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Bioethanol in Brazil – a norwegian experience BNCC 4 November 2008 Global energy outlook A radical change in the energy chain • The world must move from a global energy system that is: VULNERABLE DIRTY EXPENSIVE • To a competitive energy future based on new policies on : ENERGY EFFICIENCY RENEWABLES NUCLEAR • Government action creates incentives to change existing investment patterns • There is no single economically and technologically feasible solution – only a mix • Biofuels is an important part of the mix (Source: IEA World Energy Outlook 2006 and UNEP 2007) Core knowledge • A significant part of the world’s fuel consumption will come from sustainable biofuels – • Sustainable biodiesel and bioethanol provide energy security and climate change mitigation Sugarcane is by far the most efficient feedstock for bioethanol – – • Highest land and energy efficiency due to efficient photosynthesis Largest reduction in greenhouse gas emissions, generally 80% relative to emissions from fossil fuels Brazil is currently the lowest cost producer of sugarcane ethanol in the world – – – – • Vast territorial expanse Favorable climate Technological, agricultural and industrially developed with high competency level No direct conflicts The domestic market in Brazil is already well established – export potential increasing – – • Increasing demand from growing flex-fuel car fleet Infrastructure for export developing Umoe BioEnergy is an integrated bioethanol company with growth ambitions – – – 3 Value chain secured – land positions and agri-industrial assets Production start-up in 2008 and expansion in 2009/10 Strategic growth opportunities COMPANY PRESENTATION Biofuels – transportation fuel derived from biomass • • • Liquid or gas transportation fuel derived from biomass BIOETHANOL • Production process based on conversion of biomass into sugars, and/or fermentation of carbon sugars with final distillation of ethanol to fuel grade Automotive transport the most common use • Feedstocks includes cereal crops, corn (maize), sugar cane, sugar beets, potatoes, sorghum, cassava Cost, energy efficiency and carbon footprint varies among different technologies and biomass • Ethanol is used in low 5%-10% blends with gasoline (E5, E10) but also as E-85 in flex-fuel vehicles (gasoline must contain a minimum of 22% bioethanol in Brazil) BIODIESEL • Bioethanol and biodiesel are the most common biofuels • Production is based on trans-esterification of vegetable oils and fats through the addition of methanol (or other alcohols) and a catalyst, giving glycerol as a co-product • Ethanol is currently accounting for more than 90% of total biofuel usage • Feedstock includes rapeseeds, sunflower seeds, soy seeds, palm oil seeds from which the oil is extracted chemically or mechanically and algae • Biodiesel is currently most often used in 5%-20% blends (B5, B20) with conventional diesel, or even in pure B100 form Source: IEA Energy Technology Essentials, January 07 4 COMPANY PRESENTATION Sugar cane ethanol essentials • Cost winner among current biofuels – • • 5 Economically viable >40 $/bbl oil • Sustainable at right location – High land efficiency – The most land efficient biomass for bioethanol – ~50 % more efficient than US corn High energy efficiency – One of the plant kingdom’s most efficient photosynthesis – By far the most energy efficient feedstock for bioethanol – Energy output/input ratio 9,3 COMPANY PRESENTATION • • No direct conflicts Provide energy security – Renewable – Land and energy efficient Significant GHG reduction – The largest reduction in CO2 among biofuels – 75-90% well-to-wheels compared to gasoline The low cost sugar cane ethanol ESTIMATED COST OF BIOFUELS Compared with the prices of oil and oil products (biofuels exclusive taxes) BIOFUEL 2006 (USD/LITRE) 1. Price of oil, USD/barrel 0.50-0.80 2. Corresponding pre-tax price of petroleum products US cents/litre 0.35-0.60 COST WINNER 3. Correspondonding price of petroleum products with taxes included, USD/litre (retail price) In Europe: 1.50-200 In US: ~0.80 4. Ethanol from sugar cane 0.25-0.50 0.25-0.35 5. Ethanol from corn 0.60-0.80 0.35-0.55 6. Ethanol from beet 0.60-0.80 0.40-0.60 7. Ethanol from wheat 0.70-0.95 0.45-0.65 8. Ethanol from lignocellulose 0.80-1.10 0.25-0.65 9. Biodiesel from animal fats 0.40-0.55 0.40-0.50 10. Biodiesel from vegetable oils 0.70-1.00 0.40-0.75 11. Fischer-Tropsch synthesis liquids 0.90-1.00 0.70-0.85 Source: The Royal Society, Sustainable biofuels, January 2008 6 LONG TERM ~2030 (USD/LITRE) COMPANY PRESENTATION Sugar cane The leading product in terms of production cost • By far the most efficient feedstock when it comes to production costs • Import barriers through local subsidies and import tariffs for Brazilian produced ethanol apply in US and in Europe. 7 COMPANY PRESENTATION Sugar cane The leading product in terms of land efficiency YIELD PER REGION/FEEDSTOCK Liter ethanol/ha 7000 6000 5000 4000 3000 -52.3% -60.0% 2000 1000 0 Sugar cane, Brazil Sugar beet, Sugar cane, EU India Corn, US Source: 8 COMPANY PRESENTATION Wheat, EU Sugar cane By far the most energy efficient feedstock ENERGY OUTPUT/INPUT RATIO The ratio describes units of energy created using 1 unit of energy in production 8,5 Sugarcane ethanol 8.0-9.0 vs. US corn ethanol 1.5-1.8 2,9 Sugar cane ethanol 2,5 2 Soybean Rapeseed Palm oil biodiesel biodiesel biodiesel 2 Jatropha biodiesel Source: Goldman Sachs 9 COMPANY PRESENTATION 1,7 Sugar beets ethanol 1,6 Corn ethanol 1,2 Wheat ethanol Current bioethanol market GLOBAL SUPPLY MARKET Illustration Net importer Net exporter New technology Domestic supply US Scale and experience efficiencies France Brazil China Spain Germany Sweden India South Africa Start-up industry Thailand Italy Argentina Nigeria Austria Poland Transition Ukraine Japan UK Domestic market Bilateral deals (Few trading partners) International market (Few trading partners) Source: Accenture primary analysis 10 COMPANY PRESENTATION Global market Why sugar cane ethanol from Brazil? • Economically, socially and environmentally sustainable transportation fuel – Cost competitive in a growing fuel market – No direct conflicts with food, water or biodiversity – Particularly energy and land efficient feedstock utilizing renewable solar energy – Significant greenhouse gas emissions reduction – Unique production environment in tropical Brazil, in a well established industry 11 COMPANY PRESENTATION Brazil has stabilised politically and economically • More than 20 years of military rule ended in 1985 • A new constitution was ratified in 1988 • The government of Fernando Henrique Cardoso (1995-2002) • – Ended hyperinflation and advanced reforms to liberalise the economy – But public-debt indicators deteriorated amid low economic growth The current government, under the president, Luiz Inacio Lula da Silva – Has been successful in consolidating macroeconomic stability – Stepping up social spending • Implementation of deeper reforms needed to accelerate growth 12 Source: The Economist Intelligence Unit, August 2008 COMPANY PRESENTATION A changing business environment in Brazil The emergence of a new private market economy NEW PARADIGMS OLD PARADIGMS • Hyperinflation • Massive shortages • Financial turmoil • • Declined interest rates and rising market competition acts as defense against inflation • Economy resistant to turbulence due to structural demand and focus on commodities Low capital inflow • Reduced public debt and regained investmentgrade status • Devaluation of the real in 1999 • High