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Bio Diesel in Uganda by AP Corporate Finance

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AP Corporate Finance produced project for Bio Diesel in Uganda.

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Bio Diesel in Uganda by AP Corporate Finance Bio Diesel in Uganda by AP Corporate Finance Presentation Transcript

  • BIODIESEL IN UGANDAThe information contained in this presentation is solely for your information and may not be reproduced or redistributed in whole or in part to any other person. It has not beenapproved by a person authorised under the Financial Services and Markets Act 2000 ("FSMA") for the purposes of section 21 FSMA.This presentation does not constitute, or form part of, a recommendation, invitation or offer to any person to underwrite, subscribe for, otherwise acquire, or dispose of anyshares or other interests, nor shall it, or any part of it, form the basis of or be relied on in any connection with any contract or commitment whatsoever.The information contained in this document has not been verified and accordingly no representation or warranty, express or implied, is made as to the accuracy, fairness orcompleteness of the information or opinions contained herein and no reliance should be placed on the accuracy, fairness or completeness of the information contained herein. Noliability or responsibility is accepted for any loss howsoever arising, directly or indirectly, from any use of this document or its contents.The information in this presentation is subject to change without notice and its accuracy is not guaranteed. It is subject to updating, revision, verification and amendment. It maybe incomplete or condensed and it may not contain all material information.By accepting this document and/or attending this presentation, you agree to be bound by the provisions and the limitations specified and to keep permanently confidential theinformation contained in this document.
  • AP Corporate Finance LLP (“APCF”) has been engaged by NEWCO to act as lead corporate finance advisor and as such has producedthis information memorandum.APCF is managing the fundraising process on behalf of NEWCO, and as such can be contacted by an interested party with regards tothis business venture.Further information on APCF is available as follows:Web: www.apcorporatefinance.co.ukEmail: enquire@apcorporatefinance.co.ukTel: +44 (0) 7791 224 126AP CORPORATE FINANCEAP Corporate Finance LLP is a Limited Liability Partnership Registered in England & WalesCompany Number: OC352537  Registered Address: 21 Lapstone Gardens, Harrow, Middlesex, HA3 0EB 2
  • CONTENTSEXECUTIVE SUMMARY PAGE 4PROPOSITION PAGE 10JATROPHA CURCAS PAGE 15BIODIESEL PAGE 31UGANDA PAGE 38NEWCO PAGE 42FINANCING PAGE 47FORECASTED FINANCIALS PAGE 52NEXT STEPS PAGE 61CONTACT US PAGE 63 3
  • EXECUTIVE SUMMARY PROPOSITION  MANAGEMENT TEAM JATROPHA CURCAS  FINANCING BIODIESEL MARKET  FORECASTED FINANCIALS UGANDA ENERGY SITUATION  NEXT STEPS 4
  • EXECUTIVE SUMMARYProposition Benefits of Jatropha CurcasWe propose to secure a 5,000 hectare plot of land (suitable Jatropha has been heralded as an important discovery withfor a biodiesel plant) in Uganda, on which an industrial scale regards to addressing the planet’s future energybiodiesel feedstock farm, harvesting, processing and refining requirements, and specifically to the development of bio-plant will be built. fuels. The primary benefits Jatropha has is that it is inedible, suited to semi-arid soils and has a high oil content.The feedstock to be grown and cultivated is a plant that hasonly recently been discovered as a viable and cost effectivesource of biodiesel; a crop named Jatropha Curcas. It does not compete with food crops and so does not fuel food shortages, and can be harvested, processed and refinedA plant of this nature will be capable of producing close to 5 at a fraction of the cost of traditional biodiesel feedstocksmillion litres of pure biodiesel per annum (equivalent to (i.e. Rapeseed, Soybean, Corn, Sugar Cane, etc).26,000 barrels per annum). The intention is to sell this entirequantum directly to the Ugandan government via an off-take Jatropha Marketagreement to assist it’s annual energy requirements. The global market for this feedstock is in its infancy, but the large oil companies are currently investing heavily intoWe propose to structure this as a joint venture with the research and development. The market was estimated to beUgandan government; Uganda will provide the project with 900,000 hectares worth of plantations globally in 2008, buta suitable 5,000 hectare plot of land (freehold transferred to market experts estimate this to grow to 5 million hectaresthe joint venture) as its equity contribution and will receive a by the end of 2010, and then an annual growth of 1-2 millionstake in the venture in return. In addition, a private equity hectares in the short term. Most of the current plantationssponsor is sought to supplement NEWCO’s (likely to becalled “Biofuel MAP”) capital and will receive an appropriate are based in Asia (80%), despite Africa having the idealstake in return. NEWCO has also sourced a top tier energy climatic conditions to cultivate Jatropha.consulting firm who are keen to join the project, either byway of partnership or as primary consultants. Some researchers state that if only 3% of the land in Africa that is considered viable was used to grow Jatropha, someUganda has been identified as an ideal partner, both 119 million tons of crude oil and 8.4 tons of glycerine couldfinancially and geo-climatically. There are substantial be produced per annum, translating to annual revenues ofbenefits for the Ugandan government and its citizens. $55 billion. 5
  • EXECUTIVE SUMMARYBiodiesel Market Uganda Energy SituationThe Biodiesel market has experienced an enormous upturn in A growing economy combined with a fast growing populationrecent years. Demand is underpinned by the need to increase means a growing energy demand. Uganda’s energy supply anddomestic energy security, reduce greenhouse gas emissions from utilization is dominated by biomass. Access to electricity in Ugandathe transport sector and help address an expected shortage of is limited to 9% of the population, the remaining 91% of thediesel refining capacity. population mainly use biomass in the form of firewood or charcoal for their energy needs. The country’s energy is derived 93% byIt is possible that biodiesel could represent as much as 20% of all biomass, 6% fossil fuels (all imported) and 1% hydro-power.on-road diesel used in Brazil, Europe, China and India by 2020.They each have targets to replace 5% to 20% of total diesel with The transport sector in Uganda is totally dependent on importedbiodiesel by 2020. fossil fuels whose prices had hit all time highs recently. The fuel bill for a country like Uganda constitutes almost 50% of theThe US and European farming systems can’t produce the budget. The escalating prices of fossil fuels have made itnecessary quantities without creating a considerable risk to the imperative for government to promote the development andfood chain. It is therefore expected that the bio-fuel revolution utilization of renewable energy resources including bio-energy andwill specifically benefit developing countries that can produce bio- their associated technologies.fuel for their own consumption as well as for export. Uganda’s national energy policy promotes accelerated powerAlthough the biodiesel market is growing at a rapid rate, there is a generation from renewable resources and emphasizes themajor threat to the sustainability of growth; the price of development/adoption and utilization of other modern fuels andtraditional biodiesel feedstocks is increasing steeply, hence technologies. In implementing the policy, the government expectsjeopardising the profitability of the industry. The reason for the to address poverty issues, catalyse industrialization and protectrising price of traditional feedstocks is the current food crop the environment.shortages the world is experiencing combined with the fact thatmost traditional feedstocks for biodiesel compete with food crops. The renewable energy policy recommends blending of diesel with 20% biodiesel. By specifying the maximum proportion of biodieselIt is widely agreed that the solution is to source a new generation blends the government hopes that investors will be attracted toof feedstocks that are low in cost, relatively easy to cultivate, and invest in biodiesel production knowing that there is a market formost importantly do not compete with food production. One of it. The biodiesel will be used for the transport sector and also forthe most promising of such feedstocks is Jatropha Oil. rural electrification and farm power production. 6
