7th OPSI National CONVENTION

Theme: ALTERNATIVE FARMING FOR A NEW SUGARCANE INDUSTRY

THE PHILIPPINE SUGAR INDUSTRY

A Presentation to the Outreach Program for the Sugar Industry Foundation Convention by Administrator James C. Ledesma Sugar Regulatory Administration

Towards a Multiple Product Sugarcane Industry

Adm. James C. Ledesma

SUGAR REGULATORY ADMINISTRATION

OPSI Alumni National Convention Bacolod City June 22-23, 2006 22-

Under a Multiple Product Sugarcane Industry Sugar is still the Major Product

THE CRITICAL MASS

CROP YEAR PRODUCTION Million Tons 2.161 2.338 2.150 2.113 WITHDRAWALS Million Tons 2.059 2.068 1.950 1.558 US QUOTA Tons 137,352 137,000 137,352 216,438

2002-2003 2003-2004 2004-2005 2005-2006*

* As of JUNE11, 2006

Raw Sugar Production/Consumption, CY 99/00 to 05/06 (in Metric Tons)

2,500,000

2,000,000

* As of June 11, 2006

1,500,000 1,000,000

Production Consumption

500,000

0
Production Consum ption

CY 99-00 1,619,613 1,928,000

CY 00-01 1,805,203 1,908,000

CY 01-02 1,898,501 1,942,000

CY 02-03 2,161,000 2,059,000

CY 03-04 2,338,000 2,040,000

CY 04-05 2,150,746 1,950,585

CY 05-06 2,113,000 1,900,000

Sugar self sufficiency attained in CY 2002-03. CY 03-04 record is a 20-year high.

Total Tons Sugarcane Harvested

CY 2000-01 to CY 2004-05
30,000,000 25,000,000 20,000,000 15,000,000 10,000,000
CY 2000-2001 CY 2001-2002 CY 2002-2003 CY 2003-2004 CY 2004-2005 CY 2005-2006 21,113,485 21,094,456 23,623,224 25,840,818 22,510,607 22,880,663

Tons Sugarcane

5 -0 04 CY 20 05

-0

-0

-0

-0

00

01

02

20

20

20

20

03

CY

CY

CY

CY

CY

20

-0

Sugar Price History

1200 1100 1000 900 800 700 600 500
CY CY CY CY CY CY 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06* 859.28 859.01 841.87 738.87 785.18 1,108.31

Composite Price

5 -0 04 C Y 20 05

-0

-0

-0

-0

00

01

02

20

20

20

20

03

20

-0

* As of June 15, 2006

BIOETHANOL
Fuel ethanol and other biofuels have regained nationwide prominence due to rising oil prices, urban air pollution, technologies in production, & the need to support agricultural industries.

ALCOHOL
(Regular vs. Ethanol)

ANHYDROUS ALCOHOL ANHYDROUS ALCOHOL (OR ETHANOL) (OR ETHANOL) Anhydrous grades of alcohol Anhydrous grades of alcohol are always below 0.5% water. It are always below 0.5% water. It can be used as an additive to can be used as an additive to gasoline, creating gasohol. gasoline, creating gasohol.

CLASSIFICATION BY COMPOSITION

HYDROUS ALCOHOL HYDROUS ALCOHOL Hydrous ethanol contains about Hydrous ethanol contains about 5% water. It is used in the 5% water. It is used in the beverage industry. It is also used beverage industry. It is also used as a pure fuel for vehicles with as a pure fuel for vehicles with modified engines. (Used in modified engines. (Used in ALCOGAS PROGRAM with about ALCOGAS PROGRAM with about 10 % blend) 10 % blend)

