Unctad Final


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Unctad Final

  1. 1. Bio-fuels Perspective for Africa <ul><li>Learning from the Indian experience </li></ul><ul><li>and the Bio-fuels industry in India** </li></ul>Rajan K. Paradkar Sr. General Manager Armaco Consultant Pvt. Ltd., Mumbai, India
  3. 3. Main Challenges for Automotive Fuels Air Quality Climate Change Sustainability Indigenous Supply Security The Pressing Need
  4. 4. Bio-diesel and Bio-ethanol (Convergence of Agriculture & Energy) Local fuel for Electricity Gen-sets Biogas for heating & electricity Employment & Income Opportunities (farm based rural manpower), Reduced Wear of Engine Parts (Superior Lubricity) Safe to Handle & Store (Flash Point, Toxicity, Biodegradable) Wasteland Utilization Improved Emissions Profile (oxygenated fuel) Benefits Soft Funding & Tax Incentives
  5. 5. Twin Objectives Clean Development Mechanism (CDM) [Kyoto Protocol] <ul><li>CDM is a mechanism to monetize environmental value of pro-environmental projects established in response to global climate change. </li></ul><ul><li>CDM enables developed countries with high CO2 reduction costs, to meet the shortfall of allowed emissions at a lower cost than achieving the reduction domestically. </li></ul><ul><li>To Developing countries, the CDM presents an opportunity to attract investment from developed countries to environmentally sound projects assisting in sustainable development. </li></ul><ul><li>Optimum size of the project for CDM financing to be analyzed. This is in terms of CER’s per year (I.e. Certified Emission Reductions OR Tons of CO2 per year). </li></ul>
  6. 6. Biofuels & Jatropha Projects High Fuel Consumption Better Market Information Rural Development Technology Improvements Supportive Policies Environment Concerns Growth Drivers
  7. 7. Indian Scenario
  8. 8. Bio-fuels means Big Business (Stakeholders) Ministry of Agriculture Ministries of Railways and Road Transport Co-op. Sugar Sector, Industry Houses, SME’s Ministry of Petroleum & Natural Gas Govt. of India Ministry of Environment & Forests Ministry of Rural Development Ministry of non- conventional energy Planning Commission Ministry of Finance Governments of States Ministry of Science & Tech.
  9. 9. Role of Stakeholders <ul><li>Poverty reduction by employment generation with productive degraded lands. Integration with rural development and employment guarantee scheme </li></ul><ul><li>Acquire / develop elite Tree Borne Oilseeds (TBO’s) varieties having high oil quantity, quality and disease resistance, nursery raising, plantation of TBO’s, JV’s for contract farming on leased government land, preservation of seed & oil without altering quality and village education & awareness. </li></ul><ul><li>Bio-fuel purchase policy, mandatory blending, evaluating tax breaks and mass awareness through Petroleum Conservation Research Association (PCRA). </li></ul><ul><li>Drip irrigation subsidy thru state governments (with a ceiling), refinance to the banks at a concessional rate of interest for wasteland development with TBO’s, re-finance support for bio-diesel expeller units, co-finance for bio-diesel manufacturing. </li></ul><ul><li>R&D Focus on efficient & cost effective processing plant with feedstock flexibility and studies on products in the bio-fuel link chain. </li></ul><ul><li>Setting up bio-mass based power plants for rural electrification in a cluster of remote villages. </li></ul>
  10. 10. Indian Issues (1) <ul><li>Capital Goods for Biofuels mfg. to be exempted from duty & tax payments by union & state governments and municipalities. Raw Materials / Ingredients for Bio-fuels mfg. to be exempted from duty & tax payments till local availability is ensured. </li></ul><ul><li>Notification for classifying TBO’s as an Agricultural Crop with recommended interest rate, moratorium for repayment, rebate in electric power tariff & insurance premium and guidelines to banks for priority sector funding. </li></ul><ul><li>Fair & Reasonable minimum support price and timely payments for TBO seeds. </li></ul><ul><li>Accepting the fact that trade in bio-fuels can play an important part in helping countries meet their bio-fuel requirements without jeopardizing the local industry. In 2004, India imported 447 million liters of ethanol from Brazil. </li></ul><ul><li>Based on estimated diesel consumption of 70 million tons in 2011-2012, the bio-diesel required for 20 per cent blending would be 14 million tons. Obtaining bio-diesel of this amount involves about 14 million hectares of land under TBO cultivation. After decades, the land currently under sugarcane cultivation is 4.36 million hectares. Even considering less water requirement for TBO’s, India may have to import bio-diesel or vegetable oil feedstock or even oilseeds. </li></ul>
