EconomicsofProducingBiodieselfrom JatrophaMozambique

ExecutiveSummary
Jatrophahasrecentlygottenalotofattentionasanemergingfeedstockinthebiodieselindustry becauseofmultipleclaimsandhypotheses: DoesnotCompetewithFood:Jatrophacanbegrownonmarginallandandthereforedoes notcompetewithfood LowCost:Biodieselfromjatrophacanbeproducedatalowcost($43perbarrelaccordingto GoldmanSachsasquotedintheWallStreetJournal) PositiveEnergyBalance:Biodieselfromjatrophahasaverypositivenetenergybalance EconomicDevelopment:Jatrophawillbeanimportanteconomicstimulusforcountriesinthe tropicsandsubtropics

DoesnotCompetewithFood:AnassessmentofjatrophaprojectsinMozambiquehasshownthat jatrophadoessurviveonareasthatarenotthatvaluableforfoodproduction.However,itisnotcertain whattheseoilyieldswillbe.Likeotherplants,jatrophaismostproductiveinthepresenceofadequate waterandnutrients.However,jatrophacanalsoproducesomeyieldsinsandier,drier,andmore nutrientpoorsoilsthanothercrops. LowCost:BiodieselfromJatrophacanbeproducedatacostthatcompeteswiththepriceofpetroleum diesel.However,itisnotclearwhatthecostofbiodieselwillbewhengrownunderdifferentconditions. Thegreatestinitialcostistopreparethelandforplantingandthegreatestoperatingcostsarepruning andharvestingtheseedsfromtheplants.Themostuncertaintyatthispointaroundcostisaround collectionandharvestlogisticsbutbenchmarkstootherlaborintensiveagriculturalproductssuchas cashewsandcharcoalsuggestthatjatrophacanbeharvestedandcollectedataneconomicallevel. PositiveEnergyBalance:Bothmechanizedandlaborintensiveschemesarebeingusedtocultivate jatropha.Bothschemeshaveapositivenetenergybalance,withthelaborintensiveschemebeing muchhigher(over20xoutput:inputratio). EconomicDevelopment:Withupwardsof65%ofexpensesbeingdirectlyrelatedtolaborthroughout theentirevaluechain,producingbiodieselfromjatrophahaspotentialtocreatesignificantincome opportunitiesforcommunityinruralMozambique.Likewise,itcouldhelptobalancethecurrent accountdeficitbydecreasingfuelimportsandalsoincreasingtheexports,makinguseofMozambiques comparativeadvantagewithagriculture. Thekeyeconomicdriversforajatrophaoperationare:

 Revenues Oilyieldsoftheplants o Nutrientavailability o Wateravailability o Pestmanagement Abilitytonegotiatefairprices o AccesstointernationalmarketsOR o Abilitytosupplylocalmarketswithoutbeingforcedtobepricetakers o Economiesofscale Costs Clearingandlandpreparationcosts LocalTransportationcosts o Distancefromnurserytofarmingareas o Distancefromfarmingareastooilexpellingfacility Distancetomajorportand/orrefiningfacilitiesORlocalaccesstomarkets ForconditionspresentinChibuto,Mozambique,thefollowingcostswereobtainedthroughafinancial modelthatwascreatedwithMicrosoftExcel.Thispredictsacostof$655pertonne($0.60perLiter)to producebiodieseloverthelifetimeoftheproject.

JatrophaBiodieselCostBreakdown($/tonne)
International Transport,$91.8 Clearing& Planting,$116.4

Refining,$49.7

Nursery,$4.1 General Maintenance& Overheads,$67.2

Transportto Port,$48.5 Expelling& Storage,$36.3

Clearing&Planting

Harvest&Transport toExpelling,$243.1 Nursery FertilizerandIrrigation Expelling&Storage Refining

GeneralMaintenance&Overheads Harvest&TransporttoExpelling TransporttoPort InternationalTransport

Jatroph haBiodie eselValue eChain

Nurser ryCosts
Thebenef fitsofanurse eryare: Im mprovedabili itytoselectb bestplantstha atwillideally yresultinhigh herplantyield ds Abilityforsing glemanagertomonitorqu ualityandsucc cessofplantgermination chplantproductiontoamo ountoflandb beingcleared d Abilitytomatc Morerapidgro M owthofplant tsduringinitia alphasesdue etowatering, ,fertilizer,an ndsoil am mendments

Plantsare eplacedinrow wsofplasticPolybagsand dwatered,eit therbyhandorautomatically.Automa atic wateringissuperiorifplantsarebe eingculled(se elected)becauseitismore elikelytoeve enlydistribute ethe waterthe enlaborers.Jatrophaseed dlingsonlyneedtobecove eredduringth heinitial12weeks,afterthat theyprefe ersun. Themajorcostofrunn ninganursery yisthecosto ofthelaborerstomovethe eplantsaround.Onenurs sery rvedthathad dapproximate ely50laborersbeingpaidminimumwa ageinMozam mbique wasobser (~$60/mo onth)thatcou uldproduce4 400,000500,0 000jatrophaseedlingseve ery23month hs(46cycles sper

 year).Thisnurseryoperatorsaidhistotalcosttogetthesaplingstothefieldwas$0.06perplant,and thatthebiggestcostwasrelatedtotransportingtheplantsfromthenurserytothefield. Transportationofseedlingsfromthenurserytothefieldislikelythecurrentbottleneck,andisthe reasonmanycurrentfarmersaretalkingoftheneedformobilenurseriesthatwillreducethe transportationtimefromnurserytothefield.TherehasbeensomediscussionofplacingthePolybags onwoodenpallets,andthenusingforkliftstomovethesearoundthenursery.Atruckthathada shelvingsystemforpalletscouldexpandtheholdingcapacityofthattruckbyseveraltimes,therefore reducingtheamountoftimethetruckspendsdrivingbackandforthbetweenthenurseryandthefields whereitistobeplanted. Majorcostsforanurseryare: Labor Water Fertilizerandsoilamendments Transportationofsaplingstothefield

Labor 50laborersperyearcanprovide108,000manhoursperyear.Ifanurseryproduces3,000,000plants peryear(enoughfor1,5002,500hectares)thenitisproducing27.8plantspermanhouroflabor.Ata wageof$0.33perhourthisisequivalenttoabout$0.012oflaborcostsperplant Water Thecostofwateratthenurseryisvariable,dependinguponthedistancetothenearestwellorwater source.Ifthereisasignificantverticaldepthtoreachthewatertablethentheremaybesignificant energycostsassociatedwithpumpingwatertothenursery. Materials Polybagscost$0.10perbaginquantitiesof100bags.Itshouldnotbeassumedthatbagscanbe reused. FertilizerandSoilAmendments 4:2:2NPKfertilizercostsabout$900/tonne.Thiscanbeaddedtoseedlingsinordertospeeduptheir growthrates.Organicfertilizercanalsobeadded Polyfert,oranothergellingagentisalsoaddedinordertohelpretainnutrientsandtohelptheplan maintainaccesstowater.Polyfertcosts$15perkgandisgenerallyappliedattherateof5gper seedling.

