Biofuels in Argentina

INVESTMENT OPPORTUNITIES Biofuels in Argentina Natural resources + Knowledge to meet global market needs

Highlights >> TAKING ON A GLOBAL OPPORTUNITY Strong economic, environmental and geopolitical drivers are shaping the biofuels industry into a fast-growing global market. Growth over recent years and projections of a continued uptrend in growth provide significant opportunities for companies operating in countries like Argentina with the greatest potential to be global biofuel suppliers. >> A PREDICTABLE DEMAND FOR COMPETITIVE EXPORTERS The targets set for biofuel use in major industrialized countries create a predictable demand for biodiesel and ethanol, which will spur global biofuel trade. Based on the current production and projected export growth, Argentina is positioned to become a key biofuel supplier in world markets. >> BOOMING DOMESTIC PRODUCTION CAPACITY Due to significant investments in this highly dynamic sector, Argentina’s annual production capacity is set to reach .1 billion liters of biodiesel and approximately 1 billion liters of ethanol by 010. >> ARGENTINA’S OUSTANDING MIX OF RESOURCES Argentina’s competitive advantage is built on a foundation of abundant world- class agricultural commodities, qualified human resources and existing industrial capabilities. As world leaders of soybean oil exports, Argentine companies have relied on soybean oil as the main feedstock for biodiesel production. The country’s sugar industry has the growth potential to serve as a platform for bioethanol production. >> COMMITTED PUBLIC AND PRIVATE SECTOR Argentina has already passed a law mandating biofuel mixes for 010 and has established a number of incentives for the biofuels industry. However, keeping pace with new developments in the biofuel industry will require a joint R&D effort between the public and private sectors in the context of a regulatory framework that presents players with a set of comprehensive incentives and gives the industry the necessary predictability.

I. Why Invest in Biofuels in Argentina? • ARGENTINE BIODIESEL. Today Argentina is the fourth largest producer of biodiesel after the E.U., U.S. and Brazil, and its production capacity is expected to increase 300% in the next three years. Most of Argentina’s biodiesel is currently exported to foreign markets. • ARGENTINE BIOETHANOL. Ethanol accounts for the largest share of global biofuels production. With significant investments in the works, Argentina’s fast growing ethanol industry is gearing up to reach almost 1 billion liters of production capacity by 2010. • OUTSTANDING RESOURCES. A unique combination of factors—natural resources, human capital and industry infrastructure—are the pillars of Argentina’s current and projected performance. Its vast extensions of suitable land for agricultural production generate a comparative advantage based upon the production of • MARKET DRIVERS. The global biofuels markets of diverse crops used as feedstock (mainly soybean, corn ethanol and biodiesel are thriving. An insufficient and sugarcane) and the potential to develop non-food supply of fossil fuels, environmental concerns and world alternative feedstocks. Well-established vegetable oil and governments’ pursuit to ensure energy security highlight sugar industries offer the necessary support to expand the importance of biofuels as an alternative energy Argentina’s biofuels industry, transforming the country source. Production has tripled over the past 10 years in a leading world supplier. and 12% annual market growth is expected for the next decade. Argentina has become one of the leading nations • FUTURE DEVELOPMENTS. The drive towards increased in biofuels production by successfully leveraging its large efficiency, the development of second generation endowment of high-quality natural and human resources technologies and more efficient non-food feedstock will and existing industrial capabilities. accelerate the industry’s dynamics and open up business opportunities to developers, farmers, feedstock providers • FORESEEABLE PROFITS IN GLOBAL BIOFUELS TRADE. A and investors. Among global leaders in the application of large number of countries have set targets for biofuel use technology to agriculture, Argentina has great potential that will create a demand that exceeds their production to benefit from current trends in the biofuels industry. capabilities, thus spurring global biofuels trade. While production is currently concentrated in the United • MAIN CHALLENGES. Argentina will have to encourage States, Brazil and the European Union, the increasing a concerted effort to increase public and private R&D demand for biofuels presents attractive opportunities in order to stay at the forefront of global industry for countries like Argentina with the key attributes developments. In order to encourage a forward looking for biofuel production to consolidate a position in the mindset within the industry, the government’s challenge market. Considering the wealth of industry-specific is to develop the appropriate regulatory framework resources, the most significant increases in biofuel capable of addressing current needs while adapting to production over the next decade are expected in the E.U., future circumstances. Brazil, Argentina and Canada. Argentina’s position in Mercosur and its strategic alliance with Brazil opens an attractive regional biofuels’ market.

