1 Investment Opportunity in Biodiesel in the Valley of the São Francisco River INTEGRATED...

1 www.codevasf.gov.br

Investment Opportunity in Biodiesel in the Valley of the São Francisco River

INTEGRATED SUSTAINABLE BUSINESS PROJECT


Project Team

PRESIDENT OF THE REPUBLIC MINISTER OF NATIONAL INTEGRATIONLuiz Inácio Lula da Silva Geddel Vieira Lima

CODEVASF DIRECTORY

President: Orlando Cezar da Costa Castro

Cabinet Chief: Manoel Geraldo Dayrell

Director of the area of Integrated Development and Infra-Structure: Clementino Souza Coelho

Executive Secretary: José Eduardo Borella

Director of the area of Irrigation Companies Management: Raimundo Deusdará Filho

Executive Secretary: Frederico Calazans Machado

Director of the Area of Hydrografic Basins Revitalization: Jonas Paulo de Oliveira Neres

Executive Secretary: Silas Macedo

Executive Manager of Strategic Administration: Alexandre Isaac Freire

Executive Secretary of Administrative Management and Logistic Support: João Honório Carvalho Ramos


Agenda

• Introduction

• Business Model

• Profitability Analysis

• Irrigation Projects (CODEVASF)


INTRODUCTION

• Project DescriptionThe project is a governmental initiative, aiming to attract investments to the Valley of the São Francisco River (web page: http://www.fundace.org.br/pins).

• PENSAAgribusiness Intelligence Center. PENSA researchers are responsible for the business models proposition, economic and marketing analysis and for the interaction with potential investors tailoring the analysis to their particular needs (web page: http://www.pensa.org.br).

• CODEVASFDevelopment agency associated to the Brazilian Ministry of Integration, which the mission is to develop economically and socially the Valley of the São Francisco and Parnaíba Rivers (web page : http://www.codevasf.gov.br).


Scenario

• Considering the B5 scenario, the impact for the arable land n Brazil will be even more relevant depending on the chosen crop, and the production technology.

• It will create an additional demand of 13.7 million ha for soy, sunflower, cotton, castor and palm trees.

Crop Current area (ha)

Increase(ha) Percentage (%)

Additional Production

(ton)Soya 18,534,300 3,408,885 18.39 1,363,554

Sunflower 43,200 3,097,981 7171.25 1,548,990Cotton 739,200 4,437,500 600.31 1,331,250

Castor tree 128,000 2,454,787 1917.80 98,315Palm Tree 45,000 307,667 683.70 769,167

Total 13,706,820

Source: PENSA, based on CONAB, IBGE, FAESP.Obs.: Considered yields : Soya – 0,4 ton/ha; Sunflower – 0,5 ton/ha; Cotton – 0,3 ton/ha; Castor 0,4 ton/ha; Palm– 2,5 ton/ha;

This area may be entirely found at the Brazilian

northeastern


Considered Chains for Biodiesel Production in this Project

Palm: • Brazil is the third largest producer of palm oil, and Para is the state in Brazil with

the largest production volume, however it does show some sanitary constraints;• Palm oil will have an important role at the biodiesel production: high yields (an

average of 31 ton/ha), high amounts of oil per bunch (22.5%) and long agricultural production cycle (average of 30 years);

Jatropha: • This oleaginous is being studied at several research centers in Brazil, including

EMBRAPA and EPAMIG, with the promise of oil supply for biodiesel;• It resists very well dry conditions and it has high yields per bunch per hectare

(average of 5 tons), high oil content per fruit (38%) and a long production cycle ( average of 30 years);


Palm – Business Model


• EMBRAPA has an extensive work aimed to increase the palm yields in the semi arid climate;

• Natural high potential for production of high yields seeds for the dry and high luminosity conditions;

• Fertile land in abundance (concession for 30 years), including the neighboring areas surrounding the irrigation projects;

• Good financing conditions (Banks: Banco do Nordeste, Banco do Brasil e BNDES);

• Infra-structure for production disposal (ports and roads) for the internal and external markets;

• Close to the European and North American markets;• Tax incentives for including small holders into the biodiesel chains• Perspective of B5 scenario already for 2010.