LandPreparationCosts
Landpreparationisthemosttimeconsumingandexpensivepieceoftheinitialestablishmentofa jatrophaproject,andishighlydependentuponthetypeanddensityofthepreexistingvegetation

 coveringtheproject.Largertreestakemuchmoretimetoclear.Landthatiscoveredintreesmay quicklyruintheeconomicsofajatrophaproject. Therearetwobasicmethodsthathavebeenusedtoclearland: Laborintensive Thismethodisthoughttobethemostefficient,butlaborershavemuchmoretrouble,andaremuch slowerwithanythingthatcannotbehandledwiththeirmachete.Withadequateplanning,landcanbe clearedandlargertreescanbekilled,withtheirrootslefttorotthroughtheyearuntilthenextseason. Iftractorsarenotusedforplantingthenthisisnotaproblem.Multiplefarmerswereobservedleaving largertreesaliveinthefield.Thecostforclearingmildlycoveredlandthatwasaformercotton plantationwasquotedat$250perhectareduringthemostefficientperiods. Mechanizedbutsupportedbylabor Thismethodismoreexpensive,butremoveslargerbrushandtreesmuchfasterthanwithlaboralone. Thismethodrequiresmoretractorsandfuelthanthelaborintensivemethodandisparticularly problematicinmoreremoteregions,whereequipmentisoftenbrokenandinneedofrepair5070%of thetime.Thecostforclearingmildlycoveredlandthatwasaformercottonplantationwasquotedat $650perhectareonaverage.Becausetheaveragetractoruses6080litersoffuelperday,itwould needtoaccomplishtheequivalentofatleast3040workersperdaytobeworthwhile. Itmaymakesensetogrowjatrophaonmarginalsoilsifthecostsofclearingandpreparingthelandcan bekepttoaminimum.However,theloweryieldsthatcanbeanticipatedintheseareaswillnotmake projectsfeasibleiftheyarecovereddenselywithbrushortrees.

PlantingCosts
PlantingfromnurserycanbedonerelativelyquicklyifthelandisadequatelypreparedandPolybagsare present.Assumingthatplantsarespacedin3x3rows,eachhectarewillconsistof33rowsand columns,orabout1089plants.Rowsaremeasuredandstaked,andstringisstretchedacrossinorder toensurestraightrowswhenplantedbyhand.Itwillalsotakeanadditional20manhourstosurvey andstakeeachhectare. Transportofseedlingstotheplantinglocation Ifeachlaborercandoonetransplantaboutevery10minutes,thenitwilltake180manhoursfor plantingeachhectare.Dependinguponthedistancefromthepointwheretheseedlingsaredropped off,itmaytakemuchmoretimetotransporttheseedlingstotheappropriatelocationforplanting. Transportingsaplingsfromadropoffpointtoanoutgrowerisamajorbottleneckintheoutgrower scheme,becauseeachoutgrowercanprobablycarrynomorethan20seedlingsbyhand. 180manhoursperhectarewouldcost$57perhectare.

MaintenanceCosts
Pruning Pruningcostsincreasewiththeageoftheplant.Simpledevicesusedtomeasureandprunetheplant maybedevelopedtospeedthisprocess.Thebranchofthejatrophaplantwillsplitthreewaysafter eachpruning.Thefollowingisanestimateofthepruningtimerequired. ThefirstthreepruningapplicationscanbedoneinYear1,thelasttwocanbedoneinYear2.Therefore, thetotalnumberofmanhoursdedicatedtopruningperyearislikely: Weeding Weedingdoesnotneedtobedoneovertheentirehectare,oroncetheplantsreachtwoyearsofage. However,weedingdoneduringtheearlierstagesofplantdevelopmentisnecessaryinordertopreserve thenutrientavailabilityinthesoils. Onemethodthatwasobservedwastogiveeachworkerametalhoop.Thiscouldthenbeplaced aroundtheplant,givingtheworkersavisualguideoftheareatokeepfreeofweeds,potentially doublingtheefficiencyoftheprocessbyreducingtheirdecisionmakingtimeandreducingthedesireto keeptheentireareafreeofweeds. Assumingthatweedingeachplanttakes5minutesofweeding,eachhectareshouldtake90hoursper hectareatacostofabout$28.50perhectare.WeedingshouldbedonefourtimesinYear1andtwicein Year2. Pestmanagement Pestmanagementisamajorofareaofuncertaintyamongexistingcommercialjatrophafarmers.Itis notknownwhattheimplicationsofpestswillbeuponplantyieldsbutproblemshavebeenobservedin thefieldbyvirtuallyanybodywhohasgrownjatropha.InMozambique,themostcommonlyobserved speciesofpestsaregoldenfleabeetle,redspider,andstemborers.Abacteriahasalsobeennotedto formonleavesofjatropha.Thepestsoftencompletelydefoliateentireplantsandfieldsbeforetheyare counteractedwithpesticideapplication. Year1360hours($113.40perhectare) Year2180hours($56.70perhectare) AfterYear2,noweeding Year153hours($16.5perhectare) Year2336hours($105perhectare)

 Mostjatrophaplantswillliveevenafterbeingeatenbyplantsbecausetheyarequickandhearty growersandareabletoregenerateleavesafterbeingeaten.Itisnotknownhowthisaffectstheyields butitcannotbepositive. Thereissomespeculationthattheresistanceofjatrophatopestsimproveswiththeageoftheplant. ThismakessensebutitremainstobeseenifthiswillbethecaseinMozambique.Ifpeoplecanidentify strainsofjatrophawithnaturalresistancetothemajorpestsitwillbeoftremendousvaluetothe industry. Oneoperationwasnotedtohave50fulltimeworkerspatrollingandsprayingonapproximately5,000 hectaresofjatropha.Theselaborersaremoreskilledandshouldbepaidahighersalary.Thiscomesout toabout1fulltimepestmanagerper100hectares.Thecostperhectaremaythenbe: $12perhectare(labor) $20perhectare(chemicals)

Aerialcropdustinghasalsobeendiscussedasapotentialwaytomanagepestsmorecosteffectivelyat alargerscale.However,thecosts,uncertainbenefits,andpotentialenvironmentalhazardshave preventedanyjatrophafarmersfromusingthistechniquesignificantly.

