Fuel for Development:

Financing Sustainable Bio-Fuels

in Africa
International Conference on Renewable Energy in Africa
UNIDO, African Union et alt.
16-18 April 2008
Dakar, Senegal

Dr. Arrigo della Gherardesca

One Bio World Partnership

arrigo@onebioworld.com
ItAfrica – Italian African Alliance srl, Milano
Tel.: +39 02 462477 Fax: +39 02 99988158 Mobile: +39 337 302794
Skype: “arrigodg”
 BioFuels-in-Africa:
is there a solution to the puzzle?
(this presentation is for Government Officials, Entrepreneurs,
Rural Cooperatives, Financing Institutions
and Socially Responsible Investors)
• Food prices?
• Sufficient land?
• Environmental
Sustainability?
• Agronomy?
• Rural Development?
• Market?
• Technology?
• Profitability?
• Financing?
• Scaling-up?
Let’s try…
 BioFuels:
Ethanol (that substitutes Gasoline)
and
BioDiesel (that substitutes Diesel),
are under attack.
• They have been
accused of having
caused the recent
significant rises of
food prices, around
the world
• If this is true, they
have done very
significant damage,
especially to
the poorest people
(though not necessarily
to poor farmers)
Ethanol produced in the US
has contributed to the rise of
world corn prices
BioDiesel, which uses vegetable oils...

• …, is accused of
having caused the
rise of the price of
palm oil, rapeseed
oil, etc.
• Even vegetable oils
are a component of
the diet of the poor.
Rising food prices will improve the trade
balance of food exporters, but
net importers, like most of Africa,
stand to see a greater deficit
BioFuels victims of their own success!?
• In the US, Ethanol investments have now stopped, because
of the very high prices that corn has reached;
• In Europe, the biggest BioDiesel market, many plants
have temporarily closed, due in part to the high prices of
vegetable oils.
• In Malaysia, the N.2 producer of palm oil, 90 BioFuels
licenses were awarded, but only a dozen plants are running.
• Even in Brazil, the leader and “godfather” of BioFuels, some
BioDiesel plants are having difficulty, due to the rise of the
price of crops such as soya.
 And when food prices rise, farmers
put more land into cultivation;
sometimes, through deforestation…
• If deforestation is done with the use of fire, the
amount of CO2 released is enormous. It will take
decades for BioFuels to compensate it.
Indonesia and Brazil have jumped to 3° and 4° place
as CO2 emitters, precisely for this reason.
Rainforest-turned-to-soybean
(Mato Grosso, Brazil)
 BioFuels are accused of using up land
and water that is necessary for food (and
of causing damage to ecosystems);
meanwhile…
• …population is
still expected
to rise in the
future,
particularly
in Africa, and
will have to be
fed.
And this is not
the end of the
story…
Finally, some BioFuels, particularly Ethanol
from corn, are even said to
emit more GreenHouse Gasses
than fossil fuels themselves!
• Many, are now
saying that
producing clean,
sustainable BioFuels
is simply impossible
(see TIME April 14,
2008);
• Even in Africa, last
November, a number of
NGOs called for a
Moratorium on “Agrofuel”
Development.
• SO, ARE BIOFUELS
DEAD?
 NOT AT ALL!!
They are an important opportunity,
particularly for Africa!!
(some African countries spend six times as much on fuel as on health: FAO)

• True, 1st generation

BioFuels will not be able
to satisfy the enormous
expectations of the EU, US
and other countries.
• But Africa has a
“comparative advantage”
in producing sustainable
BioFuels, that don’t cause
those dreadful effects, at
prices competitive with
fossil fuels..
• For one, it has a lot of
rural population.
 Second, Africa already has
plenty of uncultivated land,
with no need to deforest…and BioFuel
crops can grow even in semi-arid areas

(colored areas forested or protected)

