You are on page 1of 61

Fuel for Development

:
Financing Sustainable Bio-Fuels
in Africa
International Conference on Renewable Energy in Africa
UNIDO, African Union et alt.
16-18 April 2008
Dakar, Senegal

Dr. Arrigo della Gherardesca

One Bio World Partnership
arrigo@onebioworld.com
ItAfrica – Italian African Alliance srl, Milano
Tel.: +39 02 462477 Fax: +39 02 99988158 Mobile: +39 337 302794
Skype: “arrigodg”

BioFuels-in-Africa:
is there a solution to the puzzle?
(this presentation is for Government Officials, Entrepreneurs,
Rural Cooperatives, Financing Institutions
and Socially Responsible Investors)
• Food prices?
• Sufficient land?
• Environmental
Sustainability?
• Agronomy?
• Rural Development?
• Market?
• Technology?
• Profitability?
• Financing?
• Scaling-up?
Let’s try…

BioFuels:
Ethanol (that substitutes Gasoline)
and
BioDiesel (that substitutes Diesel),
are under attack.
• They have been
accused of having
caused the recent
significant rises of
food prices, around
the world
• If this is true, they
have done very
significant damage,
especially to
the poorest people
(though not necessarily
to poor farmers)

Ethanol produced in the US has contributed to the rise of world corn prices .

• Even vegetable oils are a component of the diet of the poor.BioDiesel.. is accused of having caused the rise of the price of palm oil. which uses vegetable oils. etc.. rapeseed oil. • …. .

but net importers.Rising food prices will improve the trade balance of food exporters. stand to see a greater deficit . like most of Africa.

.2 producer of palm oil. • Even in Brazil. some BioDiesel plants are having difficulty. • In Europe. the N. due in part to the high prices of vegetable oils. Ethanol investments have now stopped. 90 BioFuels licenses were awarded. • In Malaysia. due to the rise of the price of crops such as soya. because of the very high prices that corn has reached. many plants have temporarily closed. but only a dozen plants are running.BioFuels victims of their own success!? • In the US. the leader and “godfather” of BioFuels. the biggest BioDiesel market.

Indonesia and Brazil have jumped to 3° and 4° place as CO2 emitters. precisely for this reason. through deforestation… • If deforestation is done with the use of fire. sometimes. the amount of CO2 released is enormous. And when food prices rise. . farmers put more land into cultivation. It will take decades for BioFuels to compensate it.

Rainforest-turned-to-soybean (Mato Grosso. Brazil) .

BioFuels are accused of using up land and water that is necessary for food (and of causing damage to ecosystems). And this is not the end of the story… . particularly in Africa. and will have to be fed. meanwhile… • …population is still expected to rise in the future.

Finally. • SO. sustainable BioFuels is simply impossible (see TIME April 14. 2008). a number of NGOs called for a Moratorium on “Agrofuel” Development. are now saying that producing clean. are even said to emit more GreenHouse Gasses than fossil fuels themselves! • Many. • Even in Africa. particularly Ethanol from corn. some BioFuels. last November. ARE BIOFUELS DEAD? .

US and other countries. at prices competitive with fossil fuels. that don’t cause those dreadful effects. it has a lot of rural population. NOT AT ALL!! They are an important opportunity.. particularly for Africa!! (some African countries spend six times as much on fuel as on health: FAO) • True. • For one. . 1st generation BioFuels will not be able to satisfy the enormous expectations of the EU. • But Africa has a “comparative advantage” in producing sustainable BioFuels.