Yields
Thekeysitespecificandtechnicaldriversthathavebeenidentifiedtoaffectyieldsofjatrophaare: Intensityofsunlight Wateravailabilityandseasonality o Below800mm/yearisonlowend,1200mm/yearisgood,1500mm/yearisexcellent o Excellentsoilmoistureholdingcapacityoraccesstoawatertablemayreplacesome rainfall Soilnutrientavailabilityandwelldrainingsoil

Thereislittlereliableinformationontheyieldsofjatropha,whichhaveprobablybeenoverstatedin manycases.Asurveyoftheliteratureanddiscussionwithexpertsindicatesthatwemayexpectthe followingyieldconditions:

YieldAssumptions(tonnes/seedhectare)
Year 1 2 3 4 5 marginal 0.0 0.9 1.5 2.3 2.0 moderate 0.0 2.0 3.2 5.0 4.0 productive 0.0 3.0 4.5 7.2 8.0

 Thereisalsoalackofreliableinformationabouttheamountofoilthatcanbeexpectedpertonneof seedcollected.Ageneticcomponentlikelyplayssomeroleintheoilcompositionofeachseed,aswell astheenvironmentalvariablesofclimate,nutrientavailability,andavailabilityofsunlight. Percentageofoilassumptions(%byweight)

Low Mid High 22% 32% 42%

Moreresearchisneedtoincreasetheoilyieldsofjatrophaonaperhectarebasis.Thiswilllikelybean ongoingeffortoverthenext1020years.CollaborationonR&Damongfarmers,universities,and governmentinstitutesisintheinterestofalljatrophaproducers. EffectsofFertilizer Fertilizermaybeaddedtoimproveyieldsonpoorsoils,atarecommendedrateof250kgperhectare for4:2:2NPKfertilizer.Thisisestimatedtocostabout$900/tonnefortherawmaterials,or$225per hectare,iffertilizerisdeemedworthwhiletoapply. EffectsofIrrigation Irrigationwillsignificantlyincreasetheyieldsofajatrophaproject,butatadditionalcosts.Itisunknown exactlywhatthebenefitstotheplantproductionwillbe,andthisishighlysitespecific,asarethecosts ofanyirrigationsystem.Bothdripirrigationsystemsandfloodsystemsshouldbeconsidered.If jatrophaisnecessitatedtobegrownontrulymarginalland,thenirrigationwilloftennotbefeasible, becauseconvertingmostlandtoirrigationwillmakeitsuitableforfoodcrops.Also,waterisoftenthe mostpreciousresourceintheseareas,anddrawingwaterfromanoverdraftedwatersystemwillcause politicalcontention.Irrigationwillmostlikelyonlybesustainableinareaswherethereisasignificant excessofwateravailable,bothtothelocalcommunity,theenvironment,andtothecommunities downstream.Thesesituationsarerareandprobablyonlyoccurwherepreexistingirrigation infrastructureexistedthatisnotbeingused,orwherelargedamsstoreanexcessofwateryearround.

HarvestCosts
Thereisnotmuchinformationonharvesteconomicsofjatrophabecauseoftheyoungstageofthe jatrophaindustry.Jatrophaplantsdevelopseedsatstaggeringintervals,whichmeansseveralpasses willneedtobemadethrougheachfield.Harvestmaytakeplaceoverseveralmonths,andpossibly twiceperyearinsomeregions.Multiplescenarioscouldbeusedforharvesting,awagebasedsystem orasystemwherelaborersarepaidbasedonthequantityofjatrophaseedstheybringtoacentral collectionpoint,ortocollectiontrucks. Oxcartsmaybeusedasintermediatetransportationtofacilitatecollectionfromharvesterstothe centralcollectionpoint.

 Wagebasedsystem Assumingthatittakesabout3hoursforaworkertopickenoughjatrophatofilla32kgbag,jatropha maybeabletobeharvestedfortheequivalentofabout$39pertonne.However,thisassumesclose enoughproximitytoroads,andknowledgeofareaswherejatrophahasalreadybeenharvested,so thereislessduplicationofeffort. Harvestpaybytime

6.0 0.5 0.5 7.0 31.3 218.8 $68 hourstofilla32kgbag hourstocarryitbacktoapickuppoint hourstowalkbacktofield totalhoursper32kgbag bagspertonne hourspertonne pricepertonne

Awagebasedsystemalsohaslessincentiveforworkerstopickjatrophaseedsthatarenotmature,in ordertofilluptheirbagsquicker.Workerswouldbeabletocarrytheirbagstocollectionpointswithout needingtoweighormeasurethemforquantityorquality,whichwouldsavetime.Finally,inthis system,bagsofjatrophacouldbedumpedandworkerscouldreturntoimmediatelybeginpicking, ratherthanwaittobepaid. Priceperquantity Ifharvestersarepaidbythequantity,thiscouldallowforaquickerrampupoftheavailableworkforce duringperiodswherethisisneededfortheharvest.Workersshouldbepaidatleasttheequivalentof theirnextbestalternative. InMozambique,onebenchmarktocomparethistomaybecharcoal.Ingeneral,charcoalproductionis averytimeandlaborintensiveprocess.OnestudyproducedbytheUniversidadedeEduardo Mondlaneshowedthattheaveragebagsizeofcharcoalwas32kg,andthattheaveragepricepaidfor thisbagpaidtoproducers(priortotransport)was$1US.Iftheequivalentcouldbeachievedfor jatrophathenharvestcostwouldbe$31.20pertonne. Akibbutztypeofsystemmayalsobeexplored,althoughitisuncertainhowthiswouldworkinthe culturalcontextofMozambique. Harvestsummary Thesecostsareestimatesthatwillneedtoberefinedasmoredataiscollectedovertime.Little informationexistsontheeconomicsofjatrophaharvesting,especiallyonlargescaleplantations,and especiallyinAfrica. However,modelingsuggeststwokeypointsabouttheharvesteconomics Harvestingisoneofthemajorcostsoverthelifetimeoftheproject Harvesteconomicsaredrivenbyrangeinwhichvehicleswithlimitedcapacitymusttravel;

 Thebestplannedprojectswillultimatelyfavorprojectsthatfindtherighttradeoffbetweenhaving economiesofscaleforoilextractionandthosewhichmayhavemultiple,moredispersedoilextraction facilitiesthatreducelongdistancebulktransport.Someminimumdensityofoutgrowerswillbe requiredinorderforharvesttransportlogisticstowork.

Localtransportationtoexpeller
Anoilexpellermustbelocatedwithinthevicinityoftheproject.Oiltypicallymakesupbetween2035% oftheseedbyweight,andevenlessbyvolume.Therefore,expellingandpurifyingtheoilreducesthe transportationcostsassociatedwithsellingtheproduct. Thereareseveralvariationsofmethodsthatcouldbeusedforcollectingjatrophaseedsfromharvest Payinglocalbukkie(pickup)drivers>butriskbeingcaptivetoamiddlemanmarkup Loadingdirectlyintotruckortractortrailers Loadingintocontainersortrailersthatareleftbytrucksortractorsandarethenlaterpickedup

Withacentrallymanagedplantationstylefarmcontainerscanbeleftinthefield,filled,andthenpicked upandtakentotheexpellingfacilitybyatruckortractor.Thesecontainerscangenerallyholdabout20 tonnesofjatrophaseed.Onecontainermaybefilledwhileanotherisbeingtransportedandunloaded, minimizingthewaitingtimethatmustbedonebytheheavyequipmentoperators.Theestimatedcost pertonneforthismethodofcollectionisapproximately$17pertonne,withthemajorexpensebeing theamortizationofthecontainersandtheheavyequipment. Localpublictransportmayalsobebenchmarkedinordertounderstandanacceptableoperatingmargin forlightvehicledrivers.TwobenchmarksinMozambiquetocomparethistwoare: Chapadrivers(usedfortransportingpeople) Bukkiedrivers(usedfortransportingpeopleandcharcoalorcashews)

Withamoredispersedcollectionsystemmaking70kmroundtrippickupswithabukkie,itwas calculatedthatthecollectioncostwouldbeabout$64.50pertonneofjatrophaseed,whichcoveredthe amortizationofthevehicle,wageofthedriver,andcostoffuel.Asacomparisonorbenchmark,a similarchaparidewouldtakeinabout$50inrevenue.Therefore,collectioncanbedoneovergreater distancesbutthecostswilladdup.Witha33%oilextractionratio,thiscomesouttoalmost$200per tonne,or$0.20perLiterincollectioncosts. Asabenchmarkforlocaltransportation,Chapadriverstakeinapproximately$5060inrevenueforthe 70kmtripbetweenChibutoandXaiXai.However,apremiumpricemayneedtobepaidinorderto divertsomeoftheirresourcestoanewandseasonalbusinesswithlesscertaintyaroundtheirrevenue opportunity.DriversmaybereluctanttoabandontheirexistingChaparoutesforevenalimitedperiod oftimeiftheyfearitwillupsettheircustomers.Also,allowingindependentdriverstoloadacommodity productopensuptheopportunityforanotherbuyertoenterandpotentiallybuytheproduct.