Brazil, uses Ethanol for over 40% if its gasoline needs; and
sugarcane amounts to 1 % of its territory and 3 % of farm land.
Can’t Africa do the same?
 It is possible to double food production, in
Sub Saharan Africa AND produce BioFuels, too.
• In Africa, there are VAST extensions
of degraded land, no more suitable
for food production and semi
abandoned. This is an underlying
cause of poverty.
• Part of this land is acidic; after a plot
has been depleted, farmers have to use
up new land. Just by adding some
calcium or lime, you can triple
productivity!
• A couple of months ago, Bill Gates of
Microsoft has committed
$ 180 Million, to revive African
depleted soils. A starting point…
• Paradoxically, by contributing to
bring CAPITAL to rural Africa,
BioFuels can BOOST even FOOD
PRODUCTION and lower
pressures on the environment.
 Africa's 550 million farmers CAN
produce more food and even fuels!
Though Food must have priority, BioFuels
and BioElectricity can contribute to
Africa’s long awaited Green Revolution
(twice green, this time!).
We have to go in steps:
• first, organize and finance farmers to
cultivate the crops, so as to INCREASE
THEIR PRODUCTIVITY (the first and
foremost drawback of smallholder
farming); (for example to cultivate
Jatropha and to extract its oil for
BioDiesel, for which there is an enormous
demand in Europe and elsewhere);
• then, set up Companies for the local
production of BioFuels (and
BioElectricity), to meet growing local
demand, and then to export.
The biggest problem to manage: WATER.
is it enough for both food and BioFuels?

Our Agronomists are expert in

“More Crop per Drop” techniques, like drought-resistant crop
varieties, rainwater harvesting, drip irrigation, etc.
 We all know that Africa has a number of
issues, that have prevented the growth of
agro-industries; for example storage,
logistics and transport…

(railways in Africa, and in India)

• And that some producers will not be able to export…

• But in this case, transport costs might play in our favor….
 In Africa, many (especially the rural poor), are
distant from refineries and from the electric grid,
and pay for their energy
much more than in the rich countries.
There is a very interesting LOCAL market,
without having to transport the product too far!
(by the way, even Nigeria is developing BioFuels…)

Road-side Gas Station in West Africa

Where are the poor? Mostly in rural areas.
Developed
Countries in market
Total 854 million
transition economies
(820 in developing
25 9
countries)

Sub-Saharan
Africa
206 Asia and
Pacific
524
Near East and
North Africa 212 million India
38 150 million China

Latin
America and
Caribbean And where is the energy deficit?
52
Same regions.
 Poverty and lack of Energy,
often go together with
Environmental Degradation

• True, the poor, in their desperation to stay alive, are

often contributing to local environmental degradation,
deforesting, depleting the soils of nutrients, etc.
 But, ultimately, who’s agriculture is more
sustainable, and should be expanded?
• In Sub-Saharan Africa, farmers apply an average of 8 kilograms
of fertilizer per hectare per year - less than 10 per cent of the
global average.
While the US, uses over 200 kilos.
• Fertilizers poison water tables and contribute to climate change…
• And Africans use much less fuel and machinery, and in general
capital (and use MUCH more labor)..
• THIS IS A TOTALLY DISTORTED WORLD
FOOD PRODUCING SYSTEM!!!! Much more capital
HAS to reach the villages, in Africa and other poor countries!
• Going back to Climate Change, notice that, aside from the
comparatively tiny BioFuels productions, much criticized,
even the world’s food has to be produces sustainably!
• Now, who’s agriculture is more sustainable,
and SHOULD be expanded?
It is Africa’s!
But until recently, the decline of food prices
hasn’t helped poor farmers…
now, food and energy prices are rising,
and, if supported, they can take advantage of it
 So, let’s finance and launch
Senegal President WADE’s
“eco-villages”, throughout Africa!
• Soon, many rural areas, in Africa, could produce more
Food, together with their own BioFuels and “green”
electricity, independently from
the grid. In a way, this will
resemble to the recent arrival
in the villages of mobile phones,
skipping altogether the
telephone lines.
• If we scale this up fast, unitary
costs will drop enormously!
• By improving rural people’s standards of living, more
food + “distributed” BioEnergy projects will even
reduce the present “unstoppable” trend of mass
migration into the urban slums.
Please notice that the lack of electricity, is not
limited to Africa. This whole analysis refers
to many non-African Countries, too.
The (very) elusive quest for (sustainable) Growth.
• For decades, the Aid Community
has used all sought of policies,
to stimulate development in Africa:
infrastructure investment, education,
Human Capital and “empowerment”
policies, health and birth-control
policies, technology transfers,
conditional lending, etc.
• Sustainable growth will occur,
in Africa, if rural people have
incentives and CAPITAL,
to produce more food AND
BioEnergy (BioFuels
+ BioElectricity) for their villages,
and substitute expensive imports.
• With a good, safe, return for (investors and) lenders.
 How can we hit these different targets,
profitably and sustainably?
•ONE BIO WORLD
can help finance and set up profitable, non-invasive, medium
scale projects.
• Our “distributed food-and-fuel plantation model” ,
with “ Full Sustainability Certification”, limits water usage,
avoids crowding out food crops and causes
no damage to biodiversity (as often do the
mega-plantation, mono-crop BioFuel productions).
• We produce sustainably, both BioFuels
AND for Food!!!
• Done in partnership with local small farmers,
these projects provide income for the rural
poor and a very effective development tool,
in line with Millennium Development Goals
and Climate Change policies.
 ONE BIO WORLD PARTNERSHIP
• ONE BIO WORLD comprises
Agronomists,
BioFuel Engineers (BioDiesel
and Ethanol),
International Finance Consultants,
Investment Managers (the list of
Partners is available, on request).
• We serve BioFuel Investors,
“Ethical” BioFuel and vegetable oil
buyers, MicroFinance Institutions, (with an African delegation, in Brazil)
NGOs and Rural Cooperatives, in a number of countries.
• We have come together, to provide ALL THAT IS NECESSARY to
implement “turn-key” BioFuel projects, in Developing Countries. .
On sustainability certification, we collaborate with the
“Roundtable on Sustainable BioFuels”);
• We are working on a dozen projects, ranging from $ 2 Million
(plantation + industrial) to $ 112 Million, in 6 countries, in three
continents.
 Crops: let’s start from Ethanol:

• Let’s forget about corn,

which is both energy inefficient
and environmentally unsustainable
(it ADDS to Global Warming)

• Africa, has much better crops,

than the US and EU,
for Ethanol
(the same for BioDiesel).

• Like cassava, well known in Africa,

or sugar cane (great energy
efficiency, and good for
Climate Change, already used
since many years to produce
Ethanol in Malawi), of which
our Brazilian partners
know everything.
 And when rainfall is limited,
Sweet Sorghum and Tropical Sugar Beet!
• Sweet Sorghum is able to provide
both food and energy (grain to be
used as food or feed, and sugar
and cellulose in the stem,
to be transformed into ethanol
or, through Pyrolysis (actually,
“pyro-gasification”, a new
technology we represent),
into electricity).
Tropical Sugar Beet (for which
we are connected to Syngenta),
will be used in a $ 30 million
Ethanol project in East Africa,
for which we are consulting.
 There are many BioDiesel crops:
Jatropha oil is non-edible,
but is it great to produce BioDiesel!
• One tonne of Jatropha seed can
yield 300 kg of BioDiesel.
• Jatropha can grow in most of
Africa, including semi-aid regions.
• Our Agronomists can support
your plantation, from A to Z.
• Some people use it DIRECTLY
in diesel vehicles or
electric generators.
High Profits! Investors WILL come!
With the right agronomy and technology:
• Ethanol, can be produced at $ 50 / barrel, compared to
world prices of 90-110 $ / barrel, for unrefined fossil
Oil!!
• BioDiesel from Jatropha and other crops, can be produced
at a cost of $ 400 / ton, while a ton of petrol Diesel in
Europe costs $ 900, wholesale (and Africa’s citizens are
paying more…).
• With a high Return on Investment and short “payback”
of 3.5 years, THESE PROJECTS ARE NOW SOME OF
THE MOST PROFITABLE, among agro-industries!
• Confidentially, TRUE profitability can be verified
DIRECTLY, from our PAST customers..
• And imagine the improvement in a poor country’s
Balance of Payments!
 BioFuel do well,
when oil prices go up
• Every time oil (and natural gas) prices go
up, economic activity (people's income and
the value of their assets) declines.
• To the contrary, BioFuels are MORE
profitable, when oil prices go up. And they
will go up!
• They are, therefore, a good risk diversification
for most investors.
• With good projects, a lot of money will
come to Africa!!
 Financing Bio-Fuels in Africa

• All sorts of financing is available for Bio-Fuels:

Direct Investment by our European Investors,
Venture Capital, Private Equity Funds, Bank Loans,
Export Credit on agricultural equipment and BioFuels
plants, and Loans from Development Banks!
And we can help you obtain it!!
• Unfortunately, most of this funding never reaches
the smallholders and rural poor, particularly in
Africa. It is mainly directed to bigger plantations –
that have advantages, such as stronger land rights
- and to big Ethanol and Bio-Diesel plants (often the
less sustainable ones…!).
FOOD & BIO-ENERGY INVESTMENT FUND
• WE ARE STRUCTURING a Private Equity and Loan FUND,
to finance medium-size JOINT FOOD AND BIO-ENERGY
PROJECTS, created by African entrepreneurs in partnership with
poor farmers.
• All required “financial engineering” and investment management
expertise, is available, from a top Investment Bank.
• We are negotiating with mayor international “Socially
Responsible Investors” (SRIs), both private and Institutional,
which are looking for a “blended return” (financial, social and
environmental). They are happy to “do good”, as long as they “do
well”. And they ask to see viable entrepreneurs and projects!
• This approach is not new; in the MicroFinance sector, International
Funds have been investing in the equity of MicroFinance
Institutions (MFIs) in poor countries, or lending to them, for some
time. If you are interested, please contact us!
• With your help, we aim at establishing profitable, sustainable “Food
and BioEnergy social ventures”, in the rural areas of Africa, and to
attract significant capital flows to this new sector.
• Eventually, this will become a new “asset class”, channeling
Billions of Dollars to Poor farmers.
 Big plantations and … poor farmers.
• On the agricultural side, there are 2 different cultivation
models:

- the “big plantation”, the “normal” solution, capital

intensive, often using tractors, a lot of fertilizers, pesticides,
and, sometimes, expensive irrigation (and salaried labour);
- the “smallholder model”, backbreaking and much less
capital intensive… Until now, poor farmers, in Africa,
are not likely to find financing for the big investment items,
such as mechanical planting, tractors and irrigation.
• This initiative is going to push the small farmer slightly up
the “production curve” (as economists call the relation
between capital and labour intensities), to a higher level of
capital (that can be realistically provided); this will make his
work less hard, increase his productivity, allowing him a
better livelihood.
 Manual, versus mechanized harvesting
• Sugar cane is harvested manually or mechanically, in
Brazil. The same is true for many other BioFuel crops.
• Unfortunately, Ethanol has not reduced poverty in the
Brazilian countryside. Seasonal plantation workers called
boias frias (“cold billies”) have a hard time…
• Our approach is different….
Things are not better, in Africa…

(Photo: extracting oil from palm fruits, in Liberia)

In fact, with just a little capital…
we can make it easier, for them.
3 main actors, in this Bio-Fuel “Supply Chain”
1) the smallholder farmers, organized in a Cooperative;
2) the Local BioFuel Company: buys the “feedstock”
from them and processes it into Bio-Fuel; it may have its
own plantations and has to be close to the farmers, for
transport-logistical and other reasons; it can even be
participated by the Farmers Cooperative;
3) the end buyer of the Bio-Fuel: a local petrol company,
or one of our customers in Europe (which could even own
the Local Company, sub 2).

Jatropha
(similar structures
can be put in place
for the
production of
vegetable oil,
for export)
 Partnership with the small farmers
• Our business model makes use of Long Term “contract
farming”, whereby the BioFuel Company buys the crops
from the smallholders, which retain independence.
• Equity Capital in the BF Company is owned mainly by
the Fund and by a local entrepreneur / manager.
• But there can be a minority participation even by the
farmers, through a Cooperative.
• After the Fund’s capital has been repaid and remunerated,
the local entrepreneur and the farmers have an option to
increase their shareholding and/or buy-out the Fund,
entirely.
• This way, even the farmers are fully involved
(and there is no risk that they go selling their crops to
someone else, next year).
• This model, allows for an equitable and sustainable
rural development; it is preferred both by farmer
communities and by Socially Responsible Investors.
 Rural Cooperatives can succeed!
• Cooperatives fit well with BioFuels. And they have been
successful, in many countries.
• Italy, for one, has an established worker-owned cooperative
system: just in the Emilia Romagna region, 1,800 cooperatives
employ 60,000 workers.
• The landmark rural cooperative Amul, India, is the most
famous and biggest milk and dairy cooperative in the world,
(http://www.amul.com/index1.html ).
Amul started by supporting poor villagers owning one or two
cows, and it still does. Meanwhile, it has grown, and is now
jointly owned by some 2.6 million milk producers in India.
• Why, those African NGOs that called for a Moratorium on
“Agrofuels”, don’t instead organize small farmers, to take
advantage of this great opportunity?
• If they do, we will help them get financing, to supply this
market (no middlemen needed, here!). A new profitable
business, for millions of poor people!
Supportive relation between BioFuel
Company and Smallholders.
(many believe that massive mono-crop plantations and refineries are
detrimental to communities, local food supply and biodiversity;
our model is different…)
In a variation of our model, a Medium-size “Hub” plantation, owned by
the BioFuel Company, provides small farmers with know-how, some
equipment, crop transportation, etc.:
Small farmers sell crops to the Plantation:

Small
Farmers Medium-size Small
Plantation Farmers

Small
Farmers

Between cultivated areas: “Biodiversity Corridors”

To the Local BioDiesel or Ethanol Company,
we provide technology, know-how and
(through the Fund) most of the financing.

(Photo: delivering a containerized BioDiesel plant)

 Business Forecast
for an African BioDiesel Company

(including the Jatropha plantation)

Long Term Off-take / purchasing contracts.
• Aside from Agronomy, farmers need to know, in advance, at
what price they will sell their crops, sometimes two or more
years from now (when say, Oil Palm or Jatropha, which are trees,
start producing).
• A reliable Long term off-take / selling contract can be provided to
them (this is sometimes called “contract farming”). This is
particularly useful when farmers have to go looking for financing.
• But could a medium-sized BioFuel Company provide this, without
incurring substantial risks?
• When feasible, the BF Company should pre-sell its product, with
an equivalent LT contract, to a credible local Oil Company,…
• If your Governments provided this LT contract, they
would be acting rationally, by “hedging” against future
rises in the price of oil (and/or oil shortages)!
And they would kick-start a new industry!
• Alternatively, we can sell it for you, to one of our buyers in the
EU, willing to buy Vegetable Oils or BioFuels with 8 - 10 year
contracts, guaranteed by Bank Letter of Credit (and there are no
import tariffs, on BioFuels produced in Africa).
Financing (case when Farmers are financed by third
party), off-take contracts, and product flow
(payments, which require some “financial engineering”, are not represented).

Farmers Local BF
Oil or
Company
BioFuel
Buyer
Our Partnership
MicroFinance can coordinate
everything
Inst. or Bank
Off-take contract:

Food & Bio-Fuels Financing:

for Africa Product:

Investment Fund
 Technology and know-how
from Brazil and Europe:
• Our Ethanol technology and know-how comes
mainly from Brazil.

• Our BioDiesel technology and know-how comes

mainly from Europe, the main BioDiesel market.
One of our Consultants is one of Europe’s top
experts and has been President of the European
BioDiesel Board.

Let’s give a look at Ethanol…

• ENERVERDE, our Brazilian Bio-energy Partner
helps our customers around the world implement
particularly Ethanol projects.
• ENERVERDE’s owners and employees have over
25 years experience in Ethanol projects,
and 5 years experience in Bio-Diesel projects,
including both plantations and industrial plants.
• ENERVERDE represents Prof. Expedito Parente’s
TECBIO BioDiesel technology, in the central area of
Brazil.
• Together with ENERVERDE, we have experience in
the most recent bio-energy technologies and
cultivation solutions, with the lower environmental
impact.
 Our Services:
• ONE BIO WORLD provides all you need to implement your
bio-energy plantation and factory, like:
– Best location selection;
– Project viability analysis, sizing, type, crop(s), logistics, storage,
etc;
– Full environmental and social impact analysis and approval;
– Organization of Funding of Equity Capital, Loans, export
finance, etc.;
– Plantation project, “contract farming”, implementation,
management, support and supervision;
– Factory design;
– Equipment supplier selection, negotiation, contract, etc.;
– Management of factory implementation;
– Building the Factory;
– Factory and plantation training (chemical engineers, etc.);
“training stages” in Ethanol and BioDiesel plants, in Brazil;
– direct operation of project, if required.
 The following are data from some
of our past customers
• A Soya oil extractor unit, plus an ethanol plant from sugar cane,
build in the 80s:
– Factory market value: US $ 88.000.000,00 (without farm value)
– Average annual profit: US $ 15.000.000,00
– Average direct workers (manual harvest): 2500, of which 500
permanently employed
– Plantation size: 20.000 ha
• Ethanol Plant with cogeneration, built in the 80s:
– Expected implementation cost: US $ 47.000.000,00
– Plantation size: 17.000 ha (all rented or contract farming)
– Average direct workers (manual harvest): 2000
• Ethanol factory and co-generation plant, that is presently
being built:
– Expected implementation cost: US $ 112.000.000,00
– Plantation size: 25.000 ha
– Initial cogeneration power: 60 Mw
– Expected profit per year at full production: US $ 25.000.000,00
– 1004 direct employees (mechanized harvest)
Come visit our customers’ Ethanol factories in Brazil
And not all Ethanol plants have to be big..
We would like to manufacture directly in
Africa this very profitable Mini-Distillery,
aimed at local markets