  11. 11. Indian Issues (2) <ul><li>One hectare of Jatropha plantation generates around 200 person days of employment during the first year and about 50 person days in the subsequent years. </li></ul><ul><li>About 50 million sugarcane farmers and agricultural laborers are involved in sugarcane cultivation and ancillary activities. Besides, the industry provides employment to about 2 million workers. (19 MMT Production/4.36 M.Hectares Land). </li></ul><ul><li>Biotechnology involving enzymatic saccharification and fermentation has made it possible to use readily available cellulosic material such as rice straw, bagasse, corn stover and other crop residue for ethanol production sufficient for 10% blending. The use of energy-efficient ethanol dehydration methods like pressure-swing adsorption and membrane separation can reduce production costs. </li></ul><ul><li>Subsidy towards drip irrigation to be offered to TBO Plantation without ceiling. </li></ul><ul><li>Suitably equipped Govt. test laboratories to be available to small bio-diesel producers. Oil seed grading & testing method to be specified by BIS. </li></ul><ul><li>Denatured Ethanol to be classified as a Petroleum Product for smooth interstate movement for blending with petrol. This is linked to the state tax on potable ethanol. </li></ul>
  12. 12. Indian Issues (3) <ul><li>The infrastructure in seed collection & processing and oil extraction must be established before the industry can be placed on a rapid-growth track. </li></ul><ul><li>By-products: Alternative means for utilizing the excess availability of glycerol from bio-diesel production. The viability of producing bio-gas from oilseed cake and bio-mass power, hydrogen and other chemicals from bio-ethanol manufacturing. </li></ul><ul><li>Intercropping with commercial / vegetable / medicinal / herbal / crops to optimize farm income. </li></ul><ul><li>For economical yield of TBO’s, the rainfall requirement is 500 to 1200 mm. </li></ul><ul><li>Future of bio-ethanol program depends on parity of Ethanol pricing with that of Petrol on ex-refinery basis. Tax concessions on the sale of bio-fuel blended gasoline /diesel. </li></ul><ul><li>Flexibility instead of Quota for the Sugar Manufacturing by regulating the production of sugar & ethanol according to the market demand. </li></ul>
  13. 13. Global Issues <ul><li>Trade liberalization </li></ul><ul><li>It is necessary to make it possible for Biofuels from developing countries to benefit from accelerated world trade liberalization. </li></ul><ul><li>Developed countries and international organizations such as the UNCTAD have a key role to play in achieving this objective. </li></ul><ul><li>Impact of bio-fuel crops </li></ul><ul><li>Meeting the EU’s biofuel target of 5.75% of road transport energy use by 2010 would require 13% of its total agricultural area if the crops were grown on EU soil. </li></ul><ul><li>This would have potentially ‘drastic negative impacts on Europe’s food production, biodiversity and landscapes’ (UNEP, 2006). </li></ul><ul><li>World Trade </li></ul><ul><li>Any future large-scale intervention in the fossil fuels market due to the generous support to the bio-fuels sector, is likely to be resented as a trade distorting mechanism. </li></ul><ul><li>Some Fossil Fuel Producers will enter the Bio-fuels Industry. Vegetable Oil Industry is entering the bio-diesel sector in a major way due to the supply chain advantages. </li></ul>