OilExpelling
Oilexpellersare,cheap,modularandcanbeboughtgraduallyasanoperationscalesup.Oilexpelling costspertonofcapacityrangefrom$14perton/yeartoover$40perton/yearofcapacity.Atlarger scalesover5,000hectares,largerscalecrushingandsolventbasedextractionmaybegintomakesense. A100tonneperdayextractionunitcosts$30,000.Eachoftheseunitswillalsorequireabout8laborers toruntheequipmentandtohelpwithunloading. Therefore,eachtonneofjatrophaseedthatisprocessedcanbeassumedtocost$6.33pertonne. However,thisamountisequivalenttothetonnageofseedprocessed.Assumingthattheprocess resultsin30%oftheoilproducedbyweight,itresultsinapredictedcostof$21.08pertonne. Oilexpellingper10tonne/dayexpeller
$30,000 120 1,200 $25.00

$4.28 8 10 $0.045 $0.45 $1,920 $1.60 $6.33 30% oilyieldefficiency $21.08 costpertonneofoil

capitalcost,10tonne/dayoilexpeller daysoperatedperyear capacity(tonnes/year)8hourdays,120dayworkyear costpertonneofcapacity amortizedcostpertonneofcapacity(15%interest,15year payback) laborerstorun electricitypertonne(kW) costofelectricityperkWh costofelectricitypertonne wagesforlaborers,perexpeller wagesforlaborers,pertonne totalcostpertonneofexpelling

Thisefficiencycouldbeincreasedifexpellingequipmentwereoperatedyearround.However,this wouldbeproblematic,asitwouldrequirelargequantitiesofjatrophaseedtobeleftsitting. Oilcanbetransportedbeforeorafterthebiodieselrefiningstage.Transportationcaneitherbe arrangeddirectlywithatransportcompany.Alternatively,Petromocmayestablishcontractsthatallow themtopickuptheoildirectlyfromthefarmswheretheyareproduced.

OilStorage
Afteroilexpelling,Flexitankscanbeusedtostoreoiluntilitcanbetruckedoffsite.Thesewere estimatedbyTechnoServetocost$650per21tonneunit,peryear.Thisequatestoapproximately$31 pertonneforoilstorage.

Transportationtoport
Theproductofanyprojectwillmostlikelyneedtobetransportedtoamajorportatsomepoint,either forrefiningtobiodieselorforblendingintodieselsupplies.Thiscostmaybereducedorremoved entirelyifmodularrefiningisemployedthatisclosertothefinaldistributionpoints. BasedupondatafromPetromocandothershippersofagriculturallyderivedliquidswecanassume:

Refining
Althougharefinerycanbeamajorcapitalinvestment,itdoesnot comprisethemajorportionofthevalueadd.Furthermore, biodieselrefiningprovidesverylittleemploymentbenefitin comparisontothecreationofthevegetableoil. Still,biodieselrefiningcouldbedoneinMozambiqueona modularscale.Thiswouldbemostbeneficialinregionswherethe distributioncostsofdieselfuelarealreadyhigh,suchastheareas thatarealongdistancefromtheports.

 Becausejatrophaoilcanbeprofitablyshippedandsold,biodieselrefiningisavaluablerealoption.Ifit becomeseconomicallyadvantageousfortheprojecttobuildarefinerythereisalwaystheoptiontodo so.However,onceaprojectinvestsinrefiningcapacity,itmustsupplyataportionofthatcapacityto payoffthecapitalinvestment,forfeitingtheoptiontoselltothe(potentially)moreprofitableand subsidizeddownstreaminternationalrefininganddistributionmarkets. Refining

$180.00 $52.00 $30.78 $82.78 $pertonneinstalledcapacity $pertonneoperatingcosts amortizedcostpertonneofcapacity(15%interest,15year payback) totalcostspertonneforrefiningofbiodiesel

Refining $180.00 $52.00 $30.78 $82.78 $pertonneinstalledcapacity $pertonneoperatingcosts amortizedcostpertonneofcapacity(15%interest,15yearpayback) totalcostspertonneforrefiningofbiodiesel

Weshouldalsoassumethatanybiodieselrefineryisonlyabletooperateat50%ofcapacityonaverage ifitrefinedinanimmatureandisolatedmarketlikeMozambique.Becauseoftheseasonalnatureof jatropha,thelackofamaturestoragesystem,therearelackofeconomiesofscaletooffloadsurplus rawoilsoninternationalmarkets. Biodieselrefiningprovidesmuchlesseconomicbenefittolaborersperdollarofinvestmentin comparisontotheproductionoftheoil.Forexample,abiodieselrefineryprocessing40,000,000liters ofbiodieselperyearwouldneedonlytoemployroughly20people.Ajatrophaoperationproducingthe 40,000,000litersoffeedstockforthatsamerefinerywouldemployatleast5,000people.

Managementandotheroverheads
Organization Fieldlaborersshouldbemanagedbysupervisorsinteamsof1520individuals.Ingeneral,itmakes sensetocompensateworkerstosomedegreebaseduponmeasurableperformance,whenthisis possible.Teamscanbetrainedtospecializeincertaintasks,suchasnurseryoperations,clearing, planting,etc.,butwillalsoneedtobeflexibleintheskillstheydevelopinordertoadjusttodifferent seasonaldemands.Forexample,plantingshouldonlybedoneduringthewetseason,soplanterswill alsoneedtobeabletoclearandpreplandduringthedryseason,ordomaintenance. Supervisorsmaybemanagedingroupsof10,andeffortsmustbemadetomeasuretheprogressofthe teamsthatarerunbythesesupervisors,ideallyrewardingthemwithsometypeofperformancebonus orpraise.

