Successfully funding a biofuels project biodiesel example Petrofed Conference 11t h May 2016
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 - 2006 to 2015F, Metric Tonnes 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 19.3% CAGR Others Colombia Brazil Singapore Australia Philippines China Thailand Argentina Indonesia Malaysia EU USA 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources: OECD, F&S estimates, KPMG analysis 1
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 2020. Only uses UCO. RFS requires 2 bn gallons (7.56 Mn MT) by 2017. Columbia Africa Currently at 7% pushing for 10% Thailand Malaysia Indonesia At 7%. Target is 10% by 2016. 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 2020. Australia 2% mandate in NSW. 2
Proportion of Deals Renewable Energy Funding Market Biofuels have been a key component of funding in renewables 400 350 300 250 200 Number and Aggregate Value of Renewable Energy Infrastructure Deals, 2008-2014 YTD (As at 6 October 2014) 326 244 284 324 330 357 213 100% 90% 80% 70% 60% 50% Breakdown of Renewable Energy Infrastructure Deals by Industry, 2011-2014 YTD (As at 6 October 2014) 5% 3% 0% 2% 6% 1% 10% 13% 10% 37% 31% 27% 3% 1% 10% 38% 150 100 40% 30% 20% 46% 49% 53% 46% 50 10% 0 2008 2009 2010 2011 2012 2013 2014 YTD 0% 2% 2% 3% 2% 2011 2012 2013 2014 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
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
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
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
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
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
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
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