capital inflow • Heavy and complex tax burdens • Program of large infrastructure investments • Underdeveloped bank structure and little opportunity to manage risks locally • Economic reforms and sound macroeconomic policies • Relaxation of restrictions on investment • Local and international banks increase presence • New equity and debt issues expected • M&A activity • Increased focus on environment and sustainability • Little investments in infrastructure • By 2001-02, the economy was stable but hibernate, at the same time as inflation again threatened… 13 Source: The Economist Intelligence Unit, August 2008, McKinsey, Newsweek, CIA, UN Brazilian economy accelerating without overheating • South America's leading economic power – – Macroeconomic outlook of 4-5 percent GDP growth A floating exchange rate, an inflation-targeting regime, and a tight fiscal policy are the three pillars of the present economic program • Expanding presence in world markets • Vast natural resources and a large labor pool • Industrial and agricultural growth and development – • Large and well-developed agricultural, mining, manufacturing, and service sectors Fiscal problems persist, preventing a steeper decline in interest rates – Public debt remains high at around 41.2% of GDP Source: The Economist Intelligence Unit, August 2008 and McKinsey 14 COMPANY PRESENTATION Annual data 2007 Population (million) 189.3 GDP (US$ bn; market exchange rate) Historical averages (%) 1,313.7 2003-07 Population growth 1.1 Real GDP growth 3.6 Real domestic demand gorwth 4.1 Inflation 4.2 Current-account balance (% of GDP) 1.1 FDI inflows (% of GDP) 2.1 Major exports (% of total) 2007 Transport equipment&parts 12.5 Metallurgical products 11.6 Soybeans, meal&oils 8.2 Chemical products 1.9 Brazil offers sustainable bioethanol production • No direct conflicts with food; rainforests; water; biodiversity • The most productive land areas in the world for sugar cane production – – – – Resource rich – sun, water and high yield arable land Longer harvest cycles Greater cane production per hectare Brazilians sugar cane has higher sugar content • Capable of expanding sugarcane operations multiple times • Highest cane crop competence • Established domestic industry and market for ethanol production and consumption • Increasing demand from growing domestic flex-fuel car fleet • BRAZIL’S VAST TERRITORIAL EXPANSE Arable land of 550 million ha equates to 33 countries in Europe Only 22 % of available arable land is utilized Forest preservation requirements of 20-30% Infrastructure developing – export potential increasing Source: Infoamricas, MB Agro 15 COMPANY PRESENTATION Brazil is the world’s leading sugarcane producer • 2007/2008 harvest 487Mtons from 350 plants – • Re-use of bagasse new power source for electricty supply Industry developed over the last 30 years – 16 South-Central 85% of production Sao Paulo > 60% of production Sugar mills in Brazil are becoming power/electricity self-sufficient – • Less than 50% of this goes to ethanol, rest become sugar. Sugarcane is grown mainly in SouthCentral and North-easthern regions, with two different harvest periodes – – • Areas marked in red indicate where sugarcane is harvested and sugar, ethanol and bioelectricity plants are located. Sugarcane cultivation covers 7.8M ha, 2.3% of domestic arable land – • Of which 250 were combined mills and distilleries and 100 pure play ethanol SUGARCANE PRODUCING REGIONS IN BRAZIL Continual technological improvements Source: UNICA, NIPE-Unicamp, IBGE, CTC COMPANY PRESENTATION Brazilian industry’s impact on the environment • • Soil occupation not in conflict with food production or rain forests – 1,0% of Brazil’s territory is used for sugar cane for ethanol – supports 54% of all car fuel consumption – Sao Paulo