Why investing in Palm production in the Valley of the São Francisco River?


Business Model

Vegetal Oil

Oil Extractors

Service Constracts

Shared Machinery and Implements

Anchor Company

Food and Chemistry Industry


Small Holder

Vertical Integration

Anchor CompanyOil Extraction and Biodiesel Production

Food Industry

Chemical industry

Sales in Bunches Production :Refined Palm OilPalmist Oil CakeBiodiesel for Free Fatty Acid

Commercialization

Oil Industry

Business Model

For the agricultural area, the participation will be 30% will be vertically integrated by the anchor company and the other 70% will be occupied by small holders vertically coordinated and contracted with the anchor company.


..

..

..

Business Model Opportunity

Grower AGrower A

Grower BGrower B

Grower nGrower n

CooperativeCooperativeSPESPE

(Biodiesel Plant +(Biodiesel Plant +

Crushing facility)Crushing facility)

A+B+CA+B+C

AA

BBAnchor

Other CC

Cooperative = 20%Cooperative = 20%

Anchor Company = 51%Anchor Company = 51%

Others = 29%Others = 29%


Business Model

Crushing plant

Retailer

(Gas Stations)INPUTS

Payment for the seed bunches

(-) minus service and financial expenses (+) plus share of profit

Traders Exports

External Growers

Financing agentFinancing agent

Cooperative producers

Payment for the seed bunches

Distribution channelDistribution channel


Players Role Definition

External Producers Small holders cooperatives Anchor company

- External growers may sell to the anchor company;

-Establish sales contracts;

-Anchor company may participate at harvesting.

- It consolidates the area of small holders;

- It receives for the fruits and pays for the services related to agricultural operations;

- Assist the grower with technical assistance;

- It manages the input purchases;

-It manages the irrigation systems;

-It follows the agricultural plan of the anchor company.

- It coordinates all agricultural activities;

-It receives the right of use regarding the land (CDRU);

- It will share the land for the small holders and will select the growers;

- It will provide guidance for the cooperative technicians considering ag technical assistance.


Ag Production Processing

PINS – BIODIESELPalm oil

Refinment

Assumptions & Summary

Machinery and Implements Investment

Graphs

Biodiesel Plan

1 Hectare

"n" Hectar(s)

Other Cultures

Simulations "n"

Ag Cost

100% Own Capital

Scenario

PAL

M

Logistics and Production

100% Own Capital

50% Own Capital

50% Bank Loan

Tax

Participation in the Project (%)

Assumptions

Sensitivity analysis


Agricultural Production

Source: PENSA.

0%

10%

20%

30%

40%

50%

60%

Participation (%)


Cooperative Area

Others


Assumptions

Data based on EMBRAPA

Palm ConsiderationsUS$ 1.00 ==> R$ 1.85

Area ("n" há(s)) ==> 5,000.00

In Between Crops

Crops ======>

Area ("n" há(s)) ==> 4,500.00Correction factor for the production area 10%

Banana

Pineapple

Manioc

MAIN REVENUE SOURCE ==> 3

3 POTENTIAL REVENUE

1 Palm oil; Palmiste; Cake

2 Biodiesel (50%); Palm (50%); Palmiste; Cake

3 Biodiesel (100%), Palmiste and Cake

4 Palma; Palmiste; Cake; Biodiesel

available revenue options

IMPORTANT

Revenue is obtained from the sales of biodiesel and the cake.