  • EXECUTIVE SUMMARYManagement Team – Managing Director Management Team – Development DirectorThe Managing Director of NEWCO is Mukesh Patel. He is a Amit Patel spent a number of years working inserial entrepreneur and has over the past 30 years the Investment Banking and Private Equity community insuccessfully set up and run a number of businesses in a wide London where he built extensive experience in the followingrange of disciplines, amassing a portfolio worth millions of disciplines; Leveraged Finance, Interest Rate Derivatives,pounds. Securitisation and Private Equity, working for a major European bank.Mukesh’s key skill is spotting commercial opportunities earlyin their lifecycle, assembling the best team to penetrate the Amit has worked on an array of transactions including highindustry and investing into enterprises that successfully profile public-to-privates, joint ventures, fund creations,participate and profit in these opportunities. financial markets arbitrage opportunities and other multi- billion pound buyouts.He has in the past set up; an import/export operation in thetransport sector which turned over £3 million per annum, After leaving the City in 2008, Amit set up a lead corporateand a fashion business which designed and distributed three finance advisory boutique, “AP Corporate Finance LLP”,labels, turning over in excess of £4 million per annum. advising a range of corporations on mergers, acquisitions,Mukesh also owns a property investment firm which has a disposals and capital raising. Amit’s firm has worked withportfolio of UK real estate worth £10 million. Mukesh Patel on a number of transactions in the past on an advisory and joint venture basis.Today, Mukesh is well known in the business communityand his network of contacts and advisers in real estate, Amit brings to NEWCO a wealth of business development,industry and retail markets provides him a great number of financing and structuring experience, and his firm is acting asintroductions to excellent business opportunities. lead corporate finance advisor to NEWCO. His role as Development Director at NEWCO will continue throughout the life of the project, and he will oversee all new businessHis role as Managing Director of NEWCO will make him development opportunities alongside monitoring theresponsible for overall strategy, business origination, project’s performance over its life.negotiation and oversight of the entire project. 7
  • EXECUTIVE SUMMARYFinancing Forecasted FinancialsFunding for NEWCO will be finalised upon agreement of BASISheads of terms. The management team have identified  Management have engaged a top tier renewable energy consultancy firm to create a site schematic and financial modelseveral options available to pursue, all of which are sourced for this project.in the region. Early stage discussions have been opened with  The financial model is based on their extensive experience witha small group of private equity firms, who have displayed a biodiesel plants and so deemed highly accurate (and alsokeen appetite to join the project as a partner. prudent). RETURNSThe funding is likely to be a combination of the following  Two scenarios have been modelled; a trade sale in Year 5 andinstruments: continued involvement in the project for 10 years.  A Year 5 trade sale generates net proceeds of $16.4 million and Equity an equity IRR of over 95%.  NEWCO’s own capital  Continuing the project for 10 years results in a net cash inflow of over $11 million and a cash IRR of 50%.  Private equity fund focused on the African energy market CAPITAL EXPENDITURE Debt  The project incurs a total capital cost of $9 million (over 5  Asset Financing years), and the model assumes this is funded 30:70 Equity : Debt.  Import/Export Financing  Structured Finance PROFIT & LOSS  Upon plant maturity (Year 5), turnover is $5 million per annum and EBITDA of $3.4 million is generated annually. Carbon Credit Financing  Kyoto Protocol’s Clean Development Mechanism CASH FLOW  Carbon Credit Trade Finance Program  Cash generative from Year 4 and produces a net cash inflow of over $3 million per annum from Year 5 onwards. Grants  The project accumulates over $11 million net cash inflow over 10 years (after debt is repaid in full). 8
  • EXECUTIVE SUMMARYNext StepsQ2 2010 Sign heads of terms with the Ugandan government . Commence discussions with debt and equity providers.Q3 2010 Secure bank debt and committed capital from a private equity partner. Sign primary energy consultants as partner or long-term advisor. Ugandan government proposes a series of suitable sites to management. Energy consultant assists in optimal site selection.Q4 2010 Upon site finalisation, all feasibility studies will commence.Q1 2011 Engineering, agronomic and infrastructure schematic production. Plant design and procurement finalised. Permits secured.2011 ONWARDS Site clearance. Infrastructure laid. Jatropha planted. 9
  • PROPOSITION OUTLINE PROPOSITION PROPOSED DEAL STRUCTURE UGANDA BENEFITS KEY BUSINESS STAGES 10
  • PROPOSITION: OUTLINEOutline PropositionWe propose to secure a 5,000 hectare plot of land (suitable for a biodiesel plant), on which an industrial scale biodieselfeedstock farm, harvesting, processing and refining plant will be built.The feedstock to be grown and cultivated is a plant that has only recently been discovered as a viable and cost effective sourceof biodiesel; a crop named Jatropha Curcas. This feedstock will take five years to cultivate and mature into seed yielding trees;whilst this cultivation is under way, the plant will not import jatropha seeds from an external supplier as this has been deemeduneconomic. The plant will have incoming cash flow from Year 3 as the feedstock begins to mature. As soon as the proprietaryjatropha plants yield seeds, this will serve as the refinery’s own supply of feedstock. The plant will also have a proprietarypower generator capable of generating a surplus amount of power.A plant of this nature will be capable of producing close to 5 million litres of pure biodiesel per annum (equivalent to 26,000barrels per annum). The intention is to sell this entire quantum directly to the Ugandan government via an off-take agreementto assist it’s annual energy requirements. Uganda currently imports all of its transport energy requirements (fossil fuels) at aheavy cost. This plant will provide Uganda a guaranteed source of biodiesel (which can be used in all diesel engines), at a duty-free and pre-agreed price, and will also improve the country’s current energy security situation.We propose to structure this as a joint venture with the Ugandan government; Uganda will provide the project with a suitable5,000 hectare plot of land (freehold transferred to the joint venture) as its equity contribution and will receive a stake in theventure in return. NEWCO will provide equity capital and manage the entire project (from inception through to day-to-dayoperations) and for this will retain a majority stake in the joint venture. At this stage, NEWCO is in discussions with a highlyreputable renewable energy consultant (US based) to partner with NEWCO on this project and in exchange will either receive astake in the project or fees. We are also in discussions with a small group of African energy private equity specialists to providefurther capital for a stake in the project.The following page summarises the proposed deal structure in diagrammatic form. 11
  • PROPOSITION: DEAL STRUCTUREProposed Deal Structure Equity Capital EQUITY [x]% Management Agreement Main Operator PRIVATE EQUITY PARTNER BIODIESEL FEES OR EQUITY [x]% SPECIAL ENERGY PARTNER PURPOSE VEHICLE Consultancy Agreement Agronomy, Technology Procurement AFRICAN BANK Freehold Land EQUITY [x]% Off-Take Agreement UGANDAN GOVERNMENT 12
  • PROPOSITION: WHY UGANDA?Why Uganda? Benefits to UgandaNEWCO has identified the Ugandan Government as an Entering into a partnership in this project has several listedideal partner for this venture for the following reasons; benefits for the Ugandan Government and all of its citizens. Political stability and a business friendly environment.  A stake in the profits of the project and hence increase Ideal geographical location and climatic conditions for the economic health of Uganda. jatropha cultivation.  Improve the financial health of Ugandan businesses that Land availability. currently pay for expensive fossil fuel imports. Underdeveloped bio-fuels industry.  Improve local employment opportunities as the majority Net energy importer. of the labour will be sourced locally.  Develop the technology and rapidly increase the numberMap of the Region of plants operating in the country.  Significant foreign exchange savings by reducing fossil fuel imports.  Improve Uganda’s competitive advantage amongst African peer nations.  Improve Uganda’s energy security with a guaranteed local supply of diesel, and lowered reliance on external energy imports.  Lower emissions of greenhouse gases and importantly lower local pollution caused by biomass, hence increasing the country’s health.  Most of the oil-bearing crops enrich the soil. 13
  • PROPOSITION: BUSINESS STAGESStages required from inception to completion 14
  • JATROPHA CURCAS OVERVIEW ADVANTAGES v RISKS & CHALLENGES PROCESS OF BIODIESEL REFINEMENT GLOBAL MARKET AFRICAN MARKET 15
  • JATROPHA CURCAS: OVERVIEWJatropha Curcas Jatropha FruitJatropha Curcas is a small perennial tree, which is droughtresistant. It grows well in marginal/poor soil, is easy toestablish, grows relatively quickly and lives whilst producingseeds for 40 years. Normally, it grows between three andfive metres in height, but can attain a height of up to eightor ten metres under favourable conditions.Fruits are produced several times a year under irrigation andhigh temperatures. The seeds become mature when thecapsule changes from green to yellow, after two to fourmonths. Early growth is fast and with good rainfallconditions nursery plants may bear fruits after the first rainyseason, direct sown plants after the second rainy season.The seeds have an oil content of up to 37%. The annual seedyield ranges from 0.5 to 12 tons per hectare depending Jatropha Trees Thriving in Arid Conditionsmainly on soils and water regime. Oil can be extracted fromthe Jatropha nuts after two to three years. The oil processedthrough esterification into biodiesel is increasingly beingused as a fuel by transport and energy companies. The by-products are pressed cake, which is used as organic fertilizerand also glycerine, which can be used to make soap.Jatropha thrives in the drier regions of the tropics withannual rainfall of 300-1000mm occurring mainly at loweraltitudes (0-500m) in areas with average temperatures wellabove 200C. As the plant is drought-resistant and grows onlow nutrient content marginal soils, it is ideal to cultivate onlands not appropriate for food crops. 16