Africa already has plenty of uncultivated land. and sugarcane amounts to 1 % of its territory and 3 % of farm land. with no need to deforest…and BioFuel crops can grow even in semi-arid areas (colored areas forested or protected) Brazil. Second. Can’t Africa do the same? . uses Ethanol for over 40% if its gasoline needs.

there are VAST extensions of degraded land. BioFuels can BOOST even FOOD PRODUCTION and lower pressures on the environment. Just by adding some calcium or lime. to revive African depleted soils. after a plot has been depleted. It is possible to double food production. A starting point… • Paradoxically. too. you can triple productivity! • A couple of months ago. no more suitable for food production and semi abandoned. . Bill Gates of Microsoft has committed $ 180 Million. This is an underlying cause of poverty. • Part of this land is acidic. by contributing to bring CAPITAL to rural Africa. • In Africa. in Sub Saharan Africa AND produce BioFuels. farmers have to use up new land.

this time!). Africa's 550 million farmers CAN produce more food and even fuels! Though Food must have priority. We have to go in steps: • first. for which there is an enormous demand in Europe and elsewhere). • then. so as to INCREASE THEIR PRODUCTIVITY (the first and foremost drawback of smallholder farming). set up Companies for the local production of BioFuels (and BioElectricity). to meet growing local demand. BioFuels and BioElectricity can contribute to Africa’s long awaited Green Revolution (twice green. organize and finance farmers to cultivate the crops. (for example to cultivate Jatropha and to extract its oil for BioDiesel. and then to export. .

drip irrigation. rainwater harvesting. like drought-resistant crop varieties. . is it enough for both food and BioFuels? Our Agronomists are expert in “More Crop per Drop” techniques.The biggest problem to manage: WATER. etc.

that have prevented the growth of agro-industries. logistics and transport… (railways in Africa. and in India) • And that some producers will not be able to export… • But in this case. . transport costs might play in our favor…. for example storage. We all know that Africa has a number of issues.

without having to transport the product too far! (by the way. are distant from refineries and from the electric grid. and pay for their energy much more than in the rich countries. many (especially the rural poor). There is a very interesting LOCAL market. even Nigeria is developing BioFuels…) Road-side Gas Station in West Africa . In Africa.

Where are the poor? Mostly in rural areas. . Developed Countries in market Total 854 million transition economies (820 in developing 25 9 countries) Sub-Saharan Africa 206 Asia and Pacific 524 Near East and North Africa 212 million India 38 150 million China Latin America and Caribbean And where is the energy deficit? 52 Same regions.

in their desperation to stay alive. deforesting. etc. . depleting the soils of nutrients. are often contributing to local environmental degradation. Poverty and lack of Energy. often go together with Environmental Degradation • True. the poor.

But. farmers apply an average of 8 kilograms of fertilizer per hectare per year . much criticized. and in general capital (and use MUCH more labor). even the world’s food has to be produces sustainably! • Now. uses over 200 kilos. who’s agriculture is more sustainable. ultimately. and SHOULD be expanded? It is Africa’s! . and should be expanded? • In Sub-Saharan Africa. • Fertilizers poison water tables and contribute to climate change… • And Africans use much less fuel and machinery. who’s agriculture is more sustainable. aside from the comparatively tiny BioFuels productions. notice that.less than 10 per cent of the global average. While the US. • THIS IS A TOTALLY DISTORTED WORLD FOOD PRODUCING SYSTEM!!!! Much more capital HAS to reach the villages.. in Africa and other poor countries! • Going back to Climate Change.

the decline of food prices hasn’t helped poor farmers… now. and. if supported. they can take advantage of it .But until recently. food and energy prices are rising.

So. together with their own BioFuels and “green” electricity. let’s finance and launch Senegal President WADE’s “eco-villages”. unitary costs will drop enormously! • By improving rural people’s standards of living. . could produce more Food. more food + “distributed” BioEnergy projects will even reduce the present “unstoppable” trend of mass migration into the urban slums. many rural areas. In a way. skipping altogether the telephone lines. this will resemble to the recent arrival in the villages of mobile phones. in Africa. throughout Africa! • Soon. • If we scale this up fast. independently from the grid.

This whole analysis refers to many non-African Countries.Please notice that the lack of electricity. too. is not limited to Africa. .