  14. 14. African Issues (The need to forge ahead is urgent) <ul><li>For every $10 hike in the cost of a barrel of crude, the economy of an oil importing Country in sub-Saharan Africa is impacted in multiples of the impact on the US economy. As a result, important gains reaped from debt forgiveness initiatives are being wiped out by rising energy costs (IEA). The impact is in multiples of what the government expects to spend on education and health care combined. </li></ul><ul><li>Generalized System of Preferences (GSP)-Exports from LDC’s enter duty free or at reduced rates in the developed countries Duty free and quota free market access for 32 LDC’s by 2008 (WTO-Doha declaration). </li></ul><ul><li>Huge land for plantation. </li></ul><ul><li>Current Seed and Germplasm export. Potential export market in developed & developing countries. </li></ul><ul><li>Due to major price fluctuation, hardship to LDC,s. Commodity agreements utilizing buffer stocks &/or quotas are established to stabilize prices (UNCTAD). </li></ul>
  15. 15. Millennium Development Goals (MDGs)
  16. 16. Millennium Development Goals (MDGs)
  17. 17. A Model* for the biofuels industry <ul><li>A model to measure the potential economic effects of the bio-fuels industry takes into account economic variables, such as: </li></ul><ul><ul><li>gross domestic product, the consumer price index, the exchange rate; </li></ul></ul><ul><ul><li>inputs, such as fuel, equipment and machinery; </li></ul></ul><ul><ul><li>crop prices and volumes; </li></ul></ul><ul><ul><li>livestock sector prices and volumes; </li></ul></ul><ul><ul><li>the behavior of farmers concerning the substitution of crops; </li></ul></ul><ul><ul><li>global markets and import parity. </li></ul></ul><ul><ul><li>The model has improved government’s and business’s understanding of the </li></ul></ul><ul><ul><li>sector for the national bio-fuels strategy to kick-start large-scale Production. </li></ul></ul><ul><ul><li>*(jointly by a U.S. and South African University) </li></ul></ul>
  18. 18. Current Financing Issues <ul><ul><li>New investors “comfort” with the industry has improved. </li></ul></ul><ul><ul><li>Commodity moving up the value chain, by creating value & sustainable markets for byproducts. </li></ul></ul><ul><ul><li>Higher term debt to be structured with revolving component to accommodate cash flow. </li></ul></ul><ul><ul><li>No direct correlation between finished product values and feedstock. </li></ul></ul><ul><ul><li>From the viewpoint of financial sustainability, industry-farmers partnership models have scored over other models. R& D has emerged as an area where the corporate private sector has a real and demonstrated comparative advantage. Laws in some countries discourage ownership of vast tracts of land by private entities. </li></ul></ul>
  19. 19. Microfinance and Poverty reduction <ul><ul><li>Microfinance provides financial services to low-income clients, usually landless </li></ul></ul><ul><ul><li>marginal farmers. </li></ul></ul><ul><ul><li>For reasons of institutional bias or otherwise, more than 95 percent of poor households are excluded from access to the institutional financial services. </li></ul></ul><ul><ul><li>Due to their irregular and unpredictable income, the poor need access to affordable credit and safe savings for consumption smoothing and insurance against the debt traps that frequently accompany sickness, ill health & emergencies. </li></ul></ul><ul><ul><li>Reduction of transaction costs through group-based operations, the substitution of social for physical collateral. </li></ul></ul><ul><ul><li>The greater financial discipline of women is also used in microfinance since they comprise the majority of clients. </li></ul></ul><ul><ul><li>Operations frequently depend for the success in mobilizing and organizing the poor so that they can develop sufficient confidence to save, borrow, and invest. Sensitive and trusted agencies must be used for this task. </li></ul></ul><ul><ul><li>Supporting persons to become sustainable, who after initial assistance can support their own growth. </li></ul></ul>
  20. 20. Strategic Perspective for Africa to realize the potential
  21. 21. Thank You <ul><li>www.armaco.in </li></ul><ul><li>For Queries, write to: </li></ul><ul><li>[email_address] </li></ul><ul><li>** The views expressed in this presentation are those of the author and do not necessarily reflect the views of the United Nations Conference on Trade & Development and the Ecowas Bank for Investment and Development. </li></ul>