Minimum Level of Return on Capital ==> 15%


Assumptions

Historical prices 1.101.20

Historical Prices

US$/TON ReviewedHistorical Prices

(US$)

Reviewed Price (R$)

FFB 93 77.5 172.05 R$/tonCPO 540.00 450.00 999.00 22.50%PK 225.00 187.50 416.25 R$/tonPKO 900.00 750.00 1,665.00 R$/tonCake 63.00 52.50 116.55 R$/ton

F Proce 1.20 Biodiesel 1.08 0.90 2.01 LiterAuction 1 0.95Auction 2 0.9Auction 3 0.875Auction 4 0.87Auction 5 0.925

AVERAGE EXTRACTION FOR REVENUE CALCULATIONCPO 22.50% FFB PK 5.00% FFBPKO 39.00% PKCake 54.00% PKOil for sale (minus Free Fatty Acid) 92.50% Free Fatty Acid generated from Gegetal Oil 7.50% Biodiesel Desity (KG/L) 0.88 Biodiesel production per Free Fatty Acid 1.1


PESSOA FÍSICA PESSOA JURÍDICA

Real profit Assumed Profit Real Profict

PINS 0.00% 0.65% 0.65%

COFINS 0.00% 3.00% 3.00%FUNRURAL 2.30% 2.85% 2.85%

IMPOSTO DE RENDA ==>According to

revenueAccording to revenue According to

revenueCSLL 0.00% 1.08% 9.00%CPMF 0.38% 0.38% 0.38%

“Pessoa Física” – REAL PROFIT“Pessoa Jurídica” – ASSUMED

PROFIT

“Pessoa Jurídica” – REAL PROFIT

OPTIONS

PARAMETERS

TAX SYSTEM SELECTION


Pessoa Jurídica – “Assumed Profit”

There is the right to use the Social Stamp

Plant area ==>SIM

Share of Profit & Losses

Agricultural Vertically integrated area 50%Cooperative Area 50%Other 0%Total ==> 100%

1

Processing Anchor Investor 100%Growers 0%Outhers 0%Total ==> 100%

0

SOCIAL SEAL

TRIBUTOS

1 0

agricultural processingPIS PIS

0.65% 0.65%

COFINS COFINS

3.00% 3.00%

ASSUMPTIONS


Assumptions

IRRIGAÇÃO UNITY R$ US$

Irrigation Investment

R$/ha 5,000 2,702.70 Drains 1,000 540.54

Aditional Investments for renewing Pipes 15 YEARS 50,0%

2,500.00 4,625.00

OPERATIONAL COST - WATER 1 ha

# DAYS 150.00

# HOURS PER DAY (h) 12

Water price

K1 R$ / ha / mês R$ 8.00 96.00 51.89

K2 a R$/ ha/mês R$ 26.0 312.00 168.65K2b R$ / m3 R$ 0.05 Evaporation mm / day 8.00 Evaporation mm / year 1,200 Precipitation mm / year 350

Evaporation balance mm / year 850 Water need yearly m3 / year 8,500 Water consumption Yearly m3 / year 12,000

Efficience 95% 11,400 425.00 229.73

Water expenses total 833.00 450.27Operational Cost 1 ha 0,5 CV Kwa/h 0.3675 Consumption Kwa/year 661.5 Energy cost R$/Kwa 0.10645

Energy cost R$/há/year 70.42 R$

38.06 Total energy expenditures R$ 70.42 38.06

Equipament maintainance 5.00% 250 R$ 135.14

Operational Irrigation Cost (R$/ha)

1,153.42

623.47


Yield

Average Yield without Irrigation (t FFB/ha) 21.00

Factor for increasing the yields with Irrigation 1.50Expected Average Yileds with Irrigation (t FFB/ha) 31.50

PREMISSAS

BASIC PLANNED YIELDS

Year WITHOUT IRRIG WITH IRRIG

FFB/tn FFB/tn

1 0 0

2 0 0

n+0 3 0 0

n+1 4 0 0

n+2 5 0 0

n+3 6 6 9

n+4 7 12 18

n+5 8 15 22.5

n+6 9 18 27

n+7 10 21 31.5

n+8 11 21 31.5

n+9 12 21 31.5

n+10 13 21 31.5

n+11 14 21 31.5

n+12 15 21 31.5

n+23 26 21 31.5

n+24 27 21 31.5

n+25 28 21 31.5

n+26 29 20 30

n+27 30 19 28.5

n+28 31 18 27

n+29 32 17 25.5AVERAGE

=>16.38 24.56


Processing Plant Ownership

Source: PENSA

0%

20%

40%

60%

80%

100%

120%

Participation (%)