• Sustainable growth will occur. . to produce more food AND BioEnergy (BioFuels + BioElectricity) for their villages. etc. return for (investors and) lenders. education. health and birth-control policies.The (very) elusive quest for (sustainable) Growth. in Africa. Human Capital and “empowerment” policies. conditional lending. to stimulate development in Africa: infrastructure investment. the Aid Community has used all sought of policies. technology transfers. if rural people have incentives and CAPITAL. and substitute expensive imports. • With a good. safe. • For decades.

mono-crop BioFuel productions). with “ Full Sustainability Certification”. these projects provide income for the rural poor and a very effective development tool. profitably and sustainably? •ONE BIO WORLD can help finance and set up profitable. . both BioFuels AND for Food!!! • Done in partnership with local small farmers. • We produce sustainably. in line with Millennium Development Goals and Climate Change policies. How can we hit these different targets. limits water usage. medium scale projects. avoids crowding out food crops and causes no damage to biodiversity (as often do the mega-plantation. • Our “distributed food-and-fuel plantation model” . non-invasive.

• We have come together. . MicroFinance Institutions. International Finance Consultants. BioFuel Engineers (BioDiesel and Ethanol). • We are working on a dozen projects. ONE BIO WORLD PARTNERSHIP • ONE BIO WORLD comprises Agronomists. • We serve BioFuel Investors. to provide ALL THAT IS NECESSARY to implement “turn-key” BioFuel projects. we collaborate with the “Roundtable on Sustainable BioFuels”). “Ethical” BioFuel and vegetable oil buyers. (with an African delegation. in three continents. on request). ranging from $ 2 Million (plantation + industrial) to $ 112 Million. in 6 countries. in Brazil) NGOs and Rural Cooperatives. in a number of countries. On sustainability certification. in Developing Countries. . Investment Managers (the list of Partners is available.

. of which our Brazilian partners know everything. • Like cassava. already used since many years to produce Ethanol in Malawi). or sugar cane (great energy efficiency. has much better crops. than the US and EU. Crops: let’s start from Ethanol: • Let’s forget about corn. for Ethanol (the same for BioDiesel). and good for Climate Change. which is both energy inefficient and environmentally unsustainable (it ADDS to Global Warming) • Africa. well known in Africa.

“pyro-gasification”. a new technology we represent). will be used in a $ 30 million Ethanol project in East Africa. . And when rainfall is limited. and sugar and cellulose in the stem. for which we are consulting. into electricity). to be transformed into ethanol or. Tropical Sugar Beet (for which we are connected to Syngenta). through Pyrolysis (actually. Sweet Sorghum and Tropical Sugar Beet! • Sweet Sorghum is able to provide both food and energy (grain to be used as food or feed.

There are many BioDiesel crops: Jatropha oil is non-edible. from A to Z. but is it great to produce BioDiesel! • One tonne of Jatropha seed can yield 300 kg of BioDiesel. • Jatropha can grow in most of Africa. . • Our Agronomists can support your plantation. including semi-aid regions. • Some people use it DIRECTLY in diesel vehicles or electric generators.

from our PAST customers. • With a high Return on Investment and short “payback” of 3. can be produced at a cost of $ 400 / ton. while a ton of petrol Diesel in Europe costs $ 900. compared to world prices of 90-110 $ / barrel. can be produced at $ 50 / barrel. • And imagine the improvement in a poor country’s Balance of Payments! .5 years. wholesale (and Africa’s citizens are paying more…).. THESE PROJECTS ARE NOW SOME OF THE MOST PROFITABLE. for unrefined fossil Oil!! • BioDiesel from Jatropha and other crops. TRUE profitability can be verified DIRECTLY. among agro-industries! • Confidentially.High Profits! Investors WILL come! With the right agronomy and technology: • Ethanol.

a good risk diversification for most investors. • With good projects. economic activity (people's income and the value of their assets) declines. BioFuels are MORE profitable. And they will go up! • They are. therefore. when oil prices go up • Every time oil (and natural gas) prices go up. a lot of money will come to Africa!! . BioFuel do well. • To the contrary. when oil prices go up.