  • JATROPHA: ADVANTAGES V RISKS & CHALLENGESAdvantages Risks & Challenges Jatropha yields a high-quality oil which is well suited for use in the transport and energy sector. Jatropha is a wild species, not a domesticated industrial crop. Jatropha has a high yield potential of more than 1 tonne of oil Yield expectations are uncertain due to inhomogeneous results per hectare per year. and the lack of improved seed material; research on Jatropha and plant breeding has just started. Jatropha can grow on poor soils that are not suitable for food production; it is suited for the rehabilitation of waste lands. Jatropha will not produce good yields in poor conditions; there are trade-offs between rehabilitation of wastelands and It grows, among others, in semi-arid regions not suited for oil maximisation of oil production. palms. Harvesting is very labour-intensive and should be considered in Jatropha requires significantly less water than oil palms the economic viability analysis. (approx. 1/10). Pests and diseases are a problem for Jatropha as they are for Jatropha seeds do not have to be processed immediately any other crop, particularly in monoculture. (unlike palm); therefore remote areas can be included in the production schemes. Jatropha contains toxic substances. So far, no technologies exist to remove these, and hence the seed cake currently Jatropha can be planted as a hedge around fields or on unused cannot be used as fodder for animals. It can however be used land and offers smallholders an opportunity to create for power generation. additional revenues.  All of these challenges will be considered and mitigated upon Jatropha is well suited for intercropping, in particular during launching of any sites. the first years while the trees are small. Jatropha oil can be used locally to fuel vehicles, diesel generators, lamps or cooking stoves without a transesterification into biodiesel. 17
  • JATROPHA: PROCESS OF BIODIESEL REFINEMENTBiodiesel Refinement Process & By Products of Jatropha JATROPHA CURCAS SEEDS OIL EXTRACTION UNIT OIL CAKE MANURE LAMP & ANIMAL JATROPHA CURCAS OIL DETOXIFICATION STOVES FEED ALCOHOL & TRANSESTERIFICATION CRUDE CATALYST REACTOR GLYCEROL Processing Challenge Jatropha oil is hydroscopic, absorbs water CRUDE BIODIESEL REFINED and needs nitrogen blanketing on steel tanks. GLYCEROL Since is Jatropha is high in acid, it has the tendency to degrade quickly, particularly if not handled properly. Immediately after SOAP & expelling, the oil must be kept in storage WATER WASHING TANK CANDLE conditions that prevent undue degradation. Exposure to air and moisture must be minimized, hence the need for nitrogen PURE BIODIESEL blanketing on the tanks. DIESEL ENGINE 18
  • JATROPHA: GLOBAL MARKETFindings of the Recent GEXSi “Global Market Study on Jatropha”, May 2008 (1)THE JATROPHA INDUSTRY IS IN A VERY EARLY STAGE OF DEVELOPMENTCurrently, no coherent overview of global activities in Jatropha exists. Very few projects are more than two years old andhardly any project can demonstrate significant production of Jatropha oil yet.NEVERTHELESS, APPROXIMATELY 900,000 HECTARES OF JATROPHA HAVE ALREADY BEEN PLANTEDAlthough the industry is in its early stages, 242 Jatropha projects were identified, totalling approximately 900,000 hectares.More than 85% of the land cultivated is located in Asia. Africa counts for approximately 120,000 hectares followed by LatinAmerica with approximately 20,000 hectares.JATROPHA WILL SEE ENORMOUS GROWTH: 5 MILLION HECTARES ARE EXPECTED BY 2010The number and size of Jatropha projects currently being developed is increasing sharply. This is the case in almost all regionsof the world which are suitable for Jatropha cultivation. It is predicted that each year for the next 5-7 years approximately 1.5to 2 million hectares of Jatropha will be planted. This will result in a total of approximately 5 million hectares by 2010 andapproximately 13 million hectares by 2015.GLOBAL INVESTMENTS OF UP TO 1 BILLION USD EXPECTED EVERY YEARAssuming an average investment of 300-500 USD per hectare, the expected growth path of the industry will lead to worldwideinvestments totalling 500 million to 1 billion USD every year for the next 5-7 years.THE JATROPHA INDUSTRY STRUCTURE WILL TRANSFORM DRAMATICALLYToday, the global Jatropha industry is dominated by government supported programs and a few larger internationally orientedprivate players. We are observing a trend of major oil companies and international energy conglomerates entering the fieldwith plans for large-scale investments. 19
  • JATROPHA: GLOBAL MARKETFindings of the Recent GEXSi “Global Market Study on Jatropha”, May 2008 (2)SMALLHOLDER FARMERS PLAY A VITAL ROLE IN MOST JATROPHA PROJECTSTwo thirds of all projects analysed work with local outgrowers, often in combination with a managed plantation. 50% of allproject developers in Latin America and Asia opted for this combined approach. Pure plantation models are most frequent inLatin America (44%). In Africa, where two thirds of the projects integrate smallholders, pure outgrower models are equallyimportant as the combined model.JATROPHA HAS NOT LED TO A REDUCTION IN FOOD PRODUCTIONIn the report’s analysis, only 1.2% of areas planted with Jatropha had been used for food production in the 5 years prior to thestart of the project. 70% of all projects analysed practise some form of intercropping. Therefore, Jatropha cultivation supportsfood production if formerly unused areas are developed.JATROPHA HAS NOT CONTRIBUTED TO THE DESTRUCTION OF PRIMARY FORESTAccording to the report’s data sample, only 0.3% of any cultivated areas were previously primary forest, and 5% secondaryforests.POLITICAL SUPPORT FOR JATROPHA IS ALREADY STRONG, AND DEVELOPING FURTHERSo far – especially in Asia – governments have been the main driver for Jatropha cultivation and developed specific Jatrophaprogrammes. Rising crude oil prices are now creating a strong demand for bio-fuels. Therefore, large oil and energyconglomerates are beginning to implement large-scale Jatropha projects. In the course of this process, the focus ofgovernment regulation will shift towards more general frameworks for the bio-fuel sector.PRODUCTION IS FOCUSED ON DOMESTIC MARKETSProduction for local markets is more important than export, especially in Asia. For domestic markets, the use of unrefinedJatropha oil is seen equally important as the transesterification into biodiesel. 20
  • JATROPHA: GLOBAL MARKETScale (hectares) and Number of Jatropha Projects CurrentlySource: GEXSi “Global Market Study on Jatropha”, May 2008 21
  • JATROPHA: GLOBAL MARKETJatropha Industry StructureThe largest Jatropha projects today are government initiatives that typically work with smallholder farmers in Asia. Theseprojects prevail especially in India and China.The biggest private companies in the field regarding planted acreages are:  D1-BP Fuel Crops (operations predominantly in Asia and Africa)  Mission Biofuels (Asia)  Sunbiofuels (Ethiopia, Tanzania, Mozambique)  GEM Biofuels (Madagascar)A wave of large scale investments especially from oil majors are expected in the near future. The joint venture company D1-BPFuel Crops of BP and D1 Oils in 2007 was the first indication of this trend. Now major oil companies e.g. in China are devisingtheir market entry.It is expected that the industry structure will change dramatically in the next few years, with large (multi-)national energy andoil companies entering the field, driven by climbing crude oil prices and pursuing the quest for larger volumes of alternativeand sustainable feedstock.This is the perfect time to enter into joint venture agreements with smaller operators. This way, a government can gaininvaluable expertise in this new field prior to oil giants entering the arena, who will dictate poorer terms for partnershipswith governments that have not gained experience of the basics of this lucrative industry. 22
  • JATROPHA: GLOBAL MARKETGlobal Market ForecastAn enormous growth is predicted by experts of the Jatropha industry. 1-2 million hectares are expected to be planted annuallyin the next few years all over the world.The clear focus of Jatropha plantations today lies in Asia – more than 80% of identified project areas are situated there. Amongthe Asian countries, India plays, with more than 400,000 ha, the largest role, followed by China.In the other regions, Brazil, Zambia, Tanzania and Madagascar are most important today.In the future, Asia is expected to prevail with more than 70% of global acreages developed there until 2015.Africa is heavily underweighted considering the massive amount of viable land available. This situation will not change unlessAfrican Governments and businesses proactively legislate and speculate on the capabilities of the Jatropha Biodiesel potential.Scale of Jatropha Plantations 2008-2015 (hectares) Distribution of Jatropha Plantations 2008 (hectares) 14,000,000 12,000,000 10,000,000 8,000,000 Asia Africa 6,000,000 Latin America 4,000,000 2,000,000 - 2008 2010 2015 23
  • JATROPHA: AFRICAN MARKETStructure of the African Market Jatropha Activity Levels in AfricaJatropha has been known in many countries in Sub-SaharanAfrica for generations. It has been planted as hedges (toserve as a “living fence“) or has been used for artisan soapproduction or medicinal purposes. Development agenciessupported pilots for decentralized rural energy supply.Northern AfricaThere are very little Jatropha related activities due to theextreme arid climatic conditions; several pilot projects thatmake use of sewage water for a year-round irrigation arebeing tested in Egypt.Western AfricaMali and the Cape Verde Islands have a long-tradition inJatropha cultivation; the focus in Mali lies on the use of pure Southern Africa (including Madagascar)plant oil for village energy supply. However, large-scale Apart from Botswana, Angola and – due to the prohibition ofprojects are currently prepared in several West African commercial Jatropha plantations – South Africa, ambitiouscountries, such as Ghana, Nigeria and Cameroon. commercial operations are currently developing throughout Southern Africa. The largest acreage under cultivationEast Africa currently exist in Madagascar and Zambia, with each aboutThe largest project developments have been reported in 35,000 hectares, followed by Mozambique.Tanzania, followed by Ethiopia. Jatropha related activitieshave started at a small scale also in Kenya and Uganda andare likely to rise dynamically. 24