II. Sector Structure and Performance Almost 50 biofuels companies are currently operating in made for biofuel investments to the tune of US$800 Argentina. Leveraging its soybean oil production capacity, million. Among these are the joint investment of Enarsa, Argentina is mainly a biodiesel producer. Although Green Fuel, Noble Group (China) and Raiser to invest Argentina has developed a significant ethanol production US$190 million to build a soy mill and biofuel production capacity, the production for fuel use is only beginning to facility. emerge. Both biofuels segments exhibit a dynamic behavior in production and exports, and major investments have been Economies of scale. Currently, small plants are mainly geared towards supplying global markets. geared towards self-consumption. However, the average production capacity of the new plants (140,000 m 3) will BIODIESEL INDUSTRY STRUCTURE be almost six times larger than that of the existing ones (24,000 m 3) marking a domestic trend towards projects A strong and integrated domestic industry. with clear commercial purpose and a competitive scale. The Argentine biodiesel industry is mainly based on While today there are only two plants with an annual the use of soybean as feedstock. There are 31 companies capacity of over 100,000 m 3 of biodiesel, by 2010 there currently producing biodiesel with an estimated annual will be over 13. production capacity of over 745 million liters. Production is geographically concentrated in the provinces of Buenos ETHANOL INDUSTRY STRUCTURE Aires and Santa Fe. Almost all major players in Argentina’s vegetable oil industry own or are constructing biodiesel Emerging production. Ethanol production in Argentina plants. The two largest plants belong to large vegetable oil is concentrated in sugar mills in the northwestern part crushers and account for two thirds of current domestic of the country. Overall 17 firms with 23 mills are actively production capacity (Renova with 260,000 annual m and 3 producing ethanol. However, the ethanol produced by Ecofuel with 230,000 annual m 3). Total investment in these firms is not exclusively destined for fuel usage. In existing plants has been estimated at US$110 million. 2006, the firm Los Balcanes inaugurated the country’s largest ethanol distillery in the province of Tucumán (La Expanding production capacity. Eight more biodiesel Florida) with a productive capacity of 100,000 m 3 of sugar plants are currently under construction with a projected cane-based ethanol aimed to supply both the domestic and total annual capacity of 1,577,000 m 3 , and plans to build export markets. Other relevant sugar mills are the ones nine more production facilities –adding 809,000 m – have 3 located in Ledesma (30,000 m 3) in the Province of Jujuy, been announced. In 2007 alone, announcements were Concepción (27,000 m 3), La Providencia (13,000 m 3) and La

