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 CER’s 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
2006-2007 10 MMT 52 MMT US $ 43.3 Billion
Domestic
30%
Doubled in 2 years
2011-2012 13 MMT 67 MMT
?
Financing BioFuels and Jatropha Plantation Projects
Accra, Ghana-November 13, 2006
?
Ministry of Finance
Ministry of Petroleum
& Natural Gas
Ministry of
Rural Development
Planning
Commission
Govt. of India
Ministry of Agriculture
Ministries of Railways
and Road Transport
Ministry of
Science & Tech.
Ministry of
Environment & Forests
Ministry of nonconventional energy
Governments
of States
Co-op. Sugar Sector,
Industry Houses, SME’s
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 (TBO’s) varieties having high oil
quantity, quality and disease resistance, nursery raising, plantation of TBO’s, JV’s
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 TBO’s,
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 TBO’s 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 TBO’s, 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 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 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 EU’s 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 Europe’s
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 LDC’s enter duty free
or at reduced rates in the developed countries. Duty free and quota free market
access for 32 LDC’s 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 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)
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
Air Quality - Climate change
Social Development
Govt.-Industry-Farmer Co-op.
Research & Devpt.
Technology Transfer
Microfinance-Empower Women
Leveraging
BioFuels Business
Supply Chain Partnerships
Intra-Zonal trade
Competitiveness
Intercropping with other crops
Entry of Fossil Fuel players
Generalized System of Preferences
Minimum Support Price
Cost Effective Plants
By-product Utilization
Market Penetration
Profitability
CDM Finance
Mandatory Blending
Tax Incentives, Soft Funding, Subsidy
Buffer Stocks
Financing BioFuels and Jatropha Plantation Projects
Accra, Ghana-November 13, 2006
www.armaco.in
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