  • JATROPHA: AFRICAN MARKETTotal Acreage of Selected Countries – Forecast for 2008 - 2015ObservationUganda will potentially missthis opportunity if it does notaccelerate its current resource indeveloping plantations. Source: GEXSi “Global Market Study on Jatropha”, May 2008 25
  • JATROPHA: AFRICAN MARKETPotential of Jatropha in AfricaJatropha in Africa Benefits of Jatropha in AfricaIn a survey conducted in Cape Town, it was found that over1,080 million hectares of land in Africa could be termedprime growing regions of Jatropha Curcas. A further 580million hectares could be used making a total of 1,660million hectares suitable for growing the plant. Safe to handle &On the below map of Africa, the dark areas represent prime storeJatropha growing regions. These areas, comprising over Local fuel1,080 million hectares, are ideal because the average annual Reduced for wear ofrainfall exceeds 800mm, and the minimum temperature of engine parts electricity generationthe coldest month is greater than 20C.The light areas of the map areareas with average annual rainfallin excess of 300mm, with the Benefitsminimum temperature of the Improved Biogas forcoldest month greater than 20C. emissions heatingThese areas, comprising over 580million hectares, are also viableregions for growing Jatropha.Some researchers state that if only 3% of the land in Africa Employment Wastelandthat is considered viable was used to grow Jatropha, some & Income utilization119 million tons of crude oil and 8.4 tons of glycerine couldbe produced per annum, translating to annual revenues of$55 billion.**Source: Dr Guy Midgley, Kirstenbosch Research Centre, Cape Town 26
  • JATROPHA: EAST AFRICAN MARKETEthiopian PoliciesThe Government actively encourages the cultivation of Jatropha. ETHIOPIAA Bio-fuels Program has been introduced - specifically includingJatropha - in order to further the independence of the countryfrom oil imports. It designates marginal land for Jatrophacultivation. Government officials of the Ministry of Mines andEnergy report that a bio-fuel legislation for blending fuel (benzeneand ethanol) came into force mid 2008.Foreign direct investment into bio-fuel production is activelyencouraged through furthering land access, enabling bank loans,through tax incentives as well as through technical assistance forfarmers.Jatropha cultivation is expected to improve food availabilitythrough bio-oil run irrigation and food-drying schemes as well asfertilisation with seed cake. Intercropping with food crops isreportedly mandatory.Ethiopian ProjectsThe Government has identified almost 24 million hectares of land suitable for Jatropha and Palm Tree cultivation in the states Oromia,Benishangul Gumuz, Gambella, Somali, Amhara Southern Nations, Nationalities and Peoples Region (SNNPR) and Tigray and AfarRegional states.Oromia has the largest land suitable for bio-fuel development with 17.2 million hectares. The land is, according to the government,neither used for farming nor for grazing.Country experts estimate the current land under Jatropha cultivation as 1,700 hectares. This number is very likely to rise significantly asseveral foreign investors have applied for or already secured land titles. According to public sources, five Jatropha projects have alreadygone operational. Among the major investors are, according to public sources, Sunbiofuels, Global Energy and BioX Group. 27
  • JATROPHA: EAST AFRICAN MARKETUgandan Policies UGANDAThe Government is reported to intend a detailed study onbio-fuel plantations, production, use as well as down-streaming issues.A fuel-legislation exists for a 20% blend of bio-fuels – it iscurrently not enforced.Ugandan ProjectsNo substantial Jatropha cultivation or bio-fuel production is taking place in Uganda at present, but country experts report potential. Four projectshave been identified – all of them private undertakings.(1) The company EA Uganda Ltd. set up a test plantation of 1-2 ha in 2007 in the Mukono District and on two further farms in Moyo District (West Nile Province). If promising yields are achieved, an oil expeller was due be purchased for 2008/09 for test production. Biodiesel production is planned for 2010/2012 with various expellers in West Nile Province. Jatropha products to be used are plant oil, shells and residue for compost and methane gas production. Project partners are the Makere University and the GTZ Uganda for developing capacity in oil expelling and use of residue. Research activities are to be included in the project in the future, focusing on the identification of high yielding plants, fertilisation requirements, pruning, spacing and intercropping.(2) According to recent public sources, the private company Royal Van Zanten has set up a 40 ha Jatropha plantation in Mukono District and runs outgrower schemes with vanilla farmers (intercropping) in the districts of Mukono, Kayunga, Jinja, Iganga, Kamuli and Bugiri.(3) The National Forestry Research Institute in late 2009 embarked on a project to test the viability of biodiesel from jatropha.(4) Africa Power Initiative has set up a jatropha processing plant with a reported capacity of 1,000 tons of seeds a day. The plant already owns a 2,000 acre jatropha farm in the Karamojo district but is looking for additional outgrower supplies. 28
  • JATROPHA: EAST AFRICAN MARKETKenyan PoliciesJatropha cultivation is not yet directly supported. KENYAThe Government is currently drafting a bio-fuel strategy. Anational Task Force on Jatropha cultivation has been set upunder PIEA´s (Petroleum Institute of East Africa) lead. Itreportedly focuses on the interests of small and large scaleJatropha growers, will manage the entry of bio-fuels into thelocal market and study options in the carbon market (sale ofcarbon credits & local certification).Kenyan ProjectsIn Kenya, small-scale cultivation of Jatropha (<5 ha) and pilot plantations play the most important role today. Country expertsexpect a significant growth of medium-scale plantations (<1,000 ha) and a slight increase of large-scale cultivation (> 1,000ha).The following projects were identified:(1) Green Africa Foundation – 400ha plantation in Kitui District.(2) Green Power – 200ha plant in Isenya district; forecast to grow to 6,000ha by 2015.(3) Africa Energy Ltd – 100ha plantation forecast to grow to 10,000ha by 2015.(4) UNDP GEF – A 70ha plant in Mawindi and Kwane districts, forecast to grow to 240ha by 2015.(5) Biwako Bio-Lab, Hydronet Energy & Green Africa Foundation – little details are know about this collaboration but it is expected to total 75,000ha by 2015. 29
  • JATROPHA: EAST AFRICAN MARKETTanzanian PoliciesAt present, Tanzania is lacking clearly defined quality standards forbio-fuel and a clear regulation for the sale of Jatropha bio-fuels, TANZANIAaccording to country experts.The Tanzania Investment Centre maintains a database of suitableland for Jatropha. It offers a one-stop-shop to facilitate landacquisition as well as permitting and registration processes.Advantageous tax and duty conditions are offered. The TanzaniaInvestment Act (1997) grants investors full rights to buy and sellland.The Government has earmarked funding for infrastructuredevelopment, as weak infrastructure has been reported to hinderproject development.Tanzanian ProjectsThe large majority (80%) of projects identified is privately owned and profit-oriented. Contracting outgrowers is the mostdominant scheme. Some projects combine this scheme with plantations. Only a third of Jatropha projects include seedcrushing into their project; even less aim at Biodiesel production. Research activities are generally low, but reported to bestepped up with focus on high yield species, fertilisation and cultivation techniques. Irrigation (mainly manual) is used by morethan half of the projects. Weak infrastructure appears to pose problems to project development.Although several projects were identified, only the following two disclosed material information:(1) Diligent Energy Systems – 3,000ha scheme expected to grow to 200,000ha by 2015.(2) KAKUTE – 150ha plantation due to expand to 800ha by 2015. 30
  • BIODIESEL OVERVIEW MARKET GROWTH FEEDSTOCK CONCERNS OUTLOOK 31