by the way, there’s nothing revolutionary;

African farmers have been extracting
alcohol from their crops for centuries,
with very simple equipment!
 Data from some of our past
BioDiesel customers
• BioDiesel plant 10.000 liters per day, using different crops, with
Methanol or
alternatively
Ethanol:

• R$1,70 = USD 1,00

• This specific plant is for local use, processing many kind of crops. It is
owned by the local farmers cooperative, and they select the best crop for
each season (usually soya, castor oil, sunflower seed)
• Plant investment cost (excluding plantation): US $ 3.400.000,00
Delivering a Mini BioDiesel plant
• Mini Biodiesel plant 2.000 liters per day, using different
crops:
– Biodiesel cost are similar to the last graphic.
– Plant investment cost (no plantation and no big storage): US $ 590.000
 Some of our Biodiesel
projects
and customers

Small factory Small Farmers cooperative

Our “traditional” plantation projects

Sugar cane plantation (manual harvesting)

 Our BioDiesel plantation projects

CASTOR OIL Jatropha

 Many elements of the BioFuels “supply
chain” have Greenhouse Gas or other
environmental effects; like land “tillage”...

• Our Partners are capable of analyzing them…

• Our projects will be certified by a top world institution.
More sustainable BioFuels, more revenue for
Africa, from Kyoto Protocol Certified
Emission Reductions (CERs), and other means.
• African BioFuels WILL emit less
Greenhouse Gasses, than fossil fuels,
and even then BioFuels produced
in other parts of the world.
• And sustainable BioFuels must be
compensated for their lower emissions.
• Three European countries (Germany,
the Netherlands, and the United
Kingdom) are considering to grant
tax relief for biofuels, strictly in
proportion to their “carbon footprints”.
• Soon, the EU will follow and will agree on a “methodology” for calculating
the tons of CO2 emissions avoided by Bio-Fuels (and by “green” electricity).
• When this occurs, Africa, will be able to export even more profitably.
• And to sell Kyoto CERs to rich-countries, when it uses the energy locally.
• At the going prices of Euros 10 and above, per ton of CO2 emission reduced,
this will be another significant income, for your projects.
 Support from African Governments
is necessary.
• BioFuels can be an important step for achieving Poverty
Reduction and the other Millennium Development Goals
(MDGs), in Africa.
• At the Bali and Bangkok UN meetings on Climate Change,
there were requests that Rich countries should support
Developing ones, with technology and financing, to mitigate
Climate Change. We can help villagers produce both FOOD
and BioEnergy, sustainably!
THIS IS A CLEAR , IMMEDIATE PROPOSITION!
• But this effort will not succeed, without support from African
Governments, to help organize the Investment Fund, to
guarantee a selling price for BioFuels, to provide legislation,
grant a 5-year “tax holiday”, etc.
• And to PUT PRESSURE ON RICH COUNTRIES, TO STOP
SUBSIDIZING THEIR OWN (FOOD AND) BIO-FUELS,
to the detriment of Africa’s poor farmers.
 We were there,
when they needed us…
And, when we will visit those villages, the farmers will
point out, with pride, to their healthy, growing, sorghum
and Jatropha…and to the BioEnergy Company, in the
distance.
… and we will know that,
aside from doing good
business, we were there,
when they needed us…
Thanks for your patience
and attention.
Dr. Arrigo della Gherardesca
arrigo@onebioworld.com