasoline vehicles in Argentina have been successfully converted to LNG. Argentina is an exporter of gasoline -- but a net importer of diesel. Given the complexity of the matter of launching a biofuels requirement, we feel that postponing the ethanol component to focus on successful implementation of biodiesel is a sound idea, by making it voluntary until 2012. The alternative is to ignore the problem or make last minute changes, and neither of these options is attractive for a country that aspires to leadership and has the


world’s attention on matters pertaining to feedstock and biofuels. This does not mean that existing ethanol projects should be laid by the wayside, but we should allow the small government manpower dedicated to biofuels issues to focus on the greater challenges. Additionally, the Application Authority has still not announced formally the formula they will use to determine the viability of biodiesel projects for the internal market. And many aspects that do not receive first page news status are no less important. For example, resolving logistical matters of an industry that will need to transport combustible fuels to various blending locations (designated by the government) to complete the 5% mix. Article 3 of the Argentine biofuels law establishes a “National Advisory Committee” to promote the production and sustainable use of biofuels, which is comprised of representatives from the various secretaries of Energy, Agriculture, Environment, Commerce, and Science, as well as the tax authorities. Here we have great intellectual and executive talent, which could be well served by adding the pragmatism and sense of urgency coming from the private sector. We recommend that the Application Authority invite the industry’s representatives to participate in the National Advisory Committee (as allowed under article 3 of the law and article 6 of its regulations) to give greater movement to the urgent matters, allowing the industry to contribute its understanding of the industry, and begin the process of allowing an industry to regulate itself as is often the case in mature societies. Also, we must use this industry’s potential and the forward movement we’ve already gained to improve our international standing as a nation. Brazil, for example, has done an excellent job of exploiting its position as largest and most efficient ethanol producer in the world to gain influence and power on the international stage. From a diplomatic and commercial standpoint, Argentina must make use of this industry in the same way. We cannot lose the opportunity to take the reins of the biodiesel industry as given by our position as most efficient producer: it is a piece of rapidly-growing importance in the world geopolitical chess match, and even more so in these uncertain times. Less than one hundred years ago Argentina was among the world’s wealthiest nations because its grains, oils and beef fed the world. The Argentine renewable energies industry believes that we have before us a new and unique opportunity that can once again position us among the world’s wealthiest nations, but now as exporters of clean and renewable energies to the world. Our potential is enormous: to the extent that the rest of the world will suffer the consequences of their dependence on fossil fuels – who’s price over time will continue to increase – our country can be in the enviable position of becoming self-sufficient in clean energies such as biofuels, wind, solar and biomass energy


at attractive prices. This abundance of energy in turn can be the engine that attracts further investment into the country and result in solid and lasting economic growth. But the industry needs to be nurtured and protected to reach its potential and this year’s quadrupling of the export tax on biodiesel from 5% to 20% -- without even consulting the industry itself – goes against this reasoning. Renewable energies are just beginning to establish themselves as viable alternatives on a global scale and Argentina enjoys many advantages that can be used to create a cleaner society for future argentine generations, along with more and better sources of jobs and wealth. It is our hands, all of Argentina, to make it happen.


For more information about our organization, please visit or write our offices at 524 Viamonte Street, Suite 102, Buenos Aires, Argentina C1053ABL, or e-mail us at [email protected]. The complete analysis in paperback form, entitled The State of the Argentine Renewable Energies Industry 2008, including biofuels, wind and solar energy, will become available soon. To reserve a copy free of charge please contact us.

mailto:[email protected]


Table 8: Evolution of Argentina’s Biodiesel Installed Capacity, 2006-2011

# Company Province Location 2006 2007 2008 2009 2010 2011 1 Vicentin SA Santa Fe Avellaneda 48000 48000 48000 48000 48000 48000 2 Biomadero SA Buenos Aires Villa Madero 30000 30000 30000 30000 30000 30000 3 Pitey SA San Luis Villa Mercedes 30000 30000 30000 30000 30000 30000 4 Soyenergy SA Buenos Aires Villa Astolfi Pilar 24000 24000 24000 24000 24000 24000 5 Advanced Organic Materials SA Buenos Aires Pilar 16000 16000 70000 70000 70000 70000

6 Biodiesel SA Santa Fe Sancti Spiritu 7000 7000 7000 7000 7000 7000

7 Renova SA Santa Fe San Lorenzo 200000 200000 400000 400000 400000 8 Ecofuel SA Santa Fe San Martin/Terminal 6 200000 200000 200000 200000 200000

9 Energia Sanluiseña RefineriaArg SA San Luis Parque Ind. San Luis 30000 30000 30000 30000 30000

10 LDC Argentina SA Santa Fe General Lagos 300000 300000 300000 300000 11 Unitec Bio SA Santa Fe San Martin/Terminal 6 200000 200000 200000 200000 12 Explora Santa Fe Puerto San Martin 120000 120000 240000 240000 13 Molinos Rio de la Plata SA Santa Fe Rosario 100000 100000 100000 100000 14 Diferoil SA Santa Fe Alvear 30000 30000 60000 60000 15 Ricard Set Energias Renovables SA Buenos Aires Malvinas 18000 18000 18000 18000 16 Hector Bolzan & Cia. SA Entre Rios Parana 7200 7200 7200 7200 17 Energias Renovables Argentinas SA Santa Fe Piamonte 6500 6500 6500 6500

18 B.H. Biocombustibles SRL Santa Fe Calchaqui 4000 4000 4000 4000

19 Patagonia Bioenergia SA Santa Fe San Lorenzo 250000 250000 500000 20 Viluco SA Sgo. del Estero Pinto 100000 100000 100000 21 Buenos Aires 100000 100000 100000 22 Molyagro SA Cordoba Tancacha 40000 40000 40000 23 Sojacor SA Cordoba Oncativo 40000 40000 40000 24 Rosario Bio Energy SA Santa Fe Roldan 36000 36000 36000 25 Santa Fe Bioenergy SA Santa Fe Alvear 36000 36000 36000 26 Fideicomiso Pilar Cordoba Rio Segundo 20000 20000 20000 27 Cooperativa Productores del Sur Cordoba Jovita 20000 20000 20000 28 Alimentos Tancacha Cordoba Tancacha 20000 20000 20000 29 La Campina Agroenergia SA Cordoba Chalacea 20000 20000 20000 30 Pronor SA Cordoba Obispo Trejo 20000 20000 20000 31 Agroalimentos Laboulaye SA Cordoba Laboulaye 20000 20000 20000 32 Exporsoja SA Cordoba James Craik 20000 20000 20000 33 Bisudecor SA Cordoba Marcos Juarez 20000 20000 20000

34 Agrocereal SA Cordoba Viamonte 20000 20000 20000

35 Louis Dreyfus Buenos Aires Bahia Blanca 300000 300000 36 Santa Fe 200000 200000 37 Santa Fe 200000 200000 38 Raiser Santa Fe Timbues 200000 200000 39 ALS Bioenergias SA Entre Rios Ibicuy 200000 200000 40 Goldaracena Entre Rios Gualeguaychu 40000 40000

Capacidad de produccion al final del ano, en toneladas 155000 585000 1424700 2406700 3696700 3946700

negritas = aprobado por la Secretaria de Energia en toneladas


MAP OF ARGENTINA


Biodiesel Plant Locations, 2010

e y e r h t r o l b a w 2008 f k o r ener g r · a r g e n t i n e r e n e w a b l e. ener. g ies...

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