  • BIODIESEL: OVERVIEWIndustry Overview What are Bio-Fuels?The Biodiesel market has experienced an enormous upturn Bio-fuels (biodiesel and ethanol) are liquid fuels from plantin recent years. Demand is underpinned by the need to origin. Biodiesel is diesel obtained from organic oils, mostlyincrease domestic energy security, reduce greenhouse gas vegetable. It is produced by modifying vegetable oils fromemissions from the transport sector and help address an appropriate plants and reducing their viscosity by variousexpected shortage of diesel refining capacity. Moreover, methods. Ethanol is produced from sugar and starch.demand is driven by the aim to increase rural developmentas well. Major liquid bio-fuels – straight or recycled vegetable oils, biodiesel and ethanol, blended with petroleum products orToday, about 10% of the world’s energy use is still derived without blending, can be used for motorised transport,from biomass and as much as 80% in developing countries. railways, marine transport, electricity generation, mining,While the use of traditional biomass such as firewood and agriculture, industry, commerce, defence and othercow dung is associated with health hazards and multifunctional platforms.environmental damage, modern bio-fuels offer the promiseof considerable improvement in these areas. They also holdthe prospect of reduced energy import bills and improvedenergy security.Unlike industrialised nations, developing nations with fragileeconomies and infrastructures are financially drained in thepurchase of imported, refined petroleum oil. It is thoughtthat for every $10 hike in the cost of a barrel of crude oil, theeconomy of an oil importing country in Africa is impacted inmultiples of the impact on the US economy. As a result,important gains reaped from debt forgiveness initiatives arebeing wiped out by rising energy costs.Developing regions of the world, including Africa, canimprove their future economic viability and maintain cleanecological environments by investing now in the use andproduction of green energy. 32
  • BIODIESEL: MARKET GROWTHBiodiesel Markets Benefits of Bio-FuelsThe global market for biodiesel is poised for explosive growth in  Substantially increase economies and employmentthe next ten years. Although Europe currently represents 80% of opportunities in developing countries.global biodiesel consumption and production, the US is now  Foreign exchange savings by reducing fossil fuel imports.ramping up production at a faster rate than Europe, and Brazil is  Improved energy security, lower emissions of greenhouseexpected to surpass US and European biodiesel production by the gases.year 2015. It is possible that biodiesel could represent as much as  Biodiesel has a high octane number that improves engine20% of all on-road diesel used in Brazil, Europe, China and India by performance, high lubricity reducing wear and tear, low2020. sulphur and aromatics emissions.  Bio-fuels are simple to use, biodegradable, and reduce airBiodiesel demand and over-capacity in Europe, the US and Asia is pollutants such as particulates, carbon monoxide,driving investment in the global trade of alternative feed-stocks. hydrocarbons, and are widely excepted as carbon-neutral.The US market for biodiesel is growing at an unsurpassed rate;from 25 million gallons per year in 2004 to over 650 million  Sustainable and environmentally-friendly; neat biodiesel is asgallons in 2008. The total biodiesel being sold in the US amounts biodegradable as sugar and less toxic than salt.to less than 1% of all diesel consumption. In Europe, biodiesel  Most of the oil-bearing crops enrich the soil.represents 2-3% of total transportation consumption and istargeted to reach 6% by 2010. Biodiesel Growth Drivers  Favourable Economics: Rising petroleum and diesel pricesIn China, India, Brazil and Europe, economic and environmental make biodiesel competitive and profitable.security concerns are giving birth to new government targets and  Environment: An ever increasing pressure to replace fossilincentives, aimed at reducing petroleum imports and increasing fuels.the consumption and production of renewable fuels. Europe,  Legislation: Increasing energy security concerns are driving bio-Brazil, China and India each have targets to replace 5% to 20% of fuels legislation and R&D.total diesel with biodiesel.  Government Plans: Mandates to produce a certain volume of bio-fuels to replace automotive fuels by a certain date.While the US and European governments have put in place  Taxes & Subsidies: Incentives are encouraging the productionfinancial incentives to run bio-fuel schemes, their farming systems of bio-fuels.can’t produce the necessary quantities without creating a  Import Dependency: Concerns about petroleum importconsiderable risk to the food chain. It is therefore expected that dependency are driving countries to produce their own energy.the bio-fuel revolution will specifically benefit developing  Economic & Social Development: Bio-fuels are being used ascountries that can produce bio-fuel for their own consumption as socio-economic programs to help under-developed nationswell as for export. improve their local economies. 33
  • BIODIESEL: FEEDSTOCK CONCERNSGlobal Bio-Fuel Production Could Expand 5-Fold by 2025 300,000 250,000 Bio Diesel Ethanol 200,000million litres 150,000 100,000 50,000 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: Prakash, Adam. 2007. “Grains for food and fuel – at what price?” Biodiesel Feedstock Concerns Although the global biodiesel market is growing at a rapid rate, there is a major threat to the sustainability of growth; the price of traditional biodiesel feedstocks is increasing steeply (see charts on next page), hence jeopardising the profitability of the industry. The reason for the rising price of traditional feedstocks is the current food crop shortages the world is experiencing combined with the fact that most traditional feedstocks for biodiesel compete with food crops (or are in fact a source of food themselves). The impact is that major biodiesel producing nations are producing far less than their capacities allow (see charts on the page after next), resulting in a growing output gap across the world. If this is to continue, it is unlikely that the growth the market has seen will be sustainable and demand will far outweigh supply. In addition, most nations will considerably fall short of their own biodiesel targets in future years. It is widely agreed that the solution is to source a new generation of feedstocks that are low in cost, relatively easy to cultivate, and most importantly do not compete with food production. One of the most promising of such feedstocks is Jatropha Oil. 34
  • BIODIESEL: FEEDSTOCK CONCERNS Biodiesel Feedstock Prices: 2001 - 2008 Estimated Cost per Barrel ($) of Fuel Produced by Bio-Fuel Feedstocks Rapeseed Oil Palm Oil Cellulose 305 1,400 Soybean Oil US Diesel #2 Wheat 125 1,200 Rapeseed 125 1,000$US per metric ton Soybean 122 800 Sugar beets 100 600 Corn 83 400 Sugar cane 45 200 Jatropha 43 - 2001 2002 2003 2004 2005 2006 2007 2008 0 100 200 300 Source: Emerging Markets Online – Bio Diesel 2020 Feedstocks Database Source: Goldman Sachs 35
  • BIODIESEL: FEEDSTOCK CONCERNS Global Biodiesel Production v Capacity Europe Biodiesel Production v Capacity 30 12 Capacity Production Capacity Production 25 10 million tons per annummillion tons per annum 20 8 15 OUTPUT GAP 6 OUTPUT GAP 10 4 5 2 0 0 2002 2003 2004 2005 2006 2007 2008 2002 2003 2004 2005 2006 2007 U.S. Biodiesel Production v Capacity China Biodiesel Production v Capacity 4,000 Capacity Production 140,000 3,500 Capacity Production 120,000million gallons per annum 3,000 tons per annum 100,000 2,500 80,000 2,000 OUTPUT GAP 1,500 60,000 OUTPUT GAP 1,000 40,000 500 20,000 - - 2004 2005 2006 2007 2008 2002 2003 2004 2005 Source: “Biodiesel 2020: A Global Market Survey”, EBB, USDA, OilWorld, FAS 36
  • BIODIESEL: OUTLOOKShort Term Outlook Growth in multiple feedstocks Export growth from alternative feedstocks Big plants and refineries open near ports Renewable diesel growthMedium Term Outlook: 2010 - 2015 Emergence of commercial scale Jatropha Export growth from Africa, Asia and Latin America Algae commercial scale production emerges Growth in commercial and community renewable diesel projectsLong Term Outlook: 2015 - 2020 Jatropha and Algae become mainstream commodity Global supply shifts from North to South Global demand balance from Africa and Asia Community projects increase significantly 37
  • UGANDA CURRENT ENERGY SITUATION NATIONAL ENERGY POLICY BENEFITS & BARRIERS TO BIODIESEL 38
  • UGANDA: CURRENT ENERGY SITUATIONUganda’s Current Energy SituationUganda is a land-locked country covering an area of 236,040 square kilometres with an estimated population of over 28 millionin 2006, with a growth rate of 3% per annum; one of the highest in the world. Over the last 2 decades the country recorded afairly steady economic growth with GDP real growth rate estimated at average of 6% in the last decade.Agriculture still dominates the country’s economy, accounting for more than a half of total output and employing over 80 percent of the workforce. The majority of the people are peasants that depend on small scale livestock rearing and a wide range ofsubsistence crops to meet local needs. Coffee is the main export commodity. Tobacco, tea, fish, hides, skin and sugar as well ascorn and beans have become important export commodities. However, most of this is exported in semi-processed forms asthere are only a few refining industries.A growing economy combined with a fast growing population means a growing energy demand. Uganda’s energy supply andutilization is dominated by biomass. Access to electricity in Uganda is limited to 9% of the population, the remaining 91% of thepopulation mainly use biomass in the form of firewood or charcoal for their energy needs. The country’s energy is derived93% by biomass, 6% fossil fuels (all imported) and 1% hydro-power.Uganda has a high potential for hydro-power generation but has installed capacity of only 280MW which in recent years hasfallen to less than 150MW (owing to persistent drought and a resultant drop in the water levels at the Owen Falls Dam) leadingto unprecedented power shortages. This has forced the country to invest in thermal power plants. By the end of 2008 theelectricity generated from thermal plants exceeded 150MW. Use of thermal power plants has increased the country’sexpenditure on petroleum and has hiked the retail price of electricity. Efforts to develop new hydro-power plants are ongoingbut such investments take years to accomplish.The transport sector in Uganda is totally dependent on imported fossil fuels whose prices had hit all time highs recently, atclose to $140 per barrel of petroleum on the world market and US $ 1.5 per litre pump price. The fuel bill for a country likeUganda constitutes almost 50% of the budget. The escalating prices of fossil fuels have made it imperative for government topromote the development and utilization of renewable energy resources including bio-energy and their associatedtechnologies. 39
