Successfully funding a biofuels project biodiesel example. Petrofed Conference 11t h May 2016

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1 Successfully funding a biofuels project biodiesel example Petrofed Conference 11t h May 2016

2 Production, ( MT) Overview of Biodiesel Market Biodiesel has grown exponentially over the years Biodiesel has grown rapidly on a global basis in spite of having been targeted by various groups (NGO s, Auto lobbies), as well as a volatile crude markets, and often unclear or shifting mandates 35,000,000 Biodiesel Production to 2015F, Metric Tonnes 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000, % CAGR Others Colombia Brazil Singapore Australia Philippines China Thailand Argentina Indonesia Malaysia EU USA Sources: OECD, F&S estimates, KPMG analysis 1

3 Overview of Biodiesel Market Spurred by mandates across the world Mandates have been a key driver of biofuels growth over the years Canada 2% mandate US EU At 6%. Target is 10% by 2020 China Seeking 10% mandate by Only uses UCO. RFS requires 2 bn gallons (7.56 Mn MT) by Columbia Africa Currently at 7% pushing for 10% Thailand Malaysia Indonesia At 7%. Target is 10% by Currently at 8-10% (depending on region) 10% mandate but at 5% in reality Brazil Argentina 7% pushing for 10% Very little to date. Player by 2020? At ~7.5%. Target is 20% in 2016, 25% by Australia 2% mandate in NSW. 2

4 Proportion of Deals Renewable Energy Funding Market Biofuels have been a key component of funding in renewables Number and Aggregate Value of Renewable Energy Infrastructure Deals, YTD (As at 6 October 2014) % 90% 80% 70% 60% 50% Breakdown of Renewable Energy Infrastructure Deals by Industry, YTD (As at 6 October 2014) 5% 3% 0% 2% 6% 1% 10% 13% 10% 37% 31% 27% 3% 1% 10% 38% % 30% 20% 46% 49% 53% 46% 50 10% YTD 0% 2% 2% 3% 2% YTD No. of Deals Reported Aggregate Deal Value ($bn) Estimated Aggregate Deal Value ($bn) Diversified Renewable Energy Solar Power Geothermal Power Wind Power Hydro Power Biomass/Biofuel Facility Source: Preqin Source: Preqin 3

5 Funding biofuels projects But what makes for a good project? Technically Sound Any USP s, offtake? Economic Feasibility Feedstock, contracts? Fundable project Financial Feasibility Scenarios Risk Country, project, legal etc. Sound management team track record 4

6 Funding biofuels projects Cost competitive drivers are of paramount importance Critical Area Key Parameters Location Feedstock, power, water, labour, geological conditions Cost competitiveness Tax & other concessions Robust production cost versus product price Exports in high value/low volume commodity Aim for 1 st or 2nd quartile of production costs 5

7 Funding biofuels projects Risk management should be a long list with mitigation strategies Critical Area Key Parameters (probability vs. impact?) Completion and Development cost overrun reserve Project implementation strategy/ team experience Raw materials/inputs security lowest cost feedstock Risk Production and operating predictability proven technology Flexibility in production and product output Logistics predictability Marketing and sales plans/ contractual arrangements Political and legislative agreements/concessions Environmental management plans Financial and macro-economic assumptions 6

8 Funding biofuels projects What are the potential pitfalls? Critical Area Key Parameters Potential Pitfalls Infrastructure availability & security Contracts providing market protection and counterparty strengths Completion risks (time and money availability) Operational management capabilities Environmental conformance capability Commodity pricing, marketing & competitive marketing position Political support Legal & financial structures Foreign exchange variability Funding and overall financial strength of participants And not being aligned to how bankers see projects.! 7

9 Funding biofuels projects Banks may also provide restrictions in financing Critical Area Key Parameters All revenues flow into single project account Agreements govern allocation of cash flows according to priorities / waterfall Bank Financing Debt service reserve account, maintenance reserve account up to 3-6 months P&L Negative covenants for shareholders dividends or repayments Cash sweep / mandatory prepayment. DSCR Covenants set at levels based upon stress testing of the Base Case Model. Can be forward or backward looking. 8

10 Key Variables Funding biofuels projects In summary, must have a well structured, de-risked value chain Biofuels Value Chain and Key Variables Key Area Upstream Hidden Pitfalls/ Gains Processing & Downstream Key Area Feedstock Oil production Refining Transport/ Distribution Retail Operations Availability Security Quality Type of CPO/ derivative and balance Storage/ Location Sustainability Location choice Technology Choice Delivery Pre-treatment Plant Design Manufacturing Products and By Products Waste Capex and Opex Integration Tankage Distribution Volume Price Distribution Etc. 9

11 Our Proposition

12 Our Proposition KPMG Advisory services Our Service Offerings Strategy Strategy TAX Deal Advisory Corporate Restructuring Corporate Finance Valuation & Capital Markets Merger & Acquisition Valuation & Capital Markets Transaction Services Joint Venture Business Transformation Forensics ADVISORY SERVICES Strategy & Consulting Information Protection & Business Resilience IT Enabled Transformation IT Assurance Financial Risk Strategy & Operations Procurement Shared Services & Outsourcing People & Change Business IT Transformation Internal Audit Risk & Compliance Financial AUDIT Risk & Compliance Enterprise Risk Financial Services & Regulatory Compliance Contract Compliance Services Operations Tranformation Internal Audits &Compliance Risk 11

13 Our Proposition KPMG Advisory services Functional Breakdown ADVISORY STRATEGY & OPERATIONS PEOPLE, ORG. & ADMIN COST & PERFORMANCE MGMT CONTROLS, QUALITY & RISK MGMT CORPORATE FINANCE & RESTRUCTURING TAX AUDIT Market Entry Strategy Post Merger Integration Project Estimating Cost Project Scope Mergers & Acquisitions Resource Tax External Audit Organization Strategy Change or Stakeholder Financial Risk Valuation International Expat Services Governance, Risk and Compliance Operations Strategy Human Resources & Labour Asset Environment Health & Safety Corporate Structures and Planning International Tax Regulatory Advisory Supply Chain Quality Due Diligence Coroorate Tax Procurement Project Financial Modeling Indirect Tax Shared Services & Outsourcing Forensics Information 12

14 Chris de Lavigne Principal, Global Strategy Group 2014 KPMG Services Pte. Ltd. (Registration No: G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International). KPMG Services Pte Ltd 16 Raffles Quay #22-00 Hong Leong Building Singapore Mainline: Fax: DID: Mobile: cdelavigne@kpmg.com.sg