Trinidad (12,000 m 3) in the Province of Tucumán, and the Biodiesel production in 2008 is forecast to surpass 800 San Martín de Tabacal mill (17,000 m ) in the Province of 3 million liters, four times greater than production output Salta, among others. estimates for 2007. Remarkably, production capacity is estimated to increase 300%, reaching 3.1 billion liters Alternative feedstocks. Although today local by the end of 2010, when all investments–underway and ethanol production is based on sugarcane as feedstock, announced–should be completed. With an estimated future production shows promising potential based production cost of under US$0.50 per liter, local on Argentina´s corn production capacity in addition production is very competitive in the international market, to sugarcane. There are several proposals for plants compared to US$0.50 in the E.U. and US$0.61 in the U.S.. producing ethanol from corn or sorghum, however none are currently under construction. Export performance. In 2007, biodiesel exports –accounting for 75% of total sales- reached US$133 million. Over 75% was exported to the U.S., and practically 24% to BIODIESEL SECTOR PERFORMANCE the E.U. Three plants concentrate 90% of exports (Ecofuel, Renova, and Vicentín). During the first quarter of 2008, Export potential. Biodiesel production in Argentina exports have already exceeded the level of the entire is primarily geared towards exports –particularly that previous year, with a value of over US$190 million (85% of the largest plants-. Projections for biodiesel global exported to the U.S.). production anticipate a 70% increase between 2008 and 2010 and it is expected that Argentina will rank among the top five producing countries, accounting for 7.2% of total ETHANOL SECTOR PERFORMANCE production. The five largest biodiesel producing countries will concentrate 56% of global production. Ethanol production. Although ethanol production for Domestic potential. Argentina has a significant fuel usage is taking its first steps in Argentina, the country domestic demand for diesel, which accounts for the largest already has a well developed ethanol production capacity. percentage of petroleum demand (66%). Additionally, In 2007, 200 million liters of sugar cane-based ethanol diesel consumption for the year 2015 is estimated to were produced in Argentina and total ethanol production grow 40% from 2005 levels. Since biodiesel easily capacity is projected to rise to approximately one billion replaces diesel, a growing domestic demand coupled liters per year by 2010. Approximately 60% of production with mandatory biofuel mixes is expected to play an (US$57 million in 2007) is geared towards the domestic increasingly important role as a production driver. market, for use mainly in the beverage, agricultural chemicals and pharmaceutical industries. The remaining Production performance. Biodiesel production, 40% (US$38 million) is exported for purposes other than exports and local consumption have steadily risen. fuel usage. Production is led by Atanor, Los Balcanes, and Ledesma. The average yield per hectare of sugar cane- based ethanol is of 4,875 liters, above the yields offered by Five Main Biodiesel Producers by 2010: Share in Total Production corn-based ethanol (3,000 liters/ha.) or sorghum-based U.S. 14.3% ethanol (2,000 liters/ha). Germany 12.0% Projected investments. Recent investment France 11.6% announcements will add over 500,000 m 3 of additional ethanol production capacity in the coming years. Some Brazil 11.1% of the major projects are those announced by Adecoagro Argentina 7.2% (175,000 m 3), Arcor (87,000 m 3), San José (87,000 m 3), and Bioetanol Río Cuarto (48,000 m 3). Sources: World Ethanol and Biofuels Report

III. Foundation for Success An abundance of high quality natural resources, efficiency in agricultural production, advanced application of agricultural biotechnology and a developed vegetable oil CASE STUDY industry are the pillars supporting the substantial growth BIODIESEL DEL PLATA potential of Argentina’s biofuels production. An innovative domestic firm developing NATURAL RESOURCES environmentally sustainable projects Naturally rich. Argentina has vast extensions of suitable Biodiesel del Plata is a Biofuels company operating in land for agricultural production, some 32 million hectares Argentina since 00. The company is known for its of arable land. This generates comparative advantages ability to innovate and for developing environmentally related to the production of diversified crops used as sustainable projects with no effluents and no feedstocks for biofuels (i.e. soybean, corn, sugarcane) and environmental impact. to the development of other non-food alternatives. Over the past years, the company developed a Agricultural productivity. As a result of the business model for Biodiesel Refineries that was combination of its natural wealth and human resources, new in the Argentine market and allowed for the Argentina has experienced an agricultural revolution over processing of ungummed crude oil, used oil and the last 10 years, increasing to a maximum the productivity animal fats. The firm established the first production levels of its main crops. This in turn has allowed the location in South America to achieve Biodiesel country to reach record levels of agricultural production production using the Rohm and Haas ion exchange year after year. Today, Argentina enjoys the world’s highest system and to incorporate in all its production centers productivity figures in the production of soybean, corn and refineries of crude glycerol into industrial glycerin their derivatives. with a purity level of over % in order to increase the project’s economic sustainability. This resulted in the completion of two projects in 00: Agroindustrias Tejedor SA in San Lorenzo (produces ,000 tons a month) and Ricard Set Energías Renovables SA Grain and Oilseed Production (Millions of Tons) (produces 1,000 tons a month). 0 Grains Oilseeds The high skill level achieved by the firm’s employees 0 in Argentina has resulted in the constant search and development of new technologies for biodiesel 0 Millions of tons production. In this context, the company is developing 0 technologies (currently being patented) to convert 0 industrial waste into biofuels. Its aim is to take advantage of the resulting know-how to export this 10 model worldwide, and become the leader in the 0 000/01 001/0 00/0 00/0 00/0 00/0 00/0 00/0 biofuels industry in Argentina over 00-009. Source: SAGPyA.

