Investors' Guides

By: Marlon Joseph S. Apanada, Editor, www.biofuelshub.com

Should we invest in a fuel ethanol plant in the Philippines?

Among investors and venture capitalists in the Philippines and around the world, there has been renewed interest in using crop-based ethanol as motor fuel. Due to skyrocketing oil prices, worries about climate change, and anxiety over the future security of the world’s supply of crude, the prospects for fuel ethanol and other biofuels to make major inroads in oil use are bright. The following are the major reasons why ethanol, when used as fuel, has received renewed interest in the global arena:

  • Cost viability and technical feasibility as alternative to gasoline
  • Energy security merits dues to its renewability
  • Environmental advantages
  • Economic benefits especially for the farm sector

With Philippine legislation specifying the mandated fuel ethanol blending having very encouraging prospects and the export market being very attractive, it appears that, for a prospective investor, putting up a fuel ethanol production facility in the Philippines is a wise decision.

Risks, however, are nonetheless present. The important risks and caveats in investments for new sugarcane-based fuel ethanol production facilities include:

  • Perceived policy risks

    The policy framework for the production and use of fuel ethanol should be firmly in place. This policy framework should be underpinned by legislation and has to be further specified through its Implementing Rules and Regulations. All other policies that will have a bearing on fuel ethanol investments --- including production and distribution --- should be clear. These policies include but are not limited to tax measures, pollution management laws, tariff rates, and incentive schemes.

    Demand for the biofuel in potential export markets will also depend on policy. Government mandates, subsidies, and production targets, among other “supportive” policies in overseas markets should be in place in a sustained basis.

  • Crude oil price and exchange rate risks

    Since fuel ethanol substitutes for gasoline when used as an extender and/or additive, it is competing directly with gasoline. The cost of gasoline in the Philippines is affected by movements of the world price of crude oil and the exchange rate. Based on recent price movements of crude oil and the volatile movement of the Philippine peso, fuel ethanol appears, currently, having the upper hand in terms of cost. However, if the price of crude oil and the exchange rate undergo some changes and become cheaper again than fuel ethanol, pressure would be exerted on the viability of fuel ethanol production.

  • Market acceptance risks

    With effective safeguards, neither the vehicle industry nor the petroleum industry objects, in principle, to the use of fuel ethanol (as E-10) on vehicle operability grounds. However, without enforcement of such safeguards there would be significant concerns about fuel quality control and consumer protection, which could reduce market acceptance.


Allowing Investors See the Opportunity

Investment parameters for an ethanol plant are grouped into two: Technical and Financial Considerations. The technical considerations serve as indicative guides on the location, structuring, logistics and operations of the ethanol plant. The financial considerations measure the project worth in terms of financial viability.

Investment Parameters for a Sugarcane-based Ethanol Plant

Technical Considerations

Financial Considerations

The Plant Site, including:

Distillery Model Options

Substrate

Capital Costs

 

Amenities and Operation Requirements

Availability and Development of Technology

Costs of Raw Materials

 

Accessibility

Product Cost/Price of Fuel Ethanol

Prospective investors must answer the following questions:

  • Where should the ethanol production facility be located?
  • What is the ethanol production facility model is the most optimal?
  • What feedstock and substrate should be used as raw material?
  • What technology and equipment design must be used?
  • Where and how will fuel ethanol, along with its co-products, be sold?
  • Is the project worth pursuing given the costs and returns?

The Philippine Fuel Ethanol has in-house technical experts that can serve us guides not only for Philippine investors but also for overseas and multinational firms interested to put a fuel ethanol plant in the Philippines . Such a fuel ethanol plant can serve two markets: domestic and global markets. The domestic market comprises of:

DOMESTIC FUEL ETHANOL MARKET











Apart from the domestic market, the proposed plant can consider the export market as an option. The viability of the export market will be, however determined by the following factors:

  • existence of fuel ethanol demand
  • estimated fuel ethanol supply deficit
  • production costs of, and subsequent competition posed by, other countries
  • applied duties, imposed by country destinations
  • freight costs

The Philippines, as center for fuel ethanol production, can look up into exporting to such destinations as:

ASIA

and EUROPE

where the overseas market has been established as promising.


The Way Forward

Being composed of technical members with proven expertise in feedstock, technology, and investment parameters for fuel ethanol projects, technical members of the Philippine Fuel Ethanol Alliance, in their personal capacity, present themselves as a qualified team to provide consultancy services to interested investors. We provide professional support for fuel ethanol, including:

  • Feasibility Studies and Business Plans

    To assess the economic, technical, and financial viability of a proposed project to evaluate the attractiveness of entering the biofuels industry.

    Includes short pre-feasibility studies to full analyses including recommendations how to most profitably structure a market entry

  • Partner Searches

    To find plant suppliers, co-investors under a Joint Venture scheme, acquisition targets, or customers

    Includes provision of support for the negotiation of favorable contracts

  • Industry Surveys

    Includes the preparation of global or regional overviews of the biofuels industry or specific aspects and trends within the industry

  • Data research and Dissemination

For questions regarding consulting services, please email info@biofuelshub.com

  • By telephone
    Tel: +632.891.1138
    Please note that we cannot answer general investment-related questions regarding ethanol and biofuels
  • By telefax
    Fax: +632.891.1144