 Foranexample10,000hectareoperation: 10managersandaccountants 100supervisors 1500Fieldlaborers(90teamsof1520) 50pestmanagementstaff 50nurserystaff

Tocompensateforadditionalmanagementoverheadsaddanadditional20%toalllaborcosts. Aworkerslevelofrankisidentifiedbythecoloringoftheirclothingorprotectiveequipment. Training Fivedaysoftrainingwillbepermittedbeforeanyrealworkistobegin.Theprimaryfocusofthis trainingshouldbesafety.ItwillbeimportantforsupervisorstobefluentbothinPortugueseandthe locallanguage.Abilitytoreadorwriteisalsoabonus. AdditionalCertifications Workersshallbeofferedsomeincreaseinwagesiftheycanproducecertificatesorpasstests demonstratingthefollowingskills: AbilitytoreadandwriteinPortuguese AbilitytospeakEnglish Driverslicense Safteycertifications

PersonalProtectiveEquipment(PPE) Boots,overalls,gloves,hardhats,andprotectiveglassescanbepurchasedinbulkforatotalofabout350 Rand(~$50).Itshouldbeassumedthateachfieldworkerisissued12setsofPPEperyear. Classesshouldbeofferedforregisteredemployeesandtheirfamilies.

InternationalTransport
Ifinternationalmarketsaretargeted,sufficienteconomiesofscalemustbereachedfortransportation tobecomeefficient.Forexample,thepricesquotedbelowindicateaminimumquantityof17,000tons.

Thiswouldrequireatleast18,00019,000hectaresofcultivationinthevicinityofaporttofilloneship. Althoughthisiscertainlypossible,itwouldrequireasignificantamountofstoragetobeutilizedinthe port.Intheimmediatefutureoilmaybeshippedeitherinlinedcontainersorusedincountry.

Economiesofscalewithshipping 17,000 tons 3 tons/hectareofseed 30% yieldofoilfromseed 18,889 hectaresrequiredtofillship

MarketAnalysis
Thepriceofbiodieselfeedstockiscurrentlyhighenoughwhereitiscausingsomebiodieselplantsinthe USandtheEUtoshutdown,asthevalueofbiodieselisnothighenoughabovethevalueofthe vegetableoiltocoverthevalueofthevariablecosts.Thereasonthatthevalueofthevegetableoil feedstocksarenearlythesameasthevalueofbiodieselare: Foodmarketsdelinktheinput(vegetableoils)withtheoutput(biodiesel),andhighervalue foodmarketsdriveuptheprice SubsidiestobiodieselblendersintheUSof$0.25perLiterenablethemtoconvertvegetableoil tobiodieselwithsubsidiesthatoffsetsomeoftheirmarginalcosts.Thismakesitpossibleto importvegetableoilsintheUS,convertthemtobiodieselandreceivethesubsidycredit,and subsequentlyexporttheoiltoEurope.

Thelongtermpriceofbiodieselfeedstockwilldependprimarilyon: Thepriceofoil Internationalsubsidiesandblendingrequirements Competitionfromfoodmarkets ThevalueofCO2credits(toalesserdegree)

Thepriceofpalmoilbeingusedforbiodieselmaybeanadequatebenchmark,withaslightdiscount takenbecauseofthefactthatjatrophaisnotafoodcrop,whichshouldgiveaninherentlylowervalue (unlessinternationalsubsidiesaretweakedtofavorthisnatureofthecrop). Alternatively,onecouldsignacontractthatislinkingthecostofvegetableoilto thepriceperbarrelofoil,withsomevariationofthefollowingformula: (Retailpriceofdieselfuel)x75% Forbiodiesel,arangeofforecastsexist.Theconditionofinternational regulationsandblendingrequirementsintheEUandUSarethekeyprice drivers,asarepotentialblendrequirementsinMozambique.Theseprices indicatewhatcouldbeexpectedaftertransportation.Thispricewouldbe significantlylower(~$75$100/tonne)priortransportationtothetargetmarket.

BiodieselPriceForecast(FOBintargetmarket)
Low Mid High priceofdieselminus15% sameaspriceofdiesel priceofdieselplus20%

Recently,thepriceofcrudevegetableoilshavebeguntoencroachupontherefiningmarginsof biodieselproducers.Thisispartiallydotolinkageswithfoodmarketsandpartiallyduetotheblenders creditintheUSof~$0.25perliter.Becausethissubsidyisapproximatelyequivalenttotheblenders credit,refinerscanaffordtooperatewhenthepriceofvegetableoilsarenearthepriceofbiodiesel.

Pricesofbiodiesel,inputs,andbyproducts duringFeb.2008
1600 1400 1200 1000 800 600 400 200 0 29Jan08 5Feb08 Glycerin,Central Soyoil,crude,GulfcoastUSA 12Feb08 19Feb08 Methanol,contract Biodiesel,USA 26Feb08

OutgrowerEconomics
Anoutgrowersopportunitycostsmustbeevaluatedinorderforittounderstandifitisworthitforhim toparticipateinanoutgrowerscheme.Onecommonmisconceptionisthatoutgrowershaveunlimited timeinwhichtoworkontheiroutgrowerbusiness.Inreality,thesefarmersareoftenverybusywith growingtheirsubsistencecropsandattendingtoraisingtheirfamilies. Jatrophapresentsseveralproblemsforoutgrowersthatmustbesolvedinorderforanoutgrower systemtobesuccessful Ittakesatleast2yearsuntilplantsproducemeaningfulyields,andpossibly45yearsbefore theyreachmaximumproduction;thisisalongterminvestmenttoapoorfarmerwith immediateproblemstobesolvedandmouthstofeed Plantscannotbeeaten,andsothereisnobackupplanforfarmerswhodonottrustthatthey willreceiveafairpriceforwhattheyproduce Transportationmakesupamajorcostofgrowingjatropha;longtransportrouteswithmany stopswilldriveuptransportcostsofcollectionandharvestsignificantlyandwillrequiregreater complexityofthecollectionlogistics.Someminimumlevelofdensitywillberequiredfor jatrophatomakesense,evenforoutgrowers

 Pestmanagementhasbeenshowntobeanissuewithjatropha;coordinatingproactivepest managementthroughtheuseofpesticideswouldbeverydifficult,andpossiblyunsafe,if workingwithadispersednetworkofoutgrowers Jatrophaseedsarenotahighvaluecroponthebasisofweight,butplantproductionishigh. Withefficientcollectionlogisticsinplaceaprocessorcouldaffordtopay$0.10$0.30maximum totheoutgrowerfarmer,dependinguponthepriceoftheirofftakecontractandthesupport networkthatisofferedtofarmers,suchaspestmanagement,nurseryservices,andagricultural extensionservices