Processing Plant

Anchor Company

Growers

Other


Processing CostsR$/Ton

FFBUS$/Ton

FFB Variable Costs Chemic: Steam Ton/ ton FFB 0.27 R$/ton 42 11.34 6.13 Electrical Energy Kwh/ ton FFB 50 R$/Kwh 0.09 4.5 2.43 Wood for drying Water Ton/ton FFB 0.063 R$/ton 0,09 0.006 0.00 Services Maintenance costs R$/ton FFB 0.05 0.05 0.03Other costs R$/ton FFB 0.6 0.5 0.93

TOTAL (R$/ton FFB) 16.4 8.86

Fixed Costs Labor R$/ton FFB 2.65 1.43

Total fixed (R$/ton FFB) 2.65 1.43

Total 19.05 10.30

Processing Assumptions

Source: GreenTec - UFRJ


Variabel Cost of the Processing Plant (transesterification and esterification). Cost per Unit R$/TON BDVariable Cost 316.14Gross Material: Third parties oil kg/Ton BD - R$/kg - -Methanol kg/Ton BD 96 R$/kg 1174.00 112.7

Chamical Inputs :

CH3ONA kg/Ton BD

20 R$/Ton 4,657.00 93.14

H2SO4

kg/Ton BD1 R$/Ton 430.00 0.43

Caustic kg/Ton BD 1 R$/Ton 730.00 0.73Citric Acid kg/Ton BD 0.07 R$/Ton 2,000.00 0.14HCl kg/Ton BD 12 R$/Ton 660.00 7.92Process Water kg/Ton BD 10 R$/Ton 0.01 0.0001

Industrial Water kg/Ton BD 1.4 R$/Ton 0.01 0.000014Cooling Water m3/Ton BD 0.8 R$/Ton 0.01 0.000008Electricity kW/Ton BD 25 R$/Kwh 0.09 2.25

Steam kg/Ton BD 310 R$/Ton 50 15.5

Air of instrumentNm3h/Ton BD

6 R$/Nm3h 0.001 0.006Nitrogenous m³/ ton BD 2 R$/ m³ 0.88 1.76

Other costs (Services) General expenses ( Including insurance)

R$/Ton BD 5050

Maintenance costs R$/Ton BD 31.56 31.56FIXED COST LABOR R$/Ton BD 25 Total Cost (R$/ton BD) 340.71

Total cost (R$/ton BD AGL) 239.94Total Cost (R$/liter BD) 0.30

Total Cost (R$/liter BD FFA) 0.21

Source: GreenTec - UFRJ

Processing Assumptions


Investments – Processing Plant

• 1 Vegetal Oil Extractor (25 ton/FFB/h): R$ 31,336,738.62;

• 1 Biodiesel Plant (Vegetable Oils => Biodiesel): R$ 47,334,000.00;

• Individual production capacity : 30,000 ton/year;

• 1 Biodiesel Plant (AGL => Biodiesel): R$ 4,733,400.00;

• Individual production capacity : 3,000 tpa;

• Life Spam : 30 years;

• Residual Coefficient of Processing unities: 10%;

• Exchange Rate (R$/US$) considered : R$1.85;


Assumptions for Transportation Costs

Destine DISTANCE (In Km) FREIGHT iR$/Ton

Salvador 511 47Fortaleza 878 64

Recife 721 65Rio de Janeiro 1,928 160

São Paulo 2,241 186

'PRODUCT

Source of Revenue 3

1 Palm; Palmiste; Cake2 Biodiesel; Palm (50%); Palmiste; Cake3 Biodiesel; (100%) Cake4 Palm; Palmiste; Cake; Biodiesel (AGL)


