Biofuels Sector - Proexport

September 2009 Biofuels Sector

At the moment Colombia has a production output of over 1 million liters of ethanol. NAME REGION CAPACITY (lt/day) INCAUCA Miranda, Cauca 300.000 PROVIDENCIA Palmira, Valle 250.000 MANUELITA Palmira, Valle 250.000 MAYAGÜEZ Candelaria, Valle 150.000 RISARALDA La Virginia, Risaralda 100.000 TOTAL 1.050.000

Current and future ethanol proyects will double Colombia ethanol output in the next couple of years. NAME REGION CAPACITY (lt/day) TYPE OF CROP GPC Puerto López, Meta 20.000 Cassava RIOPAILA Zarzal, Valle 300.000 Sugar cane BIOENERGY Pto. López – Pto. Gaitán, Meta 300.000 Sugar cane MAQUILTEC Tuta, Boyacá 300.000 Sugar beet Alcoholes Quindianos Asociados Valle R. La Vieja, Quindío 150.000 Sugar cane Ethanol Consortium Board Marialabaja, Bolívar 300.000 Sugar cane Total 1.370.000

Domestic Biodiesel production will reach 500,000 tons by the end of the year 2009. NAME REGION CAPACITY (lt/year) YEAR OLEOFLORES Codazzi, Cesar 50.000 Jul-2007 ODIN ENERGY Santa Marta, Magdalena 36.000 Mar-2008 BIOCOMBUSTIBLES SOSTENIBLES DEL CARIBE Santa Marta, Magdalena 100.000 Feb-2009 BIO D Facatativá, C/marca 100.000 Abr-2009 MANUELITA San Carlos de Guaroa, Meta 100.000 Jun-2009 ECODIESEL Barrancabermeja 100.000 Sept-2009 BIOCASTILLA Castilla La Nueva, Meta 10.000 Sept-2009 TOTAL 496.000

Demand for ethanol and biodiesel will increase five fold by the year 2020. Source: UPME, MME Miles de galones

Because there are more than 7 million hectares of available land to develop large scale projects Colombia has 7 million hectares of available land in which to plant and grow crops destined for the biofuels industry . This land does not compromise Colombia ’ s rainforests or other ecological reserves.. Zones with high potential for ethanol production Zones with high potential for the production of palm oil

Colombia has three times the amount of available land to develop biofuel projects than Malaysia Land utilization (Colombia vs. Malaysia) Sources: Food and Agricultural Organization, United Nations

Colombia’s available land amounts to around 90% of land currently devoted to cultivating biocrops in Brazil

Colombia has the potential to be one of the countries with the largest land extension devoted to planting and harvesting of biocrops to supply ethanol and biodiesel processing plants

Land used to plant Biocrops (millions of hectares) Source: International Energy Agency (IEA)

Colombia’s sugar industry is the most productive worldwide and the palm oil industry is the most productive in the region

Colombia surpasses Brazil’s and Ecuador’s sugar productivity levels by 50% and 55% respectively. The sugar industry in Colombia is a world leader in productivity being able to produce 9,000 liters of ethanol per year/ha .

In palm oil production, Colombia’s productivity levels are twice those of Ecuador and surpass Brazil’s by 50%.

In palm oil production, Colombia’s productivity levels are twice those of Ecuador and surpass Brazil’s by 50%. Colombia can produce 4,200 liters of biodiesel per hectare annually .

Palm oil process Palm oil

Colombia has centered its biofuel production on sugar cane and palm oil;. Energy efficiency of biocrops used in the production of ethanol and biodiesel barrels/ ha/ year ETHANOL Biodiesel Source: Ministry of Mines and Energy according to Goldman Sachs y LMC

Because Colombia´s internal demand is not fully covered by local production of biofuels as well as the existence of a law that requires the mix of biofuels with fossil fuels

Income tax exemption for late yield crops.

VAT exemption for the biofuel destined to be blended with fossil fuels.

Global Surcharge Exemption for the biofuels intended to be blended with fossil fuels.

Government Policy (CONPES 3510 document)

Agribusiness Free Trade Zone

Legal Stability Agreements

Special Import-Export System: “Plan Vallejo”

Other Incentives

Incentives for Biofuels

Income Tax Exemption for Late Yield Crops

According to decree 1970 of 2005 the income generated by the commercialization of the raw product or its value added product is exempt from income tax.

This exemption is only applicable for late yield crops which are productive before 2013 and for a ten year period.

It is considered a late yield crop when its production starts at least the second year.

Requirements

Register the crops on behalf of the Ministry of Agriculture.

Register on behalf of the tax authority to be granted the benefit.

Term: Valid for crops which are productive before 2013

Global Surcharge and VAT Exemption for Biofuels

Law 788 of 2002 establishes:

that ethanol which is intended to be blended with fossil fuel will be exempt of Value Added Tax.

that ethanol which is intended to be blended with fossil fuel will be exempt from the global surcharge for fuels.

Law 939 of 2004 establishes

that biodiesel which is intended to be blended with fossil fuel will be exempt from Value Added Tax

that biodiesel which is intended to be blended with fossil fuel will be exempt from global surcharge for fuels.

Government Recommendations CONPES 3510

The National Social and Economics Policy Council approved the guidelines to promote the sustainable production of biofuels in Colombia. This document includes the following relevant items:

Increase competitively the sustainable production of biofuels.

Promote an alternative development for the formal use of rural land.

Generate new direct jobs in the rural sector

Establish the country as a biofuels exporter

Diversify the energy resources by the efficient production of biofuels

Periodic analysis of the blends, making necessary the regulation of the Mines Ministry

The most competitive FTZ’s in Latin America: 15% income tax and allows sales to the local market

Single 15% income tax rate for 30 years extendable for an equal period of time.

No customs taxes (VAT or CUSTOMS DUTIES).

Exports made from Free Trade Zones to foreign countries benefit from international trade agreements. (Except Peru).

No customs duties for any machinery directly related with the business’ operation.

Quick and simplified customs procedures.

Two different types of FTZs are available: Permanent FTZ and Single Enterprise FTZ.

A company can benefit from a free trade zone by establishing in any location of Colombia. 2. SINGLE ENTERPRISE FREE TRADE ZONE (SEFTZ) Two types of Free Trade Zones Exchange rate used: USD 1 = COP 2,500. Minimum Monthly Legal Wage for 2009 is COP 496,900. The M.M.L.W, as well as the exchange rate is subject to variations. Type of SEFTZ Investment (USD Million) OR direct jobs Agribusiness (Biofuels) 18.6 500

Investments over US$1,78 Investor considered must pay a premium to the Government equivalent to 1% of the investment made .

The requirement are established in Tax Units and are subject to variations. USD $1,78 Millions is an aproximation to 150000 UVT.

Reference exchange rate is USD 1 = COP 2.000. Tax Unit for 2009 is equivalent to COP $ 23.763 o USD $ 11,8.

Term Admission Technical evaluation Evaluation and approval by the committee Final evaluation Objective Guarantees the legislation and its interpretation that is determining for the investment. Conditions From 3 to 20 years Legal Stability Agreements

Special Import-Export System: “Plan Vallejo”

Tariff and VAT Free Capital Goods Imports:

Plan Vallejo for Capital Goods is a special import-export system in which a company may request a program for the importation of capital goods free from tariffs and VAT.

Tariff and VAT exemption for inputs and raw materials:

Imports of raw materials and inputs for the production of goods, which may be partially exported, provided that they are used to produce goods whose importation, are tariff exempt. Exports must represent consumption of at least sixty per cent (60%) of the imported inputs.