ETHANOL

Also known as Ethyl alcohol Or Grain alcohol

Dry alcohol
At least 99.5 % purity

Renewable

Sources ETHANOL

BENEFITS OF USING ETHANOL as BIOFUEL

I. ENVIRONMENT & ENERGY
* NON-POLLUTING
* Renewable

* AVOIDS GREENHOUSE

GAS EMISSIONS
* ENERGY-EFFICIENT * HIGHER OCTANE

II. ECONOMY & DEVELOPMENT

* DOLLAR SAVINGS * JOB CREATION

* COUNTRYSIDE DEVT. * REDUCED DEPENDENCE ON IMPORTED FUEL * INSULATION FROMVOLATILITY OF OIL PRICES * PRODUCT DIVERSIFICATION

& INCREASED FARMERS INCOME

* NEW INDUSTRY INFRASTRUCTURE

BIOETHANOL & YOUR CAR

- HIGHER OCTANE

- LOW COST* -COMPATIBLE WITH ALMOST ALL CAR ENGINES

(Esp. after 1986 models at 10% blend)

-CLEAN FUEL
* AT CURRENT OIL PRICE LEVELS

WHY SUGARCANE AS SUBSTRATE?

Ethanol Yield of Major Potential Biomass Raw Materials

Ethanol Yield (liters / ton) 70 280 180 52 370 Ethanol Yield (liters/ha/year) 4,900 588 1,440 5,200 2,960

Raw Materials Sugarcane Molasses Cassava Sweet Sorghum Corn

ESTIMATED VOLUME OF FUEL ETHANOL REQUIREMENT ETHANOL VOLUME REQT

(Based on 5% and 10% blend to 90 RON Gasoline Requirement)

Crop Year 2007 2008 2008 2009 2009 2010 2010 2011 2011 - 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017

Estimated Volume of Fuel Ethanol Requirement (M liters) 160.67 169.23 180.31 379.47 403.89 424.08 450.64 472.79 502.56 527.61

5% Blend

10% Blend

ROI Table
RATE OF INVESTMENT (ROI) (100 LPD, Stand Alone, using Cane Juice as Substrate)

COST OF SUGARCA NE

COST OF SUBSTRA TE

COST OF PRODU CTION

ETHANOL DISTILLERY PRICE

P20

P22

P24

P26

P28

P30

P32

P34

P36

P38

P40

700 800 900 1000 1100 1200 1300 1400 1500

10.00 11.43 12.86 14.29 15.71 17.14 18.57 20.00 21.43

16.89 18.32 19.75 21.18 22.60 24.03 25.46 26.89 28.32

10.46 5.58

17.29 12.41 7.53

24.12 19.24 14.36 9.48

30.95 26.07 21.19 16.31 11.43 6.55

37.78 32.90 28.02 23.14 18.26 13.38

44.62 39.74 34.86 29.98 25.10 20.22 15.34 10.46 5.58

51.45 46.57 41.69 36.81 31.93 27.05 22.17 17.29 12.41

58.28 53.40 48.52 43.64 38.76 33.88 29.00 24.12 19.24

65.11 60.23 55.35 50.47 45.59 33.88 29.00 24.12 19.24

71.94 67.06 62.18 57.30 52.42 47.54 42.66 37.78 32.90

78.77 73.89 69.01 64.13 59.25 54.38 49.50 44.62 39.74

Fuel Ethanol as Emerging Industry

Result of Bio- Ethanol Study Price and Cost Competitiveness Of Bio- Ethanol and Gasoline

Price of Sugar (P) 1,000 1,100 1,200 1,300 1,400

Cane Purchase per ton (P) 1382.50 1508.50 1634.50 1760.50 1886.50

Equivalent Cost of Cost of Gasoline / Ethanol / Li (P) Li (P) 26.33 28.72 31.12 33.52 35.93 37.66 37.66 37.66 37.66 37.66

Fuel Ethanol as Emerging Industry

Results of Bio-Ethanol Study

POTENTIAL CANE AREAS FOR EXPANSION LOCATION Lanao del Norte South Cotabato I Saranggani Agusan del Norte/Sur Maguindanao Central Palawan Cagayan/Isabela/Bicol Sultan Kudarat/South Cotabato AREA (HA.) 38,110 15,000 17,000 35,000 60,000 29,486 32,000 70,000 296,596