RELATED INDUSTRIES RESEARCH AND DEVELOPMENT Soybean oil industry. Argentina is one of the top Research areas. Currently, several programs are three soybean and soybean oil producers in the world. focusing on developing new technologies which would The country has 47 soybean oil producing plants with a rely on alternative feedstocks. Public universities, official combined daily crushing capacity of over 100,000 tons. entities and the private sector are simultaneously working These plants are mainly concentrated in the Rosario on a number of different projects. Some of these programs area (province of Santa Fe) in the heart of the soybean are based on the use of jathropa, algae, and castor oil plant. producing area in Argentina. The combination of high Research is also being conducted on feedstock which production and low domestic consumption makes can be produced in areas not suited for agriculture and Argentina the world’s leading soybean oil exporter, and which do not compete with food productions. Even when is expected to maintain this position in the foreseeable a large proportion of biofuel production is derived from future. Over 90% of soybean oil production is exported to traditional crops, these alternatives can offer better yields. major markets such as China and India. Castor oil can provide 1,290 liters of biodiesel per hectare and rapeseed would produce 929 liters per hectare, in Sugar industry. Mainly due to productivity comparison to the 906 and 502 liters per hectare for improvements, the Argentine sugar industry has sunflower and soybean, respectively (SAGPyA). significantly expanded in the past years. Investments during the last decades in the construction of new sugar mills and in the technological upgrading of existing ones REGIONAL COMPLEMENTARITIES resulted in record-high production levels. While currently geared mainly towards domestic demand, the sector’s Mercosur. From a regional perspective, the development effort to increase production has resulted in an improved of biofuels positions Mercosur as a strategic region in the export performance. During the 2002-2006 period world, with a wide range of supply options. Argentina’s production expanded by 47%, while exports increased by supply complements that of Brazil, the leading producer more than 160%. In 2006, sugar production reached a peak of sugar cane-based bioethanol. This broad-based supply of 2.4 million tons; exports accounted for approximately across the region potentiates the complementary capacities 30% of this volume. between countries and, above all, the common interests surrounding this issue, as well as fosters favorable conditions for a move in the direction of an aligned and LOCAL SKILLS AND TALENT coordinated development of biofuels on a Mercosur scale. Industry expertise. Biofuels production in Argentina is driven by a combination of natural resources advantages, INDUSTRY NETWORKING small investment requirements and the availability of highly-qualified resources and professionals specialized Public-private cooperation. Argentina´s biofuels in engineering and biotechnology. This production law states that the regulating authority will encourage generates a technologically coherent and environmentally cooperative agreements between the public and private sustainable opportunity that has begun to emerge. sectors to promote and encourage the development of Argentina is capable of becoming a relevant player in production technology and the use of biofuels. In late biofuels production but also on the production and 2006, the Argentine government created the Forum of design of biofuels plants and solutions. Some Argentine Energy Feedstock to coordinate research and development companies are already gaining presence in Latin America projects together with the private sector. and the U.S., offering knowledge and expertise in the production of biofuels. 9

CASE STUDY ePlus: worldwide supplier for renewable energy solutions ePlus is a local company focused on biodiesel professionals, the company was ready to produce a project rollout, engulfing all the possible production major breakthrough: Argentina’s first soybean based steps from the oil extraction process to the refining biodiesel production plant of industrial scale. In 00, of the final fuel, including all the complementary in light of the growing market and the permanent services for a turn-key solution. The company’s R&D requirements, ePlus formed an alliance with turn-key models include crushing facilities (chemical Grupo de Ingeniería Aplicada (GIA). GIA’s core group and mechanical), oil-based biodiesel production undertook several projects in the U.S., Argentina plants (transesterification reaction phase) and fully and other Latin American countries in the areas of integrated plants adaptable to a wide variety of oleochemichals, soaps and detergents and glycerin, crops (soybean, sunflower, canola, safflower) and becoming an industry leader working with high-tech animal fats. proprietary designs. After several projects in the local market, and export experience to neighboring The company started in May 00 as a project countries, the company has recently exported a turn- supported by Don Mario Semillas, a renowned key plant to the U.S. that consists of an integrated agribusiness leader in the local soybean market soybean-based biodiesel plant with an annual since 190. After gathering a team of experienced capacity to process ,000 tons of soybean oil. 10