Employeesystem AbeginningemployeeinMozambiquewouldexpecttoearnabout$60/monthinwages,or$720per year.Somejatrophafarmsallowemployeestochoosewhichhourstheywishtowork.Inthissituation, employeeschosetoworkfrom4amto12pm,whenthedayiscooler,andthentaketherestoftheday offtotendtotheirownsubsistencefarms.Thisfarmalsosetaside10%oflandontheareagrantedfor subsistencefarmingbytheemployees,andplowedthelandforthemwithhistractorinordertoreduce thelabortheyneededtoexpend. Outgrowersystem Inordertoearntheequivalentof$720peryear,anoutgrowerwouldneedtoproduceabout3.5tonnes ofjatrophaseed(paidaround$200/tonne)fortheirproduct.Collectionlogisticswouldbemuchmore efficientifoutgrowerslocatedneareachotherandfilledupcontainersleftinthefield,whichwould requireaminimumefficientscaleof2030tonnesofseedinthevicinityofeachcontainer.Thiswould likelyconsistofseveralfamiliesofoutgrowers,whichwouldthenaddcomplexitywithmeasuringhow muchtocompensateeachmemberofthegroup. AverageyieldintheChibutoareauponmaturityisestimatedtobeabout23tonnesfor1000mature andwellmaintainedplants1.Therefore,eachoutgrowerwouldneedtomaintainabout2hectaresof plantsinordertoearnthesameastheypotentiallycouldasemployeesofajatrophaoperation.This amountoflandisprobablywhatisreasonablyavailableinthecurrentmashambasystemwithout requiringgreatwalkingdistances. However,theywouldobviouslynotbeabletoreceivepaymentforatleasttwoyearsafterstartingwork ontheirproject.Becausethemajorityoftheworkisinclearingandpreparingtheland,thisrepresentsa significantriskoftimeintoaprojectthatmayhaveuncertainresultsforthem.Also,itassumesthat thereislittlethievery,eitherinthefieldsorwhenpeoplearestoringtheirharvestforcollection. Itwillbeimportanttodeterminetheworkpatternsofindividualsthroughouttheyearandtoensure thattherearenomajorconflictswiththetimingofjatrophafruitionifanoutgrowersystemistobe successful.
Thisisassumedtobeonmarginalsoils,withoutirrigationorfertilizer.Withirrigationorfertilizertheseyields coulddouble.
1

ByproductsandWasteStreams
Furthervaluemaybeobtainedfrommultiplewastestreamsandbyproducts: Glycerin CO2credits

Glycerin Glycerinisproducedatapproximatelytheratioof1:9,Glycerin:Biodiesel,dependinguponthe equipmentconfigurationandchemicalinputs.Glycerincanbeusedorsoldasafeedstockfor pharmaceuticals,soap,andotherchemicals.Currently,themarketvalueofglycerinisabout$500per tonne.Therefore,incurrentmarkets,thiswouldaddabout$55ofrevenueforeachtonneofbiodiesel produced. CO2Credits AjatrophabiodieselprojectmayreceiveCDMcreditsforthebiodieselthatisconsumed.Withtodays priceforecastsforcarbon,thiscouldcontributeroughly$0.02$0.05perLiter(~$20$50pertonne). However,themethodologytoobtainthesecreditscanbecomplex,andoftenhasregistrationfeesofat least$100,000.Therefore,obtainingthesecreditsshouldnotbeassumedtooccurunlessbiodieselis beingconsumedordistributedcentrallyorinamannerthatcanbetracked.

Risks&Barriers
Themajorrisksforajatrophabiodieselprojectare: Marketrisk Ifthepriceofcrudeoilordieseldropscannotsustainalevelaboveoperatingcosts,thenprojectswill shutdown.Thiscanbeaddressedvialongtermofftakecontractsandhedges. Technicalrisk Amajorriskofjatrophaisthatthereisstillalotagriculturalsciencethatneedstotakeplace.Thisis particularytruewithpestmanagement,whichappearstobeagreaterproblemthanwasoriginally thought.Italsoappliestooptimizingdevelopmentandchoiceofdifferentseedvarietalsfordifferent climaticandsoilconditions. Politicalrisk Inadditiontoahighpriceofpetroleumbaseddiesel,thebiodieselindustryiscurrentlysupportedby subsidiesintheEUandtheUS.Removalofthesesubsidiesorevenbanningofbiofuelsbecauseofthe foodversusfueldebatecouldleadtocollapseofthebiodieselindustry.However,policiescouldalsobe directedtofavorcropslikejatrophathatdonotcompetewithfood. Policiesinproducingcountriescouldharmjatrophaiftheyrestrictjatrophacultivationduetoperceived competitionwithfoodcropsorenvironmentaldamage.Likewise,mandatoryincreasesinminimum wagewouldsignificantlyraiseproductionpricesinthedevelopingworldandmayshiftbusinessmodels moretowardsoutgrowerbasedorcontractschemes.

 isk FOREXri Currencyfluctuationsw willnotbeam majorriskove erall.Howev ver,ifproducingcountriesseetheir currenciesappreciatev versustheDo ollarortheEu uro,thenproductionprice eswillgoup.Thiscanbe addressed dviacurrency yhedging. Barrierstoimpleme entation Themajorbarrierstoimplementing gprojectsare ecurrently: Accesstoland&longtimelineofgovern nmentproces ssforprojects sandlandapprovals Availabilityofagribusinessskills Accesstocapit tal Understanding goftaxissues saroundrefin ningandblen ndinginMoza ambique Accesstoinfor rmationabou utsoilconditio ons,climate,andyieldsfo orjatropha

Econom micAnaly ysisofthe eJatropha aValueCh hain

Costbrea akdown Thefollow wingpiechart tdisplaysthe epredictedco ostbreakdownpertonneo ofbiodieselp produced,as realizedo overthe30ye earlifeofa5, ,000hectareproject,atad discountrate eof7%.Thep predictedyieldis fourtonesperhectare e.Itisclearthatthetwog greatestcosts sarealsothosewhichtheagricultural hegreatestabilitytocontr rolfarmest tablishmenta andtransport.Thetotalco ost projectmanagerhasth pertonne etoproduceb biodieselfrom mthisproject tisroughly$7 775perbarre el.Thecosto ofproducingt the crudejatr rophaoilfort thisprojectis s$640.8.

JatrophaBiodieselCostBreakdown($/tonne)
International Transport,$91.8 Clearing& Planting,$116.4

Refining,$49.7

Nursery,$4.1 General Maintenance& Overheads,$67.2

Transportto Port,$48.5 Expelling& Storage,$36.3

Clearing&Planting

Harvest&Transport toExpelling,$243.1 Nursery FertilizerandIrrigation Expelling&Storage Refining

GeneralMaintenance&Overheads Harvest&TransporttoExpelling TransporttoPort InternationalTransport

Thecoststructureofajatrophabiodieselplantationislikelytohavealargeinitialinvestmentfollowed byrelativelystableoperatingcosts.Thegraphbelowdepictsexpellingandrefiningcostsasbeing amortizedastheyarescaledup.Thiscouldalsobethoughtofasatollingfeepaidtoanexternal refiner.Iftherefiningequipmentispurchasedupfrontitwouldrequireacapitalinvestmentof approximately$3.7MM.

CostTimelinefora5,500haJatrophaPlantation
$6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Nursery FertilizerandIrrigation Expelling&Storage Refining

Clearing&Planting GeneralMaintenance&Overheads Harvest&TransporttoExpelling TransporttoPort InternationalTransport

InvestmentProfile

SalestoDomesticMarkets:FCFsandCumulativeDCFs
20,000,000 15,000,000 10,000,000 5,000,000 0 5,000,000 10,000,000 15,000,000 FreeCashFlows CumulativeDCF ProductionofBiodiesel(tonnes) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000

Thisprojectwasmodeledwithayieldof4tons/ha,totalestablishmentcostsof$1250perhectare,a midrangepriceofbiodiesel,andadiscountrateof9%.