production areas not in conflict with the Amazon Rain Forest; the Pantanal; Atlantic Forest Reduction of greenhouse gas emissions – • 75-90% wheels-to-wheels compared to gasoline Limited impact on water supply – Brazil has the greatest availability of water in the world • Biodiversity secured through regional area planning and forest preservation requirements • Improved air quality in cities and rural area – Ethanol utilization has led to improved quality reducing; lead compounds in gasoline; sulphur; CO2 emissions; reactivity and toxicity of organic compound emissions Source: ‘Sugar Cane’s Energy’. 2007. UNICA 17 COMPANY PRESENTATION ‘OUR MISSION IS TO SUPPLY THE WORLD WITH EFFICIENT, CLEAN AND SUSTAINABLE BIOENERGY’ ‘OUR VISION IS TO BECOME A MAJOR AND SUSTAINABLE PRODUCER AND PREFERRED SUPPLIER OF ETHANOL TO THE INTERNATIONAL MARKETS FOR BIOFUEL. AND FURTHER CREATE A STATE OF THE ART INTERNATIONALLY FOCUSED OPERATION’ 18 COMPANY PRESENTATION Umoe BioEnergy is an integrated bioethanol company Bioethanol + power LAND 19 AGRICULTURAL OPERATIONS INDUSTRIAL OPERATIONS SALES • Sustainable value chain – no conflicts, land control, target 100% mechanized agri-operations • Competitive business model – low cost, energy and land efficient sugar cane ethanol • Unique production environment in Sao Paulo, Brazil – well established industry • Production start-up fall 2008 and full production in 2009 – reaching 2.9M tons/annum • ~1700 employees COMPANY PRESENTATION History 2003 • PROJECT INITIATION Acquisition of a 0.3Mtons per annum crushing capacity distillery by Brazilian ethanol investor (Valencia) 2006 • STRATEGIC GROWTH ALLIANCE Brazilian ethanol investor and Norwegian energy investors • LAND POSITIONS SECURED Long term lease contracts in the Paranapanema region • EPC TURNKEY CONTRACT NEW MILL Signed with consortium of leading Brazilian suppliers • EXPANSION CAPITAL RAISED USD 85 million bonds / USD 55 million equity, in June • OTC LISTED In July on the NOTC list in Oslo, Norway • CONSTRUCTION STARTED ON MILLS Works 1 restructuring and Works 2 green field project started • FURTHER LAND POSITION SECURED Land secured with ownership and long-term lease contracts • UMOE MAJOR SHAREHOLDER USD 27 million equity private placement in January • FURTHER LAND POSITIONS SECURED Land secured and agricultural mechanical equipment delivered • EXECUTIVE MANAGEMENT IN PLACE Strengthened project management and control capabilities • CONSTRUCTION IN PROGRESS Phase 1: Works 1 (1.0Mtons) and Works 2 (1.9Mtons) • FURTHER CAPITAL RAISED USD 67 million in equity in May • SCHEDULED PRODUCTION START-UP Works 1 in September 2008 and Works 2 in November 2008 2007 2008 20 COMPANY PRESENTATION Value chain integrated bioethanol company LAND AGRICULTURAL INDUSTRIAL 12 - 18 months 0 - 9 months OWN FORMING LEASE PLANTING THIRD PARTY CARING ETHANOL PRODUCTION - RECEPTION - CRUSHING - FERMENTATION - DISTILLATION HARVESTING COGENERATION / POWER • Secure high-yield areas is a key success factor for bioethanol companies • Reputation and CSR are transaction agents • Land survey • Approx 70% of the value chain costs are related to the agricultural part • Bio-engineering technology • Requires high expertise in the industry Key success factors: • Proven technology • Operational excellence • Equipment sourcing • Sophisticated logistic management 21 SALES COMPANY PRESENTATION MARKETING DISTRIBUTION • Bioethanol sold through gasoline distributors: – Petrobras – Shell – Exxon – Texaco++ Umoe BioEnergy is a industry frontrunner SUGAR CANE ETHANOL IS A FRONTRUNNER WITHIN THE BIOETHANOL MARKET • Energy and cost efficient sugar cane ethanol • Highly competent bioethanol industry in Brazil • Brazilian business and industry environment continually improving • Already well established domestic bioethanol