Synthesis

Agriculture

Processing Product Unity Volume Price Gross Revenue

Biodiesel (100%) Litros 30,561,300.00 R$ 2.01 R$ 80,816,829.55 Palmist oil Ton 3,071.25 R$ 1,665.00 R$ 5,113,631.25

Cake Ton 4,252.50 R$ 116.55 R$ 111,516.50

Product Unity Volume Price Gross Revenue Palm Bunches (FFB) Ton 157,500 R$ 172.05 R$ 27,097,875.00

Biodiesel (100%), Palmist e Cake

Producing Area ("n" há(s)) ==> 5,000.00


Bunch production (FFB) and Oil Equivalent (in Tons)

• Source: PENSA

0

50.000

100.000

150.000

200.000

250.000

ANO 1

ANO 3

ANO 5

ANO 7

ANO 9

ANO 11

ANO 13

ANO 15

ANO 17

ANO 19

ANO 21

ANO 23

ANO 25

ANO 27

ANO 29

Oil Production vs Bunch Production in tons

Bunches Palm Oil

Years


Agricultural Cost (Stabilized – 7º. Year on)

• Source: PENSA

R$ 0.00

R$ 500.00

R$ 1,000.00

R$ 1,500.00

R$ 2,000.00

R$ 2,500.00

R$ 3,000.00

R$ 3,500.00

R$ 4,000.00

Year 7

Agricultural Cost (R$/ha)

Expenses after harvest

Administrative expenses

harvest

irrigation

Inputs and materials

Crop Treats


Agricultural Results

• Source: PENSA

R$ 0.00

R$ 5,000,000.00

R$ 10,000,000.00

R$ 15,000,000.00

R$ 20,000,000.00

R$ 25,000,000.00

R$ 30,000,000.00

Total Revenues x Total Cost

Total Revenue Palm total cost

In Between Crop Total Cost In between crop revenue

Years


Agricultural investments

• Source: PENSA

R$ 0.00

R$ 5,000,000.00

R$ 10,000,000.00

R$ 15,000,000.00

R$ 20,000,000.00

R$ 25,000,000.00

R$ 30,000,000.00

R$ 35,000,000.00

Year -2 Year -1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Agricultural Investments

Machinery and Implements Crop implementation Irrigation


Oil, Biodiesel and By Products Production in Tons

• Source: PENSA

0.005,000.00

10,000.0015,000.0020,000.0025,000.0030,000.0035,000.0040,000.00

Oil, Biodiesel and By Products Production in Tons

Palm Oil Palmist Oil Biodiesel Biodiesel FFA Cake


R$ 0.00

R$ 20,000,000.00

R$ 40,000,000.00

R$ 60,000,000.00

R$ 80,000,000.00

R$ 100,000,000.00

Processing Revenue and Costs

Biodiesel (100%), Palmist and Cake Raw Material

Extraction Oil Cost Biodiesel Processing cost

Processing Results

• Source: PENSA

Years 1- 30


Processing Investment

• Source: PENSA

R$ 0.00R$ 5,000,000.00

R$ 10,000,000.00R$ 15,000,000.00

R$ 20,000,000.00R$ 25,000,000.00R$ 30,000,000.00R$ 35,000,000.00

R$ 40,000,000.00R$ 45,000,000.00R$ 50,000,000.00

YEAR -2 YEAR -1 YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6

Processing Investment

Oil Extraction Biodiesel Plant


Incidence of Logistics Costs

• Source: PENSA

0%

20%

40%

60%

80%

100%

Year 0 Year 3 Year 6 Year 9 Year 12 Year 15 Year 18 Year 21 Year 24 Year 27 Year 30