TOTAL

CANE SURPLUS TO SUPPLY ETHANOL REQUIREMENT

CY 2003-2004 SUGAR PRODUCTION 2.34M MT CY 2003-2004 PHILIPPINES EXPORTED 164,000 MT SUGAR

127.4 M Liters

79% Ethanol Requirement

MODELS AND INVESTMENT REQUIREMENTS OF ETHANOL PLANTS

MODEL
ADJUNCT TO SUGAR MILL USING MOLASSES

FEATURES
Co-sharing of sugar mill and distillery of existing amenities such as power, water, steam and other utilities Plants may be established at a certain distance from the mill Plants may be established at dedicated cane areas Produces electricity for own use or for distribution to the grid

INDICATIVE INVESTMENT REQUIREMENTS

P 556M for 100,000 liters per day

STAND-ALONE USING MOLASSES STAND-ALONE USING SUGARCANE JUICE STAND-ALONE WITH COGENERATION

P 568M for 100,000 liters per day P 824M for 100,000 liters per day P 1.5 Billion for 100,000 liters per day

Sixteen (16) 100,000 LPD distillery plants increasing from 5 in 2007 to 16 in 2017 are projected to be required. The key factors of a distillery investors return on investment are the prices of the substrate estimated to be around 70% of his costand the selling price of ethanol from his distillery.

Fuel Ethanol as Emerging Industry

Challenges Ahead
1. The expedited and immediate passage of the Law that shall mandate the development and the use of ethanol as blend to gasoline. This shall create the market and consequently trigger investment in ethanol. 2. Provisions of solutions or alternative schemes to raw material acquisition in lieu of the present sharing system (cane purchase, etc) which seems to pose some problems with the eventual inevitable implementation of the program in existing sugar milling districts.

Challenges Ahead
3. Resolution of some concerns by sugar producers, which could be a possible stumbling block in their willingness to participate, as to which government agency will be in charge of the ethanol production process considering that the raw materials (sugarcane) is an agricultural product and the output (ethanol) is an energy product.

4. Validation of identified areas as potential hosts to ethanol production. Some of the areas were surveyed about 10 years back necessitating validation visits/studies.

Challenges Ahead
5. Assurance that tariff for ethanol shall revert to previous levels (or even higher, approximating what Brazil exacts) when local supply capability is reached. 6. While sugarcane is seen as a major substrate for ethanol, the development of other potential raw materials, particularly sweet sorghum and cassava, must be pursued by pertinent government as well as private institutions.

SUGAR is an energy product.

COGENERATION
FACTS:
The sugar milling industry has the potential to support the government in its promotion of energy efficiency while implementing its own rehabilitation and modernization program. In the Philippines, 29% of the cane crushed in the mills comes out as bagasse. From an average annual cane throughput of close to 21 million tons of cane, the country generates about 6 millions tons of bagasse, which is equivalent to 1,134 kilotons of oil equivalent. If all the bagasse produced by all the sugar mills are burned efficiently, a potential of 1,278 GWh (gigawatt hour) will be generated per year. Potential steam savings from improved boiling house operations range from 3 34%, with a total of 267 tons per hour of steam, equivalent of 124 tons per hour of bagasse.

THE MUSCOVADO SECTOR

1. Although the trend is from backyard to commercial production for health and commerce consideration, production of less than 1% of the national sugar out put is too small, for it to be considered a distinct industry.

2. Except for some trading requirements, the production is not under SRA regulation because of some regulatory constraints.

3. The thrust is to improve quality and penetrate the export markets

THE FUTURE OF THE SUGAR INDUSTRY To transform itself into the

SUGARCANE INDUSTRY

With these directions, the Philippine Sugar Industry, if it transforms itself, will have three potential businesses in the near future:

Sugar

Ethanol

Power