market in Brazil • Export potential growing UMOE BIOENERGY A FRONTRUNNER WITHIN THE SUGAR CANE ETHANOL INDUSTRY LAND • • • • • • • 22 AGRICULTURAL INDUSTRIAL Land positions secured in Brazil High agricultural competence +95% mechanized agri-operations Significant HR and HSE focus High project execution competence No direct conflicts with food, rainforests, water, biodiversity Active and long term industrial owner COMPANY PRESENTATION SALES Company growth vision EXPANSION IN PHASES Growth • Become a major, long term and sustainable producer of bio-ethanol • Create an international business operation based on best practice governance principles PHASE 3 • Become a preferred supplier of bio-ethanol to international oil companies and other buyers Production expansion + Cogeneration • By 2013 sustainably control Organic growth in region PHASE 4 Growth through acquisitions PHASE 2 – 1,000M liters/year bioethanol production Create foundation – 12.0Mtons per annum sugarcane crushing capacity PHASE 1 – 150.000 ha land – 1,000 MW electric power production capacity 2007 23 2008 2009 2010 2011 2012 2013 COMPANY PRESENTATION Regional focus within the Sao Paulo state • Operational assets in Paranapanema region – • Agricultural assets – – SAO PAULO • • WORKS 2 - SANDOVALINA 24 Crushing capacity 2.9Mtons (3.6Mtons in 2010) Output volume 240.000 m3 hydrous ethanol (295.000 m3 in 2010) Production Works 1 - Remodeled distillery – – – WORKS 1 - NARANDIBA Securing of total 36.000 ha (89.000 acres) 28.000 ha pt secured (21.800 leased / 1.400 owned/ 4.800 3rd party) Consolidated industrial capacity: – – • Brazilian head office in city of Ribeirao Preto Municipality: Narandiba Crushing capacity: 1.0Mtons Production start Sep’08 / 100% complete Production works 2 - Greenfield mill constructed (EPC) – – – Municipality : Sandovalina Crushing capacity : 1.9Mtons (2.6Mtons in 2010) Ramp-up Nov’08 / 99% complete COMPANY PRESENTATION Sao Paulo 25 COMPANY PRESENTATION Agricultural operations • Key strategic part of the value chain – • • 70% of the company’s ’strategic value’ 100% mechanized operations – Vs. 30% average in Brazilian agriculture – Vs. 60% average in Sao Paulo – No cane burning Operational exellence emphazise – Agri-technical experienced management – Highly competent workforce – Educational programmes – Minimum salary protection • Feedstock flexibility with crop alternatives • High competency and complex industry – 26 High level of R&D in agri-industry COMPANY PRESENTATION Agricultural equipment 27 Industrial operations PRODUCTION CAPACITY PRODUCTION WORKS 1 • Remodeled distillery • Municipality: Narandiba • Crushing capacity: – • • Tons crushing capacity/annum 1000 Works 1 1.0Mtons in 2008 Started production Sep’08 100% complete 1900 700 Works 2 PRODUCTION WORKS 2 • Greenfield mill constructed (EPC) • Municipality : Sandovalina • Crushing capacity – – • • 2900 Total 1.9Mtons in 2009 2.6Mtons in 2010) Ramp-up Nov.’08 100% complete 0 1000 2000 3000 4000 Phase 1 28 700 COMPANY PRESENTATION Phase 2 Industrial operations Narandiba 29 Industrial operations Sandovalina 30 Current manning 5% 17% Industrial Agricultural Central administration 78% INDUSTRIAL Operators, management, supervisiors, project managers 296 AGRICULTURAL Rural employees, agricultural management and supervisiors 1346 ADMINISTRATION All inclusive Total 31 COMPANY PRESENTATION 95 1737 Paranapanema project – Phase 1 and 2 EXPANSION IN PHASES Growth Production expansion + Cogeneration PHASE 2 AGRICULTURAL ASSETS 10,000 ha land INDUSTRIAL ASSETS 0.7M tons/annum 284,000 Mwh SUBJECT TO FINANCING Create foundation PHASE 1 AGRICULTURAL ASSETS 36,000 ha land INDUSTRIAL ASSETS 2.9M tons/annum CONSTRUCTION TO BE COMPLETED IN 2008 2007 32 2008 2009 COMPANY PRESENTATION 2010 Phase 1 - ongoing project CONSTRUCTION TO BE COMPLETED IN 2008 PROJECT LOCATION Sao Paulo, Brazil AGRICULTURAL ASSETS 36,000 ha land INDUSTRIAL ASSETS 2.9M tons/annum PARANAPANEMA REGION LAND PRODUCTION WORKS 1 Works 1 and 2 are approx. 