 CostofBiodieselProductionfromJatropha:SensitivityAnalysis Biodieselmaybeproducedprofitablyevenatlowyieldsifthecostsareadequatelymanaged.Alow cost,lowproductionoutgrowerschememaybesuccessfulifharvestandagriculturaloutreachcostsare keptinplace.However,ahighlycapitalintensiveprojectwillneedtogetexcellentyieldsabove4tonnes ofseedperhectareinordertobeprofitable.

Yield (tonnes seed/ha) 2 4 2 4 2 4 2 4 2 4 2 4 2 4 2 4 2 4 Priceper Literin Chibuto $0.37 $0.28 $0.49 $0.40 $0.69 $0.59 $0.53 $0.35 $0.65 $0.47 $0.84 $0.67 $0.67 $0.43 $0.79 $0.55 $0.99 $0.74

Establishment Costs(perha) $463.25 $463.25 $463.25 $463.25 $463.25 $463.25 $1,251.35 $1,251.35 $1,251.35 $1,251.35 $1,251.35 $1,251.35 $2,018.03 $2,018.03 $2,018.03 $2,018.03 $2,018.03 $2,018.03

HarvestCosts(per tonneseed) $35.00 $35.00 $76.25 $76.25 $142.50 $142.50 $35.00 $35.00 $76.25 $76.25 $142.50 $142.50 $35.00 $35.00 $76.25 $76.25 $142.50 $142.50

NPV 8,378,401 24,949,230 5,321,032 18,834,502 371,689 8,982,613 3,627,948 20,198,777 570,579 14,084,049 (4,378,764) 4,232,160 (978,384) 15,592,445 (4,035,753) 9,477,717 (8,985,096) (374,172)

ProfitabilityinDifferentMarketScenarios Ajatrophaprojectwillhaveaprofitmarginaslongastheoperatingcostspertonnearelessthanthe marketvalueofbiodiesel.

cesaremode eledasincreasingvaluesth hatarerefere encedtoadie eselpricefore ecast.The Thesepric average3 30yearvalues sarelistedinthefollowing gtable. verage30yearvalueofbiodieselpert tonne Modeledav Low Mid High $830.0 09 $1,219.86 $ $1,563 3.34 LaborIn ntensiveness sandSocial Benefits Laborisestimatedtom makeup67%oftotalexpe endituresoverthelifeofanyjatrophap project.Thiscould emendouspo ositiveeconom micimpactne earthecomm munitiesinwh hichtheyaresited.Inone e haveatre communit tywhereajatrophaprojec ctisbeingde eveloped,thenumberofst toresandsho opshasincrea ased from2to33sincethedevelopment tofanearbyjatrophaproject,inadditi iontoanewt townwelland Aprojectcane expecttohav veover$400/ /haofoperati ingexpensesspentonlaboreachyear, , school.A dependinguponharve estefficiencies.

Conclu usion
Thissignsshowthatbi iodieselcanb beproducedf fromjatropha aatacostlev velthatiscom mpetitive,or an,todaysmarketpriceof fpetroleumd diesel.Thisty ypeofproduc ctionwillbee especially bettertha beneficial ltobothprod ducersandco onsumersinA Africa,whichhasparticularlyhighdiese elpricesinmo ost locationsthatarenotn neartoports.Producinga andconsumin ngbiodiesello ocallyalsoreducestransport odieselinAfrica. anddistributioncosts,whichalsohelpstobuildtheeconomiccaseforbio Thisproductcouldbev verybeneficialtoAfricaseconomyifadequatecare eistakentom makesuretha at displacepeopleorfood.In nthelongrun n,developmentofR&Daro oundjatrophawill largeprojectsdonotd producem muchhighery yieldswithlowerinputcos sts,duetoim mprovedknow wledgearoundbestgrowin ng

 practicesandgeneticvarietalsindifferentclimatesandsoiltypes.However,theearlymoverswillbe theoneswhohaveaccesstothisknowledge,andwillalsohavetheadvantageofhavingacquiredthe mosteconomicalplantinglocationsforjatropha. Inlightoftherecentfoodcrisis,jatrophacurrentlyappearstobetheonlybiofuelsfeedstockthatdoes notcompetewithfoodthatisreadytobedeployedtoday.Forthisreason,recentinvestmentin jatrophahassurgedandwillcontinuetosurgeintheforeseeablefuture. Finally,aninvestmentinawellrunjatrophaprojectisstillinmanywaysabetonpetroleumprices remaininghigh.Thiscouldmakelargeinvestmentsinjatrophaahedgeagainsthighoilpricestomany corporationsorfinancialinstitutions,aswellasahedgeagainstthepotentialvalueofcarbonemittedby theirpetroleumconsumptioninemergingcarbonmarkets.

Appendices
PotentialpolicyoptionsforMozambique
Phase1(Years13)providestablegrowthconditionsforanascentbiodieselindustry Offerminimumguaranteedpriceof$800/tonneforjatrophaoil,whichisabovethecostsofthe producerbutpermitoperationstoshiptheirproductabroad Offerbreaksfromfueltaxes&VATinordertohelpmakebiodieselmorecompetitive Petromocoranotheragencyshouldestablishcentralizedstorageandblendingfacilitiesinkey producingregions Producersover150kmfromportsshouldbepermittedtoblendandselltheirownbiodieselwith minimumregulatoryburdenotherthanensuringbiodieselqualitystandards EstablishprogramatUEMfocusedonbiodieselcultivationandprocessing,seekingpartnership andfundingfromoutsideorganizations Speedapprovalsprocessformarginalland,identifyclustersoflandand/orcriteriawhereproject approvalcanbereducedto90days o Offerquickerregulatoryapprovalforagreementonprojectstoleave10%ofland availabletoprojectforfoodproductionorconservationforatleast7years Goal:atleast200,000hectaresofjatrophaundercultivationonprimarilymarginallandin4 years

Phase2(Years35)fixefficiencybottlenecksinthebiodieselsystemandexpandtoincludeoutgrowers Ensurethatappropriateinvestmenttakesplacearoundoilstorageintheports Reevaluatebiodieselpricestodeterminehowmuchbiodieselrefiningcapacityshouldbe installedinMozambiqueversussoldabroad Evaluateprimelocationsformodularbiodieselrefiningontheinteriorofthecountryasameans toreducetransport/distributioncoststoandfromtheports StimulategrowthinproductionofMalawiandZimbabwe,minimizetaxationfortheexportof biodieselfeedstockfromthesecountriesastheywillhelptopayfordevelopmentofrailand portinfrastructure IfdecisionismadetoblendintoMozambiquesdieseldistributionsystem,obtaincertificateof compensationforappropriateCO2credits

Phase3(Year6out)expandasamajorplayerintheinternationalmarkets Economiesofscalearereachedforinternationalshipping o Bringsinforeigncurrencyandhelpstobalancethecurrentaccount o Pointlocationsforblendingmakesiteasytoverifythatincometaxesarebeingpaidon fuel