  • UGANDA: NATIONAL ENERGY POLICYUganda’s National Energy PolicyUganda’s national energy policy promotes accelerated power generation from renewable resources and emphasizes thedevelopment/adoption and utilization of other modern fuels and technologies. The government’s commitment to develop theuse of renewable energy sources is aimed at creating means for socio-economic development. In implementing the policy thegovernment expects to address poverty issues, catalyse industrialization and protect the environment.The renewable energy resources that the policy lists are: biomass, geothermal, hydropower, wind and solar energy. Whilstbiomass sources are widely used for energy generation, the processes are often inefficient. Biomass provides almost all theenergy needed for cooking in urban and rural house holds and in rural industries.The government’s renewable energy policy recommends blending of diesel with 20% biodiesel. By specifying the maximumproportion of biodiesel blends the government hopes that investors will be attracted to invest in biodiesel production knowingthat there is a market for it. The bio-diesel will be used for the transport sector and also for rural electrification and farm powerproduction. The expected benefits from the policy include; Improved national energy security by using indigenous renewable energy sources instead of imported fossil fuel Create employment and income in rural areas Promotion of local renewable natural resources Reduced emission of carbon dioxide to the atmosphere Promotion of a new source of income to farmers Support rural electrification strategy Promotion of technology transferBlending of all diesel used for transport in Uganda with 20% biodiesel would have translated into a market potential of 100million litres of biodiesel in 2008 increasing to approximately 200 million litres in 2012 given the annual average increase indiesel consumption of 17%. 40
  • UGANDA: BARRIERS & BENEFITS OF BIODIESELBarriers to Biodiesel Development & Use Benefits to Biodiesel Development & Use Petroleum deposits have been discovered in the Western Rift Valley, likely adequate for commercial exploitation. It is feared that the government will give preferential investment  Substantially increase the economic health of Uganda. incentives in the petroleum development which will marginalize bio-energy.  Improve employment opportunities and rapidly increase the number of plants operating in the country. Inadequate Legal and Institutional Framework: There is no standard procedure and legal instruments to support investment in bio-energy. Whereas in countries like India they  Massive foreign exchange savings by reducing fossil fuel have created government funded bio-energy units to promote imports. its development. Limited Technical and Institutional Capacity: The public and  Improve Uganda’s competitive advantage amongst private sectors have limited technical and institutional capacity African peer nations. to manage bio-energy projects. Training needs to proportionately emphasize bio-energy in the engineering and other related professional courses.  Improve Uganda’s energy security, and reliance on external energy imports. Lack of Financing Mechanisms: Commercial banks in Uganda do not offer products that support long term investments. Long term loans can only be obtained from the East African  Lower emissions of greenhouse gases and importantly Development Bank and the African Development Bank. But lower local pollution caused by biomass, hence these banks finance large projects only. increasing the country’s health. Underdeveloped market: Whereas there is potential for demand of bio-energy products, the market is not yet  Most of the oil-bearing crops enrich the soil. developed in order to realize actual demand. The public is also unaware of the technologies and the products. Lack of Research and Development Support: There is a dearth of budgetary support to higher learning and R&D institutions to carry out adaptive research that can promote the development of bio-energy in Uganda. 41
  • NEWCO INCORPORATION MANAGING DIRECTOR DEVELOPMENT DIRECTOR REMAINING EXECUTIVE TEAM 42
  • NEWCO: INCORPORATIONIncorporationNEWCO is yet to be incorporated and its establishment isawaiting heads of terms. Upon agreement, NEWCO will beincorporated in a manner that is compliant with the relevantjurisdictions and structures involved.The management team has in the main been identified andbrought on board. They are now committed to this projectfull time and are drawing upon their resources, bothfinancial and expertise, to ensure this project is executed inthe best interests of all parties concerned.The current two-strong team is highly suitable for a projectof this nature and it was conceived and put together bythem. They are anticipated to be the driving force of theproject’s completion and will project manage allstakeholders involved. They bring a wealth of business andfinancial experience to the table and have conductedbusiness in Africa several times in the past on a variety ofprojects. As a result, they have visited the continent andEast African region many times and are well connected inthe area.The current team has identified a small number of industryprofessionals they are keen to add to management and arein discussions with these individuals. The remainder of theteam will be appointed once heads of terms are agreed.The following pages give further information on themanagement team. 43
  • NEWCO: MANAGEMENT TEAMMUKESH PATELManaging DirectorThe Managing Director of NEWCO is Mukesh Patel. He is a serial entrepreneur and has over the past 30years successfully set up and run a number of businesses in a wide range of disciplines, amassing aportfolio worth millions of pounds. Mukesh’s key skill is spotting commercial opportunities early in theirlifecycle, assembling the best team to penetrate the industry and investing into enterprises thatsuccessfully participate and profit in these opportunities.Mukesh graduated as an Architect and emigrated to the UK from India is 1979. Arriving in the UK with only enough money tolast a few months, he spotted an opportunity in the automobile spare parts trade and quickly set up a business, “Autoland”from his home in London. Mukesh’s keen eye for value deals and his commitment to excellent service resulted in the businessexpanding at an incredible rate. In its first year Autoland turned over £200k and within 18 months Mukesh had moved thebusiness into an industrial warehouse and took on a number of employees. This part of the business peaked a turnover inexcess of £3 million. During 1998, Autoland was awarded the Queen’s Award for Export Achievement and gained ISO 9002accreditation in recognition of the quality of its service.Wanting to diversify his business, Mukesh saw a great opportunity in distributing fashion labels in the UK and Europe.Leveraging off his logistics and distribution infrastructure and experience, he established “Altec” and acquired distributionrights for three labels. In addition to this, Altec paired up with an experienced design house in Hong Kong to establish a newbrand, now owned by Altec. This part of the business peaked with a turnover of £4 million.In 2000, Mukesh established “Prigee International”, created to capitalise on real estate opportunities in the UK. To date, Prigeehas executed a broad spectrum of deals including; investment, asset management, development, planning and yieldcompression. Prigee’s current investment portfolio is worth £10 million and is across the residential, commercial and industrialsectors. The industrial portfolio has asset management opportunities and is likely to increase the value of the portfoliosignificantly.Today, Mukesh is well known in the business community and his network of contacts and advisers in real estate, industry andretail markets provides him a great number of introductions to excellent business opportunities. 44
  • NEWCO: MANAGEMENT TEAMAMIT PATELDevelopment DirectorAmit has a Bachelors Degree in Banking & International Finance from Cass Business School, London, andis a member of the Chartered Institute of Bankers.Amit spent a number of years working in the Investment Banking and Private Equity community inLondon where he built extensive experience in the following disciplines;LEVERAGED FINANCE: Providing senior, mezzanine and junior debt to Private Equity Firms on large buyouts (over £1billion).INTEREST RATE DERIVATIVES: Structuring highly complex interest rate derivatives for corporate clients for hedging shortterm exposures and long term packages.SECURITISATION: Packaging balance sheet residential mortgages into mortgage backed securities and large commercialmortgages into conduit programmes and asset backed securities.PRIVATE EQUITY (REAL ESTATE): Providing large equity and debt packages into real estate focussed transactions, including;commercial real estate, care homes, retail companies, housebuilders, hotels, funds, and garden centres.Amit has worked on an array of transactions including high profile public-to-privates, joint ventures, fund creations, financialmarkets arbitrage opportunities and other multi-billion pound buyouts.After leaving the City in 2008, Amit set up a lead corporate finance advisory boutique, “AP Corporate Finance”(www.apcorporatefinance.co.uk) , advising a range of corporations on mergers, acquisitions, disposals and capital raising.Amit’s firm has worked with Mukesh Patel on a number of transactions in the past on an advisory and joint venture basis.Amit brings to NEWCO a wealth of business development, financing and structuring experience, and his firm is acting as leadcorporate finance advisor to NEWCO. His role as Development Director at NEWCO will continue throughout the life of theproject, and he will oversee all new business development opportunities alongside monitoring the project’s performance overits life. 45