It is mainly directed to bigger plantations – that have advantages. Export Credit on agricultural equipment and BioFuels plants. and Loans from Development Banks! And we can help you obtain it!! • Unfortunately. such as stronger land rights . Bank Loans.and to big Ethanol and Bio-Diesel plants (often the less sustainable ones…!). Venture Capital. particularly in Africa. Financing Bio-Fuels in Africa • All sorts of financing is available for Bio-Fuels: Direct Investment by our European Investors. most of this funding never reaches the smallholders and rural poor. Private Equity Funds. .

created by African entrepreneurs in partnership with poor farmers. in the rural areas of Africa. which are looking for a “blended return” (financial. to finance medium-size JOINT FOOD AND BIO-ENERGY PROJECTS. If you are interested. we aim at establishing profitable. sustainable “Food and BioEnergy social ventures”. • We are negotiating with mayor international “Socially Responsible Investors” (SRIs). or lending to them. please contact us! • With your help. and to attract significant capital flows to this new sector. They are happy to “do good”. And they ask to see viable entrepreneurs and projects! • This approach is not new. . this will become a new “asset class”. social and environmental). for some time. International Funds have been investing in the equity of MicroFinance Institutions (MFIs) in poor countries. • Eventually. both private and Institutional. • All required “financial engineering” and investment management expertise. from a top Investment Bank. in the MicroFinance sector. channeling Billions of Dollars to Poor farmers.FOOD & BIO-ENERGY INVESTMENT FUND • WE ARE STRUCTURING a Private Equity and Loan FUND. is available. as long as they “do well”.

the “smallholder model”. pesticides. to a higher level of capital (that can be realistically provided). . there are 2 different cultivation models: . the “normal” solution. allowing him a better livelihood. Big plantations and … poor farmers. in Africa. are not likely to find financing for the big investment items. . and. capital intensive. • This initiative is going to push the small farmer slightly up the “production curve” (as economists call the relation between capital and labour intensities). this will make his work less hard. such as mechanical planting. a lot of fertilizers. tractors and irrigation. often using tractors. increase his productivity. backbreaking and much less capital intensive… Until now. poor farmers. expensive irrigation (and salaried labour). sometimes.the “big plantation”. • On the agricultural side.

Seasonal plantation workers called boias frias (“cold billies”) have a hard time… • Our approach is different…. The same is true for many other BioFuel crops. Manual. . • Unfortunately. versus mechanized harvesting • Sugar cane is harvested manually or mechanically. Ethanol has not reduced poverty in the Brazilian countryside. in Brazil.

in Africa… (Photo: extracting oil from palm fruits.Things are not better. with just a little capital… . in Liberia) In fact.

for them.we can make it easier. .

3 main actors, in this Bio-Fuel “Supply Chain”
1) the smallholder farmers, organized in a Cooperative;
2) the Local BioFuel Company: buys the “feedstock”
from them and processes it into Bio-Fuel; it may have its
own plantations and has to be close to the farmers, for
transport-logistical and other reasons; it can even be
participated by the Farmers Cooperative;
3) the end buyer of the Bio-Fuel: a local petrol company,
or one of our customers in Europe (which could even own
the Local Company, sub 2).

Jatropha
(similar structures
can be put in place
for the
production of
vegetable oil,
for export)

Partnership with the small farmers
• Our business model makes use of Long Term “contract
farming”, whereby the BioFuel Company buys the crops
from the smallholders, which retain independence.
• Equity Capital in the BF Company is owned mainly by
the Fund and by a local entrepreneur / manager.
• But there can be a minority participation even by the
farmers, through a Cooperative.
• After the Fund’s capital has been repaid and remunerated,
the local entrepreneur and the farmers have an option to
increase their shareholding and/or buy-out the Fund,
entirely.
• This way, even the farmers are fully involved
(and there is no risk that they go selling their crops to
someone else, next year).
• This model, allows for an equitable and sustainable
rural development; it is preferred both by farmer
communities and by Socially Responsible Investors.