Production Cost XTransportation Costs

Transportation Cost Total Production Cost


Consolidated Results

• Source: PENSA

- R$ 20,000,000.00

R$ 0.00

R$ 20,000,000.00

R$ 40,000,000.00

R$ 60,000,000.00

R$ 80,000,000.00

R$ 100,000,000.00

ANO

0

ANO

2

ANO

4

ANO

6

ANO

8

ANO

10

ANO

12

ANO

14

ANO

16

ANO

18

ANO

20

ANO

22

ANO

24

ANO

26

ANO

28

ANO

30

Revenue Analysis X Consolidated Costs

Transportation Costs Gross Revenue

Total Production Costs Net Profit

Years


Financial Analysis

Source: PENSA

Palm Agricultural Activity Processing Consolidated

Internal Rate of Return (IRR)

6.01% 37.08% 20.5%

Scenario 100% Own Cap

NPV: ($22,906.646.47) NPV: $152,776,846.38 NPV: $134,489,918.32

Scenario 50% Own Cap NPV: $6,328,356.33 NPV: $248,857,463.34 NPV: $278,579,378.45

Scenario 100% Loan NPV: $99,608,319.22 NPV: $419,911,390.26 NPV: $732,290,025.85

Investment R$ 130,121,483.50 R$ 76,956,657.05 R$ 207,075,140.55

Operational R$ 446,81,564.59 R$ 436,730,390.72 R$ 903,541,955.31


Production Cost Comparative Analysis at the Formation Phase

Source: PENSA

473154

530

909

300500

500

675500 500 500

250

307

363

475 575 575277

388

469

631

265

250

235332

441

1.153

1.153

1.1531.153

50

108

460

307 308

38

R$ 0.00

R$ 500.00

R$ 1,000.00

R$ 1,500.00

R$ 2,000.00

R$ 2,500.00

R$ 3,000.00

Year -2 Year -1 Year 0 Year +1 Year +2 Year +3 Year -2 Year-1 Year 0 Year +1 Year +2 Year +3

SEEDLING TREES SOIL PREPARATIONPLANTING CROP TREATSAG INPUTS IRRIGATION

Pará Vale S. Francisco


Production Cost Comparative Analysis (From 7th year on)

Pará Vale do São Francisco

• Source: PENSA

473.60855.00

505.05

544.35893.55

480.00

1,153.42

R$ -

R$ 500

R$ 1,000

R$ 1,500

R$ 2,000

R$ 2,500

R$ 3,000

R$ 3,500

Irrigation

Harvest

Ag Inputs

Crop treats

Pará Vale S. Francisco


Natural Conditions

Source: EMBRAPA and PENSA

Characteristic Ideal Valley of the São Francisco River

Temperature 25 to 27 oC 26.3 oC

Precipitation 1800 – 2000 mm (Year) 400 - 1000 mm (Year)

Luminosity 5 (daily light hours) 7 (daily light hours)

Altitude 400 m 370 m

Soil Depth >90 cm 90 cm

Soil Texture Clay Sandy

Humidity 80% 65 to 70%


• Tax generation:– Total: R$ 23,484,242.00;

– Agricultural Production: R$ 5,624,659.00;

– Processing plant: R$ 17,859,583.00;

• Job Generation: 6 workers/ha (CERU/EMBRAPA CPAA);

• Agriculture: 9.000 jobs for an area of 1,500 hectares (Anchor Company);

• For Oil Extraction : 25 direct jobs and 8 indirect jobs (Algoden);

• For the Biodiesel Plant : 30 direct jobs and 10 indirect jobs (Dedini);

Benefits for the Social and Economic Development


• Additional revenues for the Ag input Forms : R$ 2,721,750.00;

• Additional revenues for transportation firms : R$ 2,161,900.13¹;

• Diversification of economic activities;– Produced together with pineapple, banana and manioc;

• ¹ Using Port of Aratu (Salvador, BA).