IV. Policy Initiatives REGULATORY FRAMEWORK Incentives. Argentina’s government has identified early – Early reimbursement of Value Added Tax and/or on that the country faces an extraordinary opportunity accelerated depreciation allowance for capital goods and for the development of biofuels and has provided an infrastructure initial regulatory framework to specifically promote this – Exemption on the Assumed Minimum Income Tax for industry. In April 2006 a national law for the promotion of the first three years biofuels was enacted, mandating a blend of 5% of biodiesel – Exemption on hydro infrastructure and fuels tax for diesel fuels and 5% of bioethanol for gasoline as of 2010. Argentina’s biofuels law will create an annual captive demand of approximately 700,000 m3 of biodiesel and Export regulations. Biodiesel exports are taxed at roughly 243,000 m3 of bioethanol. 20% and receive an export rebate of 2.5%. Ethanol exports are taxed at 5% and receive a 4.05% rebate. There are no By passing this law, Argentina has joined a group of quantity restrictions on exports. pioneering countries that are advancing towards a greater institutionalization of the sector, thereby stimulating domestic production on the one hand and creating an internal market on the other. At the same time, investors can enjoy other fiscal incentives including: 11

V. Main Challenges Industry players and government agencies face key challenges to sustain growth and consolidate the sector’s competitiveness. In themselves, these challenges present attractive opportunities for the industry and Argentina. • Balancing the drive from domestic and international demand: in order to maximize its potential, the biofuels sector will have to increase production to meet domestic mandatory biofuel mixes while positioning the country as a major global biofuel supplier. • Increasing sector-specific qualified human resources: anticipating the demand for human resources will require joint public-private planning and investment efforts in order to identify and address industry-specific needs. • Consolidating Argentina’s position as a leader in the technological development of biofuels: to keep astride of future industry developments and become an active leader in the movement towards second generation biofuels the sector will need to fully capitalize on past experience and increase its R&D capacity. • Set the regulatory groundwork for future developments: a key factor of success will be the regulatory framework to provide major stakeholders with a set of comprehensive incentives, and supply the sector with the necessary predictability as well as agility to adapt to new developments and challenges. OUR CHALLENGES ARE YOUR OPPORTUNITIES. SOURCES: The trends, data and figures included in this material were “Emerging liquid biofuel markets ¿A dónde va la Argentina?”, IIIEE, 00; R. elaborated by ProsperAr on the basis of: Argentine National Institute of Trostle, “Global Agricultural Supply and Demand: Factors Contributing to the Statistics and Census; Argentine Secretariat for Agriculture, Livestock, Fish- Recent Increase in Food Commodity Prices”, Economic Research Service, ing and Food; J. Schvarzer, “Global Agricultural Supply and Demand: Factors United States Department of Agriculture, May 00; “Biocombustibles: Contributing to the Recent Increase in Food Commodity Prices”, Working rumbo a una nueva matriz energética”, in Terminal C, May 00; K. Joseph, Document, Universidad de Buenos Aires, December 00; J. Schvarzer and “Argentine Biofuels Report 00”, Global Agriculture Information Network, A. Tavosnanska, “Biocombustibles: expansión de una industria naciente y United States Department of Agriculture; and “World Ethanol and Biofuels posibilidades para Argentina”, CESPA, Working Paper N° 1, 00; P Lamers, . Report”, F.O. Lichts, 00. 1

The information provided through this brochure does not constitute legal or professional advice whatsoever. ProsperAr (Agencia Nacional de Desarrollo de Inversiones) reserves the right to revise, amend, alter or delete the information provided herein at any time, but shall not be responsible for or liable in respect of any such revisions, amendments, alterations or deletions. Photos: courtesy of Biodiesel del Plata, Stock Exchange and Flickr under Creative Commons license. 1

