Biofuel Boost

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At the beginning of May the Philippine biofuels act came into force, giving the country a boost in its drive to switch to alternative, eco-friendly fuel sources. The act mandates that as of May 6, all diesel vehicles should use fuel that contains a minimum 1% biodiesel blend. This will be increased to 2% by mid-2009. In addition, all gasoline will have to include at least 5% ethanol by mid-2009 and 10% ethanol by mid-2011.

The bill is expected to save the country more than $720m in oil imports every year. The legislation is aimed at reducing the Philippines' dependence on imported crude oil in favour of alternative fuels produced from locally grown renewable crops that include sugar cane, cassava, coconut and jatropha.

Estimates relating to the impact of the bill suggest an anticipated annual demand of between 200m and 400m litres of ethanol annually. To meet this, as many as 11 ethanol production facilities with capacities of a minimum of 100,000 litres a day need to be established. Local and international investment in this sector is expected to boom as a result.

D1 Oils Asia Pacific, a subsidiary of D1 Oils UK, plans to build an extraction plant using jatropha as a raw material in the making of biodiesel. The company says it will build the plant after a sufficient number of hectares of jatropha are planted. To date, D1 has planted over 1000 ha of jatropha through various contract-farming arrangements.

D1 is supplying farmers in the Mindanao region with planting materials and technical assistance and is also in talks with the Land Bank of the Philippines to arrange financing for farmers. They are also in the process of acquiring property throughout the country to establish company controlled jatropha plantations to provide the feedstock used in making biodiesel.

The government is keen to see investment in the sector flourish and has offered tax incentives to biofuel projects. State-owned Development Bank of the Philippines has a $97.5m fund, which is allocated to subsidising biofuel projects. "We provide free technical assistance and advice for those looking to develop new projects here in the Philippines," Armando O Samia, head of marketing at the Corporate Banking Development Bank of the Philippines, told OBG. "The amount of money allocated to a particular project depends on the parameters of the project."

In May, PNOC-Alternative Fuels, a subsidiary of state-owned Philippine National Oil signed a deal worth $1.3bn with British company NRG Chemical Engineering to build a biodiesel refinery, two ethanol plants and a 970,000 ha jatropha plantation in the Philippines. The joint venture will be 70% owned by NRG Chemical. According to Chris de Lavigne, corporate adviser of NRG Chemical, the Philippine's location, climate and the state's efforts in promoting biofuels led to the decision to invest. The refinery is expected to be commercially operational by 2008 and have an initial capacity of at least 350,000 tonnes a year. Until the jatropha plantation is mature, the refinery will use coconut and vegetable oil as feedstock.

The latest company to announce its investment plans is E-Cane Fuel, a US firm that will build a $150m ethanol processing facility in Central Luzon. The plant will process sugar cane as a primary feedstock. Contracts have already been signed with sugar cane farmers in Tarlac, Pampanga and Nueva Ecija to lease lands to the company over 25 years to grow materials to be used for ethanol production. This is the E-Cane's first foray into Asia and also its biggest investment in the biofuel industry to date. The company already has bioethanol-related operations in Latin America and Columbia. Full commercial operation is expected by 2009.

In addition to the interest from the US and UK, the Chinese are also eyeing investment in the Philippines' biofuel sector. At the end of May, Philippine oil company Eastern Petroleum signed a $350m agreement with Guanxi Group of China in an evenly split joint venture for the construction of an ethanol plant using cassava as feedstock. The companies are expected to develop 10,000 ha into a plantation to grow feedstock with the ethanol plant expected to be built over the next five years.

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