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Learning from the Indian experience and the BioFuels industry in India

Rajan K. Paradkar
Sr. General Manager Armaco Consultant Pvt. Ltd., Mumbai, India
NOT AN OFFICIAL UNCTAD DOCUMENT

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

EXPRESSES THANKS TO YOU, HONOURABLE CHAIRPERSON, FOR THE KIND INVITATION EXTENDED TO DELIVER THIS PRESENTATION AND WELCOMES THE PARTICIPANTS TO THIS WORKSHOP

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

CDM is a mechanism to monetize environmental value of proenvironmental projects established in response to global climate change. CDM enables developed countries with high CO2 reduction costs, to meet the shortfall of allowed emissions at a lower cost than achieving the reduction domestically. To Developing countries, the CDM presents an opportunity to attract investment from developed countries to environmentally sound projects assisting in sustainable development. Optimum size of the project for CDM financing to be analyzed. This is in terms of CERs per year (I.e. Certified Emission Reductions OR Tons of CO2 per year).

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Petrol

Diesel

Import Bill

Domestic 30%

2006-2007 10 MMT 52 MMT US $ 43.3 Billion


Doubled in 2 years

2011-2012 13 MMT 67 MMT

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Ministry of Finance

Govt. of India

Planning Commission

Ministry of Petroleum & Natural Gas Ministry of Rural Development

Ministry of Agriculture Ministry of nonconventional energy

Ministries of Railways and Road Transport

Ministry of Science & Tech. Ministry of Environment & Forests

Governments of States

Co-op. Sugar Sector, Industry Houses, SMEs

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

qPoverty reduction by employment generation with productive degraded lands. Integration with rural development and employment guarantee scheme qAcquire / develop elite Tree Borne Oilseeds (TBOs) varieties having high oil quantity, quality and disease resistance, nursery raising, plantation of TBOs, JVs for contract farming on leased government land, preservation of seed & oil without altering quality and village education & awareness. qBioFuel purchase policy, mandatory blending, evaluating tax breaks and mass awareness through Petroleum Conservation Research Association (PCRA). qDrip irrigation subsidy thru state governments (with a ceiling), refinance to the banks at a concessional rate of interest for wasteland development with TBOs, re-finance support for BioDiesel expeller units, co-finance for BioDiesel manufacturing. qR&D Focus on efficient & cost effective processing plant with feedstock flexibility and studies on products in the BioFuel link chain. qSetting up BioMass based power plants for rural electrification in a cluster of remote villages.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

qCapital Goods for BioFuels mfg. to be exempted from duty & tax payments by union & state governments and municipalities. Raw Materials / Ingredients for BioFuels mfg. to be exempted from duty & tax payments till local availability is ensured. qNotification for classifying TBOs as an Agricultural Crop with recommended interest rate, moratorium for repayment, rebate in electric power tariff & insurance premium 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 helping countries meet their BioFuels requirements without jeopardizing the local industry. In 2004, India imported 447 million liters of Ethanol from Brazil. qBased on estimated diesel consumption of 70 million tons in 2011-2012, the biodiesel required for 20 per cent blending would be 14 million tons. Obtaining BioDiesel of this amount involves about 14 million hectares of land under TBO cultivation. After decades, the land currently under sugarcane cultivation is 4.36 million hectares. Even considering less water requirement for TBOs, India may have to import BioDiesel or vegetable oil feedstock or even oilseeds.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

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 in sugarcane cultivation and ancillary activities. Besides, the industry provides employment 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, corn stover and other crop residue for ethanol production sufficient for 10% blending. The use of energy-efficient ethanol dehydration methods like pressure-swing adsorption and 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 interstate movement for blending with petrol. This is linked to the state tax on potable ethanol.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

qThe infrastructure in seed collection & processing and oil extraction must be established before the industry can be placed on a rapid-growth track. qBy-products: Alternative means for utilizing the excess availabilit y of glycerol from BioDiesel production. The viability of producing BioGas from oilseed cake and BioMass power, hydrogen and other chemicals from BioEthanol manufacturing. qIntercropping with commercial / vegetable / medicinal / herbal crops to optimize farm income. qFor economical yield of TBOs, 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 the production of sugar & ethanol according to the market demand.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

qTrade liberalization $It is necessary to make it possible for BioFuels from developing countries to benefit from accelerated world trade liberalization. $Developed countries and international organizations such as the UNCTAD have a key role to play in achieving this objective. qImpact of BioFuel crops $Meeting the EUs BioFuel target of 5.75% of road transport energy use by 2010 would require 13% of its total agricultural area if the crops were grown on EU soil. $This would have potentially drastic negative impacts on Europes food production, biodiversity and landscapes (UNEP, 2006). qWorld Trade $Any future large-scale intervention in the Fossil Fuels market due to the generous support to the BioFuels sector, is likely to be resented as a trade distorting mechanism. $Some Fossil Fuel Producers will enter the BioFuels Industry.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

qFor every $10 hike in the cost of a barrel of crude, the economy of an oil importing Country in sub-Saharan Africa is impacted in multiples of the impact on the US economy. As a result, important gains reaped from debt forgiveness initiatives are being wiped out by rising energy costs (IEA). The impact is in multiples of what the government expects to spend on education and health care combined. qGeneralized System of Preferences (GSP)-Exports from LDCs enter duty free or at reduced rates in the developed countries. Duty free and quota free market access for 32 LDCs by 2008 (WTO-Doha declaration). qHuge land for plantation. qCurrently Seed and Germplasm export. Potential export market for BioFuels in developed & developing countries. qDue to major price fluctuation, hardship to LDC,s. Commodity agreements utilizing buffer stocks &/or quotas are established to stabilize prices (UNCTAD).

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

The model to measure the potential economic effects of the BioFuels industry takes 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 governments and businesss understanding of the sector for the national BioFuels strategy to kick-start large-scale Production. *(jointly by a U.S. and South African University)

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

qNew investors comfort with the industry has improved. qCommodity moving up the value chain, by creating value & sustainable markets 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 where the corporate private sector has a real and demonstrated comparative advantage. Laws in some countries discourage ownership of vast tracts of land by private entities.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

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 affordable credit and safe savings for consumption smoothing and insurance against the debt traps that frequently accompany sickness, ill health & emergencies. q Reduction of transaction costs through group-based operations, the substitution of social for physical collateral. q The greater financial discipline of women is also used in microfinance since they comprise the majority of clients. q Operations frequently depend for the success in mobilizing and organizing the poor so that they can develop sufficient confidence to save, borrow, and invest. Sensitive and trusted agencies must be used for this task. q Supporting persons to become sustainable, who after initial assistance can support their own growth.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

Sustainability Supply Security Employment Opportunities Govt.-Industry-Farmer Co-op. Research & Devpt. Technology Transfer Supply Chain Partnerships Intra-Zonal trade Air Quality - Climate change

Social Development Leveraging BioFuels Business

Minimum Support Price Cost Effective Plants By-product Utilization Market Penetration

Microfinance-Empower Women

Competitiveness

Profitability

CDM Finance

Intercropping with other crops Entry of Fossil Fuel players Generalized System of Preferences

Mandatory Blending Buffer Stocks

Tax Incentives, Soft Funding, Subsidy

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006

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For Queries, write to: rajan_paradkar@armaco.in
qThe 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. qThis presentation has been compiled based on the information from numerous sources. While replying to queries, we will acknowledge the specific sources.

Financing BioFuels and Jatropha Plantation Projects Accra, Ghana-November 13, 2006