Argentina at a glance Country profile Official name República Argentina Capital city Buenos Aires Main cities Córdoba, La Plata, Mar del Plata, Mendoza, Rosario Surface area . million square kilometers Population 0. million inhabitants Population growth 1.0% per year Adult literacy rate 9% Life expectancy at birth years GDP per capita (PPP) US$ 1,1 Currency Argentine peso ($) Form of government Federal Presidential Republic Political division autonomous provinces and the Autonomous City of Buenos Aires Time zone GMT-0:00 Official language Spanish Main Economic Indicators 00 00 00 00 00 00 GDP growth rate (annual %) .% 9.0% 9.% .% .% .0% GDP (PPP) (millions of US$) ,99 ,01 19, 9,0 ,10 ,0 GDP (millions of US$) 1,0 1,1 11,9 1, 0, ,0 Exports of goods and services (millions of US$) ,9 9, ,0 , ,0 ,0 Imports of goods and services (millions of US$) 1, ,90 ,99 1,10 , ,9 Balance of trade of goods and services (millions of US$) 1,1 11,9 1,0 1, 1, 1,11 Trade surplus (% of GDP) 1.% .% .% .% .9% .% Current account surplus (% of GDP) .% .1% .9% .% .% .% Primary fiscal surplus (% of GDP) .% .9% .% .% .% .1% Gross capital formation (% of GDP, constant prices) 1.% 1.% 19.% 1.% .% .0% Gross national savings (% of GDP, current prices) 19.% 0.% .% .% .% .%E Foreign direct investment (millions of US$) 1, ,1 , , , ,99 Exchange rate ($/US$) .9 .9 .9 .0 .1 .1 Foreign reserves (millions of US$) 1,119 19, ,0 ,0 ,1 , Unemployment rate (% of EAP) 1.% 1.% 11.% 10.% .% .9% Source: ProsperAr based on data provided by the Argentine National Institute of Statistics and Census, the Central Bank’s Market Expectations Survey (REM), the International Monetary Fund and the United Nations Conference on Trade and Development (as of April 0, 009). 1

ProsperAr is Argentina’s National Investment Development Agency Our mission is to develop direct foreign and domestic investment to contribute to Argentina’s competitiveness and sustainable development. ProsperAr’s four main objectives are: Provide services to investors ProsperAr provides investors with personalized professional services throughout the investment process, from initial advisory services to investment facilitation and aftercare. The Agency’s team assesses on investment projects, responds to queries from investors and provides key business information. Leveraging the Agency’s cooperative relationships with different government bodies, ProsperAr’s integral services offer investors a unified one-stop support system. Attract and generate investment ProsperAr works in the promotion, attraction and expansion of both domestic and foreign investment. We identify investment and innovation opportunities in high growth sectors, communicating them to national and overseas investors through international missions, conferences, meetings and publications. We work to build relationships that enable multinational companies to take advantage of local, regional and global opportunities. We also encourage domestic firms to expand and develop their businesses. Boost the Investment Environment ProsperAr works to strengthen Argentina’s investment environment. We interact with local and multinational companies, as well as potential investors, identifying and removing possible obstacles to doing business in Argentina. Through active dialogue with the private sector, and in coordination with other government departments, we advocate for the formulation of policies and programs to optimize the investment and innovation environment. Promote the internationalization of local companies ProsperAr promotes the growth and internationalization of Argentine firms. Fostering local vocation for innovation and entrepreneurship and promoting overall competitiveness are key aspects of the Agency’s strategy. Two programs “Entreprenuer Development” and “Pioneers” are in place to strengthen local companies’ critical capacities in different growth phases. ProsperAr also assists international companies to invest in and/or work with their local counterparts to form global joint ventures. ProsperAr is your strategic partner to invest and prosper in Argentina. What ProsperAr can do for you: >> Provide timely and relevant information on business sectors and geographical locations in Argentina. >> Help identify investment and innovation opportunities in strategic sectors. >> Troubleshoot red tape and obstacles; facilitate the investment process and doing business in Argentina. >> Assist in building partnerships between foreign investors and local companies. 1

To learn more about how investing in BIOFUELS in Argentina can benefit you, please contact us: www.prosperar.gov.ar info@prosperar.gov.ar +54 11 4328 9510

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Biofuels in Argentina

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