 Jatrophaprojectswillbemostfeasibleonlandwithminimalclearingcosts,andwherejatrophacanbe planteddenselyenoughtoreducethelocaltransportationcosts,especiallywithharvesting. IfinternationalmarketsbecomethetargetofaMozambiquebiodieselpolicythenproximitytoamajor portwillbeofkeyimportanceandmanyinteriorprojects,wherelandismostavailable,willnotbeas attractivewithoutveryhigheconomiesofscalebeingreached.Investmentinthebiodieselrefining stagewillnotbeasattractive,ashigherreturnscanbeearnedthroughthelaborintensiveproductionof therawoils.Mozambiquewillnotnecessarilyneedtotakeactiontopursuethisstrategyotherthan reducingthebarrierstoinvestinginbiofuelsprojectssuchastheamountoftimeanduncertainty aroundtheprojectsapprovalprocess. IfdomesticmarketsbecomethetargetoftheMozambiquebiodieselpolicy,thenjatrophaprojectsthat arelocatedontheinteriormaybegintolooksomewhatmoreattractivetoinvestorsifthereispotential torefineandsellasignificantportionoftheirproductlocallybyusingsmallerscalebiodieselrefining units.However,theseprojectswillstillfacethelogisticalcomplexitiesofgettingequipmentand materialsintotheirprojectsiteatahighercostsandprojectareaswillneedtobelargeenoughtohave significanteconomiesofscalewithtransportation.Tostimulatedevelopmentofprojectsontheinterior Mozambiquecouldmandateahigherbiodieselblendingrequirementinthisregionthenneartheports. Also,inisolatedareasitwouldbeimportanttoguaranteefairpricesbeingpaidbyPetroMocandother distributorstoproducers,eitherfortherawoilsorforarefinedbiodieselproduct.Alternatively, farmerscouldbepermittedtosellB100withoutenteringthesameregulatoryprocessasotherdiesel distributors. IfPetroMocoranotherentitydoesmandateabiodieselblend,theyshouldalsoattempttoprocessthe documentationsurroundingCO2emissioncreditsthemselves,andpassalongsomeofthisbenefitto biodieselproducersviaahigherofftakeprice.Incurrentmarkets,eachliterofbiodieselblendedby Petromoccouldgeneratetheequivalentof$0.02$0.05perLiteradditionalrevenuethroughcreditsfor CO2.IfMozambiqueweretoblend10%biodieselintonetconsumptionof500,000tonnesofdieselfuel thiscouldresultinadditionalrevenuesof$1,000,000to$2,700,000peryear.Thisvaluewouldbelikely togrowinthefuture,asthevalueofCERcreditsgrow.Althoughvaluableatthenationalscale,the massofpaperworkrequiredtoobtainthemhasnotmadeitworthwhileforanyjatrophafarmeror plantationtoobtainthem,yet.

PotentialforLandAuctions
Becauseoftheeconomicattractivenessjatrophaprojectshave,thegovernmentmaywishtoconsider auctioningtherightstothetoplargepiecesoflandthataredeemedtobeappropriateforjatropha cultivation.ThiswouldhelptoraiseadditionalrevenueforMozambiqueaswellastodeterminewhich companiesaretheseriousplayers.Atimewindowwouldneedtocreatedforwhenaprojectwould needtobeginbyinordertoreduceoccurrencesofmerespeculationontheland.Anotherprocess couldbecreatedthatwouldallowcompaniestoformallyrequestthegovernmenttoputapieceofland upforauction.Ifspecificpiecesoflandwereupforauctionitmayattracttheattentionofmany

 Westerncompanies,whicharenotaccustomedtotheconceptoffreeland,andwhowouldotherwise beunfamiliarwithstartingajatrophaprojectinMozambique. Thesefundscouldbeearmarkedforspecificprojectsrelatedtoagriculture,suchasthecreationofan agriculturalresearchcenterthroughtheUniversity.Someportioncouldalsobesetasideinatrustfund thatwouldpay~10%ofthebalanceininteresteveryyear.

OthermeansofstimulatinginvestmentinMozambique
Mozambiqueshouldbeginsendingrepresentativestomajorbiofuelsandrenewableenergyconferences intheUSandEUtoadvertisetheworkthathasbeendoneonformalizingtheprocessesforestablishing biofuelsprojects.Mozambiquecouldalsoconsiderpostingaddsinleadingbusinesspublicationsand newspapersinglobalfinancialcenters.AccesstofinancefromwithinMozambiqueiscurrentlyone barriertoimplementingjatrophaprojects.Greaterexposuretotheforeigninvestmentcommunitywill helptoreducethatbarrier.

DescriptionofFinancialModel
AuserfriendlyfinancialmodelwasdesignedandcreatedinMicrosoftExcelinordertohelpunderstand thesensitivitiesofapotentialjatrophabiodieselproject.Inputsweregivenforlowmidandhigh parameters,withmidparametersbeingsetforthevaluesthataremostlikelytobeencounteredin Mozambique,baseduponpriorresearchandinformationencounteredduring~8weeksspentin Mozambique,consultationwithjatrophaagronomyexperts,and2visitstoworkingjatrophafarmsin country.Manyofthelogisticalinputsaroundfreightandtransportcomesfromastudydonebythe WorldBankforthegovernmentofMozambique,fromPetroMoc(thenationalpetroleumdistribution company),andfromaUSbiodieselcompanysfreightdepartment. Ingeneral,datafrommultiplesourceswascombinedinordertodeterminewhatmakessensein Mozambique.EvenwithinMozambique,differentphilosophiesaboutprojectdesignandoperations seemedtotakeamajorturn.Asawhole,mostofthecommercialfarmerswithover200hectaresunder cultivationseemedtopreferacentrallymanagedschemetoanoutgrowersystem,atleastatthispoint inthedevelopmentoftheplant.Therewerealsodifferentstrategiesrelatedtomechanizedversus laborintensivestrategies,andhighinputprojectsseekinghighyieldsversusthosethatattempttobe lowcostonaperhectarebasiswhilecultivatingalargeramountofhectaresmorequickly.These differencesinphilosophiesshouldbeexaminedbeforecostingoutanyspecificprojectinadditionto makingacarefulapproximationattheyieldthatmaybeobtained. JeffLeBrunwillcontinuetoworkonandrefinethismodel.Hemaybecontactedforupdatedversionsat jlebrun@umich.edu

Revenue&FinancialParameters
Operational
Yield(perhectare) Oilextractionefficiency

CostParameters
StartupCosts
Clearing Nurserylabor Nurserymaterials Planting Pruning Weeding

Prices

Priceofbiodiesel PriceofCO2reductioncredits Priceofglycerin Companydiscountrate Costofdebt Taxrate

CAPEXCosts
Oilexpelling Oilstorage Biodieselrefining Biodieselwashing Tractorleases Pickuptrucklease

FinancialParameters
Companydiscountrate Costofdebt Taxrate

OperatingCosts
Pestcontrollabor Pesticides Electricityconsumptionforrefiningandoil expelling PriceofElectricity Methanol Otherchemicalinputsforbiodieselrefining Localtransport Transporttoport InternationaltransporttoEUandUSA(optional) Fertilzer(optional) Irrigation(optional) Costoflabor

Outputs
NetPresentValue(NPV) Breakdownofcostsbystageofproject Breakdownof%laborcosts Costpertonne Costperbarrel