30 km apart 28,000 ha presently secured : - 21,800 leased - 1,400 owned - 4,800 third party) - Remodeled distillery -1.0M tons/annum crushing capacity -100% compl. Prod.started sept’08 - Municipality of Narandiba 36,000 ha totally to be secured to support 2.9M tons/year crushing capasity PRODUCTION EQUIPMENT 33 PRODUCTION WORKS 2 - Greenfield mill constructed (EPC) - 1.9M tons/annum crushing capacity - 100% completed; ramp up Nov’08. - Municipality of Sandovalina CLT equipment: - Cutting - Loading - Transport CONSOLIDATED CAPACITY PRODUCTIVITY PRODUCTIVITY Average farm productivity: 97 tons/ha (07/08 harvest) Average industrial productivity 2008/09: 85 l. ethanol / ton sugar cane COMPANY PRESENTATION - 2.9M tons / annum crushing capacity - 240.000 m3 hydrous ethanol Phase 2 - investment plan project SUBJECT TO FINANCING PROJECT LOCATION Sao Paulo, Brazil AGRICULTURAL ASSETS 10,000 ha land PARANAPANEMA REGION LAND Works 2 and cogeneration Need to secure 10.000 ha additional land to support additional 0.7M tons crushing capacity and totally 3.6M tons crushing capacity INDUSTRIAL ASSETS 0.7M tons/annum 284,000 Mwh EXPANSION WORKS 2 Capacity expansion of Production Works 2 with 0.7M tons crushing capacity to 3,6 million tons COGENERATION PLANT Cogeneration plant with excess output capacity up to 284,000 Mwh PRODUCTION EQUIPMENT CLT equipment: - Cutting - Loading - Transport 34 COMPANY PRESENTATION CONSOLIDATED CAPACITY 3.6M tons / annum crushing capacity 298.000 m3 hydrous ethanol 284,000 Mwh production capacity Experiences Project specific: • Poor initial project planning • Project execution challenges and delays • Lack of financial control and planning • Lack of adherence to required licences and permits • Poor quality control 35 Experiences General framework and conditions: • Generally well regulated • Strengthened regulations and permits (environment and social responsibility focus) • Rules not always well enforced and policed – lead to unbalanced conditions and requirements across country • Bureaucracy is a huge time and effort cost to industries • Unpredictable tax regime • Sugar industry cleaning up still required to secure 100% stamp of sustainability • Easy to differentiate ourself from the average industry 36 Shareholders PER 2008-09-08 NUMBER OF SHARES % UMOE INVEST AS VALENCIA S.A.R.L CAMILLO ENERGY AS RBC DEXIA INVESTOR SERVICES BANK SAF INVEST AS MATHIAS HOLDING AS VERDIPAPIRFONDETFNVEKS AMROTH AS PECUNIA FORVALTNING AS CAIANO AS WARRENWICKLUND NORGE JACO INVEST AS SJØINVEST AS NB AKSJEFOND FARINVEST AS JPMORGAN CHASE BANK AUDLEY A/S CLIPPER A/S STRAEN A/S MORGAN STANLEY & CO. INC. 37496120 6242285 1275000 1000000 800000 656246 568154 550000 355096 250000 200024 165000 165000 128099 127835 120360 100000 100000 100000 81362 72.4 12.0 2.5 1.9 1.5 1.3 1.1 1.1 0.7 0.5 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 TOPP 20 REST 50480581 1334981 97.4 2.6 TOTAL OUTSTANDING SHARES 51815562 SHAREHOLDERS 37 85 COMPANY PRESENTATION The Umoe Group • Norwegian investment company and one of Norway’s largest private companies • An active long-term owner and investor • – develop new companies through acquisition, restructuring and organic growth – counter-cyclically investments and willingly accept the risks associated – see management as co-owners in the companies in which they invest Investments include – marine transportation – maritime equipment industries – Shipyards – oil & gas services – catering services – IT/telecom • Founded in 1984, by sole owner and president and CEO Jens Ulltveit-Moe • www.umoe.no 38 COMPANY PRESENTATION