  • NEWCO: MANAGEMENT TEAMTO BE RECRUITEDChief AgronomistWe aim to recruit a Chief Agronomist. This addition will provide valuable scientific speciality to themanagement team and enable NEWCO to design and implement the most efficient techniques tocultivating jatropha. This officer will bring expertise in feedstock as well as optimal growing conditionsand schematics of the plantation and will also be the main liaison between NEWCO and its energypartner.We are currently in discussions with a number of specialists in this area and have produced a shortlist.The Chief Agronomist will be appointed upon signing of heads of terms with the Ugandan government.TO BE RECRUITEDOperations DirectorNEWCO is in negotiations with a shortlist of bio-fuel plant and machinery experts, and will appoint anindividual to the position of Operations Director upon signing of heads of terms.The Operations Director will be responsible for sourcing all plant and machinery for the enterprise andoverseeing installation of these assets on NEWCO’s land. He/she will also oversee the daily operations ofthe business and report directly to the Managing Director.TO BE RECRUITEDFurther Team MembersNEWCO has identified a small number of additional personnel it wishes to recruit, either on a consultancyor permanent basis. These individuals will assist the main management team execute the business planin the start up phase through to completion. Recruitment here will occur on an adhoc basis, as and whenrequired. 46
  • FINANCING FINANCING OPTIONS PRIVATE EQUITY DEBT CARBON CREDIT FINANCE 47
  • FINANCING: OPTIONSFinancing Options Private EquityFunding for NEWCO will be finalised upon agreement of There are over 50 private equity funds specialising in Africanheads of terms. The management team have identified renewable energy projects.several options available to pursue, all of which are sourcedin the region. Seeking funding from outside of Africa isunlikely to be successful as most European and American The financing appetite for private equity in the region haslenders are highly reluctant to fund projects of medium sized increased over the past three years as firms look outside ofenterprises in the region. Europe and America for returns.The funding is likely to be a combination of the following We have identified a number of potential partners in thisinstruments: area and have begun early stage discussions with them. They have displayed a keen appetite to join the project as a Equity partner.  NEWCO’s own capital  Private equity fund focused on the African energy market Debt  Asset Financing  Import/Export Financing  Structured Finance Carbon Credit Financing  Kyoto Protocol’s Clean Development Mechanism (“CDM”)  Carbon Credit Trade Finance Program (“CCTFP”) Grants 48
  • FINANCING: OPTIONSDebt – Import & Export Finance Special Purpose Vehicle – No Recourse DebtThe African Export-Import Bank (Afreximbank) was A possible structure to follow is that of Special Purposeestablished in 1993 by African governments, private and Vehicle (SPV). In this structure, the actual project is ring-institutional investors and other non-African financial fenced into the SPV and so the funding is on the SPV’sinstitutions for the purpose of financing, promoting and balance sheet, and not on NEWCO’s. Off balance sheet hasexpanding intra-African and extra-African trade. benefits for both NEWCO and any financiers.The bank has a programme called the “Export Development In this structure, lenders have no recourse to NEWCO, butProgramme”, and under this Project-Related Financing is depend entirely on the project itself as a source of capitalavailable to energy and infrastructure projects such as this and interest payments. Because of this, lenders will seek toone. gain as much control as possible over the SPV’s cash flow.Debt – Structured Finance SPV StructureStructured Finance in Africa allows a commodity-based companyto leverage a proportion of its future export earnings to supportimproved funding terms of issuance. The structure rests on the [NEWCO]following: Tech PE Exporter: Good track record, good credit quality Partner Partner Foreign Buyer: Good payment risk, multiple buyers are preferred Country: Political stability SPV Product: Commodity with official spot market price and possibility of hedging forward prices Govt Borrower PartnerUsing this structure utilises receivables as collateral. The Biodieselbiodiesel financier will provide debt and secure this against future Purchaserreceivables due to the biodiesel plant from purchasers. 49
  • FINANCING: CARBON CREDITSCarbon Credit FinanceOver the past century, the amount of carbon dioxide in the atmosphere has risen, driven to a large extent by usage of fossilfuels, rising population and increasing consumption. This has led to an increase in average global temperatures.In a regulatory attempt to cap CO2 emissions, the Kyoto Protocol was signed by a large number of countries. The protocol nowallows companies who are able to contribute to the decrease in emissions through environmentally friendly projects to receivecarbon credits from countries that contribute to the increase of CO2 in the atmosphere. These substantial payments areregulated by a special committee and is sponsored by lead commerce banks that enable financing of carbon credits towardsfuture proceeds. The Kyoto Protocol’s system is known as the Clean Development Mechanism.Any biodiesel producing venture would qualify as a carbon reducing project and would be eligible to receive carbon credits.Every 5.9 million litres of biodiesel produced qualifies for 10,000 Certificates of Emission Reductions (CERs), which can be soldon the carbon trade market. 10,000 CERs is currently worth €125,000. One CER is awarded for every tonne of CO2 offset. Toput this into context, a 5,000 hectare jatropha farm would potentially receive over €500,000 per annum in CERs alone. Whilstthis is the current market, owing to global uncertainty of the Kyoto Protocol post 2012 and the recent walk out of Africannations in the Copenhagen Summit on Climate Change, we are assuming that the project would receive CERs at the lowestpossible quantum. In effect, the likely revenue generated via CERs is considered upside potential.The World Bank estimates that this market will grow from its current annual value of $30 billion to over $100 billion.The Clean Development Mechanism offers an immense opportunity for nations or continents that are low green-house gasemitters, of which Africa is the lowest emitter.Many banks are now introducing Carbon Credit Trade Finance programmes, whereby loans are provided in advance andsecured against future CER payments due to the borrowing project.As discussed above, not only will carbon credits potentially ease the funding process, but CERs will provide a substantialadditional income to the biodiesel plant. 50
  • FINACING: CARBON CREDIT MARKETBarriers to Carbon Credits in Africa Annual CERs in Africa 1%The following two charts highlight that Africa is currentlyheavily underweighted in the carbon trade market, andwithin the continent Uganda is not represented sufficiently. 14% Egypt 30% MoroccoExecution of this project will bolster Uganda’s experience Nigeriawith registering projects with the Clean DevelopmentMechanism. 20% South Africa Tunisia Complex CDM procedures 5% Uganda 30% Transaction cost to hire service providers Knowledge gap between carbon credit buyers and Global Carbon Market – Registered Projects suppliers 17 Limited access to finance by potential developers Financial intermediaries lack of knowledge about CDM Africa 255 Asia Pacific Lack of trained national CDM consultants Other 377 Latin America Heavy institutional requirements for project cycle 6 51
  • FORECASTED FINANCIALS BASIS OF FINANCIALS  PROFIT & LOSS FORECAST HIGHLIGHTS  CASH FLOW FORECAST ASSUMPTIONS  RETURNS FORECAST 52
  • FORECASTED FINANCIALS: BASIS & HIGHLIGHTSBasis of Financials HighlightsWe have engaged a top tier renewable energy consultancy PROFIT & LOSSfirm in the US to assist management form a financial modelfor this project. The US consultancy is highly experienced  The first two years are EBITDA negative owing to low turnoverwith biodiesel plants and specifically Jatropha as a (the plant will not refine imported feedstock as it is notfeedstock. The firm has advised on numerous plants of this economic), along with labour and significant fertilising andnature (and much larger) around the world. chemical costs.Our energy consultants have designed an early stage site  Upon plant maturity (Year 5), revenue of over $5 million isschematic (agri-system and refinery) and modelled all costs generated per annum, and a resulting EBITDA of $3.4 millionand revenues for a plant of this nature. This work forms thebasis of our financial model and is highly prudent; our view is per annum.there is potentially significant upside in the forecast. Forexample, the price of diesel per litre achieved by the plant  Retained Profit from Year 5 onwards is $2.4 million per annumhas been modelled as $1.00 for the entire life of the project; (assuming oil prices do not appreciate).our long term outlook for the price of oil products is one ofexpected appreciation, and hence the plant’s revenues  Revenue is primarily generated from the sale of biodiesel, butwould be expected to grow in line with the wider oil market. additional revenue is made from the sale of jatropha cake andIn addition, the value of carbon credits has been modelled at receipt of carbon credits.the lowest end of the spectrum owing to Kyoto Protocoluncertainties post 2012.  The majority of the project’s operating costs are associated with labour and chemical catalyst costs (the latter are assumedOn the following pages, all salient aspects of our model have to be imported and hence attract premium pricing).been highlighted. It is acknowledged that at this stage, themodel is subject to change and a new model will beconstructed upon progression to the next stage of the  The model assumes that profits are accumulated as reserves; inproject. reality dividends would be paid.Our energy consultants share our optimism for this project  Tax has not been included at this stage as this is subject toand have indicated that they would be very keen to remain negotiation and it is hoped that a significant tax moratoriuminvolved in the project should it progress, either as a partner will be granted to the project.or primary consultant. 53