Rural Cooperatives can succeed!
• Cooperatives fit well with BioFuels. And they have been
successful, in many countries.
• Italy, for one, has an established worker-owned cooperative
system: just in the Emilia Romagna region, 1,800 cooperatives
employ 60,000 workers.
• The landmark rural cooperative Amul, India, is the most
famous and biggest milk and dairy cooperative in the world,
(http://www.amul.com/index1.html ).
Amul started by supporting poor villagers owning one or two
cows, and it still does. Meanwhile, it has grown, and is now
jointly owned by some 2.6 million milk producers in India.
• Why, those African NGOs that called for a Moratorium on
“Agrofuels”, don’t instead organize small farmers, to take
advantage of this great opportunity?
• If they do, we will help them get financing, to supply this
market (no middlemen needed, here!). A new profitable
business, for millions of poor people!

etc. a Medium-size “Hub” plantation.: Small farmers sell crops to the Plantation: Small Farmers Medium-size Small Plantation Farmers Small Farmers Between cultivated areas: “Biodiversity Corridors” . some equipment. local food supply and biodiversity. owned by the BioFuel Company. our model is different…) In a variation of our model.Supportive relation between BioFuel Company and Smallholders. provides small farmers with know-how. crop transportation. (many believe that massive mono-crop plantations and refineries are detrimental to communities.

we provide technology.To the Local BioDiesel or Ethanol Company. know-how and (through the Fund) most of the financing. (Photo: delivering a containerized BioDiesel plant) .

Business Forecast for an African BioDiesel Company (including the Jatropha plantation) .

without incurring substantial risks? • When feasible. guaranteed by Bank Letter of Credit (and there are no import tariffs. This is particularly useful when farmers have to go looking for financing. start producing).… • If your Governments provided this LT contract. they would be acting rationally. willing to buy Vegetable Oils or BioFuels with 8 . at what price they will sell their crops. . • Aside from Agronomy. we can sell it for you. to a credible local Oil Company. by “hedging” against future rises in the price of oil (and/or oil shortages)! And they would kick-start a new industry! • Alternatively.10 year contracts. the BF Company should pre-sell its product. farmers need to know.Long Term Off-take / purchasing contracts. • A reliable Long term off-take / selling contract can be provided to them (this is sometimes called “contract farming”). • But could a medium-sized BioFuel Company provide this. in advance. Oil Palm or Jatropha. on BioFuels produced in Africa). sometimes two or more years from now (when say. to one of our buyers in the EU. with an equivalent LT contract. which are trees.

Financing (case when Farmers are financed by third party). and product flow (payments. off-take contracts. which require some “financial engineering”. or Bank Off-take contract: Food & Bio-Fuels Financing: for Africa Product: Investment Fund . Farmers Local BF Oil or Company BioFuel Buyer Our Partnership MicroFinance can coordinate everything Inst. are not represented).

the main BioDiesel market. Let’s give a look at Ethanol… . One of our Consultants is one of Europe’s top experts and has been President of the European BioDiesel Board. • Our BioDiesel technology and know-how comes mainly from Europe. Technology and know-how from Brazil and Europe: • Our Ethanol technology and know-how comes mainly from Brazil.

. with the lower environmental impact. • ENERVERDE’s owners and employees have over 25 years experience in Ethanol projects. • ENERVERDE represents Prof. including both plantations and industrial plants. • Together with ENERVERDE. in the central area of Brazil. our Brazilian Bio-energy Partner helps our customers around the world implement particularly Ethanol projects. Expedito Parente’s TECBIO BioDiesel technology.• ENERVERDE. and 5 years experience in Bio-Diesel projects. we have experience in the most recent bio-energy technologies and cultivation solutions.

etc. – Factory design. Loans.). implementation. contract. like: – Best location selection. etc. type. “training stages” in Ethanol and BioDiesel plants. crop(s). “contract farming”. negotiation.. – Organization of Funding of Equity Capital. – Plantation project. . – Equipment supplier selection. – Management of factory implementation. in Brazil. – Project viability analysis. – direct operation of project. Our Services: • ONE BIO WORLD provides all you need to implement your bio-energy plantation and factory. support and supervision.. if required. – Full environmental and social impact analysis and approval. – Building the Factory. export finance. – Factory and plantation training (chemical engineers. etc. sizing. storage. etc. logistics. management.

