Fuelling Growth

Economic News

22 Jul 2010
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Bulgaria's biofuels industry has hardly been going more than a couple of years. But already there are around 25 installations in place and a lot more hopefuls lining up to take advantage of the competitive position offered by reasonably low-cost farming and labour, and of expected subsidies and incentives. Already the industry is big enough for traders to be noticing the upward pull it is exerting on the price of that great Bulgarian staple, sunflower oil.

The locals are pitching in. The Slunchevi Luchi ("Sunny Rays") refinery - part of the heavyweight Chimimport conglomerate - is close to finishing an almost $21m biodiesel factory at Provadiya and is hoping to produce the first trial batch in August. It is also planning a plant for bioethanol in Varna, worth a little over $67m or more. Then there is Evro Etil (EuroEthyl), which invested $10.7m in a bioethanol plant in Alfatar which came on-stream late last year and now intends to spend another $20.2m expanding it. Finally, Kristera floated a $6m corporate bond last month with a view to building a biodiesel plant.

Foreigners are interested too. Spain's bio-energy firm Green Fuels Corporation announced in March that it was planning to sink as much as $94m in a biofuels plant near the northern town of Pleven, with annual capacities of 45,000 tonnes of biodiesel and 60,000 tonnes of bioethanol. The municipality of Pleven is reportedly negotiating with as-yet-unnamed Swedish entrepreneurs who are mulling another $94m plant - this one only for bioethanol. When Economy and Energy Minister Rumen Ovcharov was in the US in March, one of the firms he talked to was US market leader Galveston Bay Biodiesel, which reportedly showed a lot of interest.

Examples could be multiplied. Late last year capacity in place for biodiesel alone was around 140,000 tonnes. Industry experts estimate this could reach 400,000 tonnes before too long. Which is handy, since Bulgaria is fully subscribed to the EU target of raising biofuels' share in total transport fuels to 5.75% by 2010. True, there are one or two things to be tackled before this happens.

First, there is an issue with quality. Besides the refineries, there are estimated to be about 100 "garage producers" of biofuel. Needless to say, little of their output is up to standard. Nor, for that matter, is everything produced by the refineries themselves. Early this month, Austria's OMV, a big player on the local petrol retailing market, was quoted in the local press as saying it would like to add biodiesel to its range but could not find a local Euro-compliant producer. That will change as refineries under development come online, OMV officials added.

There is also the question of hefty Bulgarian excise duties on fuel. Biodiesel has been exempt since the beginning of 2006, but nothing else has. And that is just for pure biodiesel. There has been no tax advantage to putting an admixture of biodiesel - or any other biofuel - into conventional fuels. This situation will soon be remedied by a special law on renewables and biofuels that is just finishing its passage through parliament. That will favour admixtures as well as providing exemptions for biomethanol, bioethanol, and biomethyl ether, which can all be used as a fuel additive.

Then there are the subsidies that are estimated to be needed to provide incentives for production as long as the cost of conventional petrol and diesel is lower. Brussels is obliging with a subsidy of a little over $60 per hectare planted for the raw material used in making biofuel. Bulgarian authorities just this month issued the ordinance needed to put the scheme into practice. Unfortunately, to qualify for the subsidy, farmers need to have a signed contract with a refiner, who in turn needs to make a cash deposit of close to $80 per hectare, to guarantee that the crops grown will indeed be processed into biofuels. This ordinance was published just a week before the deadline it laid down for submitting that guarantee, which made the paperwork impossible. The EU reconsidered this requirement and made a new rule in March that no deposit is required if the refinery in question is a registered producer of biofuels. However, Bulgaria has yet to put in place a registration procedure.

That is just a little teething trouble, though. With incentives and subsidies snugly in place, Bulgaria should come into its own as a producer of biofuels.

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