  • FORECASTED FINANCIALS: HIGHLIGHTSHighlightsCASH FLOW The project has a net cash outflow for the first three years owing to low turnover, operating costs, and the bulk of the capital expenditure being invested into site clearing, infrastructure, professional fees, plant construction, storage facilities, refinery, etc. This will be funded by a working capital facility, senior debt and equity. From Year 4 onwards, as the plant’s feedstock matures and hence biodiesel is produced, the project becomes cash generative and by Year 5, the project generates over $3 million of cash per annum (net of interest repayments; principal is assumed to be repaid via a bullet in Year 10, or upon exit). Over the forecasted 10 year period, the plant generates a net cash flow of over $11 million (after all debt is serviced and fully repaid).CAPITAL EXPENDITURE The total capex requirement for the project is budgeted to be just over $9 million (this includes a 25% contingency); the bulk of this is utilised for site clearing, and construction of the mechanical crush and biodiesel facilities. Other high cost items are the plant’s infrastructure and the on-site biomass boiler (the plant will produce its own energy supply) and seed and shell storage facilities. The majority of capex occurs in Year 3 ($5.7 million) as the crush and biodiesel facilities are built in time to process feedstock yields. Our model assumes capex is funded 30% via equity and 70% senior debt. If sufficient debt can not be sourced, more equity can be injected, which will lower returns slightly.RETURNS Returns have been modelled via two options; by way of a trade sale in Year 5 or continuation of the project and so cash returns. If a trade sale is achieved in Year 5 (using a 6x EBITDA multiple), the equity IRR is a massive 95.3% (upside scenario is 107.2% and downside scenario is 64%). Net sale proceeds would be $16.3 million ($19.7 million and $9.5 million for the upside and downside scenarios respectively. We consider a 6x EBITDA exit multiple fair as the plant is completely scalable (either scaled using surrounding land or by way of further plants) hence EBITDA growth is likely. If the project is continued for 10 years, the cash generation results in a cash IRR of 50% by Year 10. Management consider these returns to be very attractive after considering the risk-reward profile of a project of this nature. 54
  • FORECASTED FINANCIALS: ASSUMPTIONS 55Assumptions – Plant & Machinery
  • FORECASTED FINANCIALS: ASSUMPTIONSAssumptions – Capital ExpensesCAPITAL SCHEDULE ($000s) 2011 2012 2013 2014 2015Site Cost - - - - -Land/Clearing/Development 1,250 - - - -Mechanical Crush Facility - - 2,103 - -Biodiesel Plant - - 1,607 - -Seed Storage - - 40 81 283Shell Storage - - 24 49 170Oil Storage - - 0 1 2Cake Storage - - 6 12 43Biodiesel Storage - - 2 3 11Glycerin Storage - - 0 0 1Trucks - - 28 56 196Biomass Boiler - - 773 - -Dehullers - - 2 4 10Separators - - 1 1 4Site Infrastructure 400 - - - -Professional Fees 135 - - - - - - - - -Capital Cost Subtotal 1,785 - 4,587 207 720Contingency 25% 446 - 1,147 52 180Capital Cost Total 2,232 - 5,734 259 900 56
  • FORECASTED FINANCIALS: ASSUMPTIONSAssumptions – Labour RequirementsLABOUR INCLUDING TRAINING 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Field managers - - 7 23 77 77 77 77 77 77General Manager 1 1 1 1 1 1 1 1 1 1Field Workers - - 117 351 1,169 1,169 1,169 1,169 1,169 1,169Fertilizing/Pesticides 50 50 50 50 50 50 50 50 50 50Crush Operators 6 6 6 6 6 6 6 6 6 6Crush Manager 1 1 1 2 3 3 3 3 3 3Biodiesel Operators 9 9 9 9 9 9 9 9 9 9Agronomist 1 1 1 1 1 1 1 1 1 1Security 10 10 10 10 10 10 10 10 10 10Biodiesel Manager 1 1 2 1 3 3 3 3 3 3Total Personnel 79 79 204 454 1,329 1,329 1,329 1,329 1,329 1,329 57
  • FORECASTED FINANCIALS: PROFIT & LOSSProfit & Loss Forecast – 10 yearsPROFIT & LOSS ($000s) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020TURNOVER 63 63 559 1,551 5,024 5,024 5,024 5,024 5,024 5,024 CONTRIBUTION 54 63 559 1,551 5,024 5,024 5,024 5,024 5,024 5,024 FIXED COSTS (267) (267) (536) (773) (1,603) (1,603) (1,603) (1,603) (1,603) (1,603)EBITDA (214) (205) 23 778 3,421 3,421 3,421 3,421 3,421 3,421 DEPRECIATION (155) (165) (590) (609) (676) (676) (676) (676) (676) (676) OTHER INCOME 0 0 0 0 0 0 0 0 0 0 GOODWILL AMORTISATION 0 0 0 0 0 0 0 0 0 0EBIT (369) (370) (567) 169 2,745 2,745 2,745 2,745 2,745 2,745INTEREST Overdraft (5) (13) (20) (21) 0 0 0 0 0 0 Senior Term (52) (103) (236) (368) (368) (368) (368) (368) (368) (184) RECEIVED 0 0 0 0 0 0 0 0 0 0ORGANISATION COSTS (100) 0 0 0 0 0 0 0 0 0EBT (525) (486) (823) (221) 2,377 2,377 2,377 2,377 2,377 2,561 Taxation 0 0 0 0 0 0 0 0 0 0 Preference Dividends 0 0 0 0 0 0 0 0 0 0 Ordinary Dividends 0 0 0 0 0 0 0 0 0 0RPBE (525) (486) (823) (221) 2,377 2,377 2,377 2,377 2,377 2,561 EXTRAORDINARIES 0 0 0 0 0 0 0 0 0 0RP (525) (486) (823) (221) 2,377 2,377 2,377 2,377 2,377 2,561 58
  • FORECASTED FINANCIALS: CASH FLOWCash Flow Forecast – 10 YearsCASH FLOW ($000s) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020EBITD (214) (205) 23 778 3,421 3,421 3,421 3,421 3,421 3,421OPERATING CASH FLOW (214) (205) 23 778 3,421 3,421 3,421 3,421 3,421 3,421 NEW EQUITY 669 0 1,720 0 0 0 0 0 0 0 NEW BORROWING 1,562 0 4,014 0 0 0 0 0 0 0 OTHER 0 0 0 0 0 0 0 0 0 0 CAPEX (2,232) 0 (5,734) (259) (900) 0 0 0 0 0ORGANISATION COSTS (100) 0 0 0 0 0 0 0 0 0EXTRAORDINARIES 0 0 0 0 0 0 0 0 0 0TAXATION - MCT 0 0 0 0 0 0 0 0 0 0CASH FLOW AVAILABLE FOR (314) (205) 23 519 2,521 3,421 3,421 3,421 3,421 3,421DEBT SERVICE (CFADS)SENIOR INTEREST - Overdraft (5) (13) (20) (21) 0 0 0 0 0 0 Senior Term (52) (103) (236) (368) (368) (368) (368) (368) (368) (184) RECEIVED 0 0 0 0 0 0 0 0 0 0SENIOR REDEMPTIONS - Senior Term 0 0 0 0 0 0 0 0 0 (5,576)CFADS (Subordinated) (370) (321) (233) 129 2,153 3,053 3,053 3,053 3,053 (2,339)PREFERENCE/ORDS DIVIDENDS 0 0 0 0 0 0 0 0 0 0NET INFLOW/(OUTFLOW) (370) (321) (233) 129 2,153 3,053 3,053 3,053 3,053 (2,339) 59
  • FORECASTED FINANCIALS: RETURNS Returns Forecast – 10 YearsEXIT CAPITALISATION ($000s) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Projected EBITDA (214) (205) 23 778 3,421 3,421 3,421 3,421 3,421 3,421Less : Tax 0 0 0 0 0 0 0 0 0 0Earnings before interest and after tax (214) (205) 23 778 3,421 3,421 3,421 3,421 3,421 3,421 EBITDA Multiple 6x (1,281) (1,229) 137 4,669 20,526 20,526 20,526 20,526 20,526 20,526 Net Borrowings (Excluding HP/Leasing, incLess : Mezz Red Prems) (1,932) (2,253) (6,500) (6,370) (4,218) (1,165) 1,888 4,941 7,994 11,231NET CAPITALISATION = (3,213) (3,482) (6,362) (1,701) 16,309 19,362 22,415 25,468 28,521 31,758PROJECT IRR (Trade Sale Exit)Capital Investment (669) 0 (1,720) 0 0 0 0 0 0 0Ordinary Share value on exit (3,213) (3,482) (6,362) (1,701) 16,309 19,362 22,415 25,468 28,521 31,758TOTALS (3,882) (3,482) (8,083) (1,701) 16,309 19,362 22,415 25,468 28,521 31,758IRR = 0.0% 0.0% 0.0% 0.0% 95.3% 73.2% 59.9% 51.0% 44.6% 39.9% EBITDAUpside Sensitivity Multiple 7xOrdinary Share Value on exit (3,427) (3,686) (6,339) (923) 19,730 22,783 25,836 28,889 31,942 35,179IRR = 0.0% 0.0% 0.0% 0.0% 107.2% 80.2% 64.5% 54.2% 47.0% 41.7% EBITDADownside Sensitivity Multiple 4xOrdinary Share Value on exit (2,786) (3,072) (6,408) (3,258) 9,467 12,520 15,573 18,626 21,679 24,916IRR = 0.0% 0.0% 0.0% 0.0% 64.0% 55.4% 48.6% 43.2% 38.9% 35.6%PROJECT IRR (Cash)Capital Drawdown (669) 0 (1,720) 0 0 0 0 0 0 0Dividend Extraction 0 0 0 129 2,153 3,053 3,053 3,053 3,053 0TOTALS (2,657) (2,369) (8,476) (6,630) (2,433) 1,520 4,573 7,626 10,679 11,047IRR = 0.0% 0.0% 0.0% 0.0% 0.0% 28.7% 40.8% 46.7% 49.9% 49.9% 60
  • NEXT STEPS 61
  • NEXT STEPSNext StepsWe are close to signing heads of terms with the Ugandan government and expect to have the required permissions in place bythe end of Q1 2010. At this stage the Managing Director is making necessary arrangements in Africa, whilst the DevelopmentDirector is focussing on fundraising. Below is a summary of management’s deal timeline.Q2 2010 Sign heads of terms with the Ugandan government . Commence discussions with debt and equity providers.Q3 2010 Secure bank debt and committed capital from a private equity partner. Sign primary energy consultants as partner or long-term advisor. Ugandan government proposes a series of suitable sites to management. Energy consultant assists in optimal site selection.Q4 2010 Upon site finalisation, all feasibility studies will commence.Q1 2011 Engineering, agronomic and infrastructure schematic production. Plant design and procurement finalised. Permits secured.2011 ONWARDS Site clearance. Infrastructure laid. Jatropha planted. 62
  • CONTACT USMUKESH PATEL AMIT PATELManaging Director Development DirectorT: +44 (0) 7831 509 209 T: +44 (0) 7791 224 126E: mp@prigee.com E: amit@apcorporatefinance.co.uk 63