000.000.00 – 1004 direct employees (mechanized harvest) . build in the 80s: – Factory market value: US $ 88. that is presently being built: – Expected implementation cost: US $ 112.000 ha • Ethanol Plant with cogeneration.000.00 (without farm value) – Average annual profit: US $ 15. built in the 80s: – Expected implementation cost: US $ 47. of which 500 permanently employed – Plantation size: 20. plus an ethanol plant from sugar cane.000.00 – Plantation size: 25.000.00 – Average direct workers (manual harvest): 2500.000. The following are data from some of our past customers • A Soya oil extractor unit.000.000 ha (all rented or contract farming) – Average direct workers (manual harvest): 2000 • Ethanol factory and co-generation plant.000.000.00 – Plantation size: 17.000 ha – Initial cogeneration power: 60 Mw – Expected profit per year at full production: US $ 25.000.

Come visit our customers’ Ethanol factories in Brazil .

We would like to manufacture directly in Africa this very profitable Mini-Distillery.. African farmers have been extracting alcohol from their crops for centuries.And not all Ethanol plants have to be big. aimed at local markets by the way. there’s nothing revolutionary. with very simple equipment! .

00 • This specific plant is for local use. sunflower seed) • Plant investment cost (excluding plantation): US $ 3. processing many kind of crops. It is owned by the local farmers cooperative.400. castor oil.70 = USD 1.000. and they select the best crop for each season (usually soya. using different crops.00 .000 liters per day. with Methanol or alternatively Ethanol: • R$1. Data from some of our past BioDiesel customers • BioDiesel plant 10.

000 liters per day. – Plant investment cost (no plantation and no big storage): US $ 590.Delivering a Mini BioDiesel plant • Mini Biodiesel plant 2.000 . using different crops: – Biodiesel cost are similar to the last graphic.

Some of our Biodiesel projects and customers Small factory Small Farmers cooperative .

Our “traditional” plantation projects Sugar cane plantation (manual harvesting) .

Our BioDiesel plantation projects CASTOR OIL Jatropha .

. • Our Partners are capable of analyzing them… • Our projects will be certified by a top world institution. Many elements of the BioFuels “supply chain” have Greenhouse Gas or other environmental effects.. like land “tillage”. .

• When this occurs. more revenue for Africa. the EU will follow and will agree on a “methodology” for calculating the tons of CO2 emissions avoided by Bio-Fuels (and by “green” electricity). Africa. for your projects. • And sustainable BioFuels must be compensated for their lower emissions. and the United Kingdom) are considering to grant tax relief for biofuels. • Soon. • Three European countries (Germany. and even then BioFuels produced in other parts of the world. than fossil fuels. strictly in proportion to their “carbon footprints”.More sustainable BioFuels. when it uses the energy locally. per ton of CO2 emission reduced. will be able to export even more profitably. and other means. • At the going prices of Euros 10 and above. . • And to sell Kyoto CERs to rich-countries. the Netherlands. from Kyoto Protocol Certified Emission Reductions (CERs). • African BioFuels WILL emit less Greenhouse Gasses. this will be another significant income.

to the detriment of Africa’s poor farmers. to mitigate Climate Change. sustainably! THIS IS A CLEAR . to provide legislation. • And to PUT PRESSURE ON RICH COUNTRIES. etc. • At the Bali and Bangkok UN meetings on Climate Change. to guarantee a selling price for BioFuels. TO STOP SUBSIDIZING THEIR OWN (FOOD AND) BIO-FUELS. . Support from African Governments is necessary. in Africa. there were requests that Rich countries should support Developing ones. We can help villagers produce both FOOD and BioEnergy. with technology and financing. • BioFuels can be an important step for achieving Poverty Reduction and the other Millennium Development Goals (MDGs). grant a 5-year “tax holiday”. without support from African Governments. IMMEDIATE PROPOSITION! • But this effort will not succeed. to help organize the Investment Fund.

sorghum and Jatropha…and to the BioEnergy Company. Dr. with pride. when we will visit those villages. aside from doing good business. … and we will know that. when they needed us… Thanks for your patience and attention. We were there. in the distance.com . the farmers will point out. when they needed us… And. we were there. growing. Arrigo della Gherardesca arrigo@onebioworld. to their healthy.