Benefits for the Social and Economical Development


Sensitivity Analysis

38,29 36,47 34,73 33,08 31,50 29,93 28,43 27,01 25,66883.20 25.05% 23.88% 22.73% 21.60% 20.50% 19.36% 18.25% 17.16% 16.09%857,48 25.05% 23.88% 22.73% 21.60% 20.50% 19.36% 18.25% 17.16% 16.09%832.50 25.05% 23.88% 22.73% 21.60% 20.50% 19.36% 18.25% 17.16% 16.09%807.53 25.05% 23.88% 22.73% 21.60% 20.50% 19.36% 18.25% 17.16% 16.09%783.30 25.05% 23.88% 22.73% 21.60% 20.50% 19.36% 18.25% 17.16% 16.09%

20.50%

38.29 36.47 34.73 33.08 31.50 29.93 28.43 27.01 25.662.13 26.66% 25.46% 24.28% 23.12% 21.99% 20.83% 19.69% 18.57% 17.48%2.07 25.85% 24.66% 23.49% 22.35% 21.24% 20.09% 18.96% 17.86% 16.78%2.01 25.04% 23.87% 22.72% 21.59% 20.49% 19.35% 18.24% 17.15% 16.08%1.95 24.22% 23.06% 21.92% 20.81% 19.72% 18.60% 17.50% 16.43% 15.37%1.89 23.40% 22.26% 21.14% 20.04% 18.96% 17.86% 16.77% 15.71% 14.66%

20.50%

38.29 36.47 34.73 33.08 31.50 29.93 28.43 27.01 25.661.96 26.78% 25.57% 24.39% 23.23% 22.10% 20.93% 19.79% 18.67% 17.57%1.91 25.91% 24.72% 23.56% 22.41% 21.30% 20.14% 19.02% 17.91% 16.83%1.85 25.05% 23.88% 22.73% 21.60% 20.50% 19.36% 18.25% 17.16% 16.09%1.79 24.17% 23.02% 21.88% 20.77% 19.69% 18.56% 17.47% 16.39% 15.33%1.74 23.30% 22.16% 21.04% 19.95% 18.87% 17.77% 16.68% 15.62% 14.57%

20.50%

IRR 100% own Capital =>

TIRYields (ton fruto/ha)

IRRYield (ton fruto/ha)

Vegetable Oil Price

TIRYields (ton fruto/ha)

Exchange Rate

(R$/ US$)


Biodiesel Price

(R$/ton)



Jatropha


Why Investing in Jatropha in the Valley of the São Francisco River ?

• EPAMIG has an extensive work aimed to increase the palm yields in the semi arid climate;

• Natural high potential for production of high yields seeds for the dry and high luminosity conditions;

• Fertile land in abundance (concession for 30 years), including the neighboring areas surrounding the irrigation projects;

• Good financing conditions (Banks: Banco do Nordeste, Banco do Brasil e BNDES);

• Infra structure for production disposal (ports and roads) for the internal and external markets;

• Close to the European and North American markets;

• Tax incentives for including small holders into the biodiesel chains;

• Perspective of B5 scenario for 2010.


Business Model

Vegetal Oil

Oil Extractors

Service Constracts

Shared Machinery and Implements

Anchor Company

Fod and Chemistry Industry


Small Holder


Anchor CompanyOil Extraction and Biodiesel Production

Food Industry

Chemical industry

Sales in Bunches (jatropha) Production :Vegetable Oil Biodiesel

Commercialization

Oil Industry

Business Model

For the agricultural area, the participation will be 50% will be vertically integrated by the anchor company and the other 50% will be occupied by small holders vertically coordinated and contracted with the anchor firm.


..

..

..

Business Model Opportunity

Grower AGrower A

Grower BGrower B

Grower nGrower n

CooperativeCooperativeSPESPE

(Biodiesel Plant +(Biodiesel Plant +

Crushing facility)Crushing facility)

A+B+CA+B+C

AA

BBAnchor

Other CC

Cooperative = 20%Cooperative = 20%

Anchor Company = 51%Anchor Company = 51%

Others = 29%Others = 29%


Business Model

Crushing plant

Retailer

(Gas Stations)INPUTS

Payment for the seed fruits

(-) minus service and financial expenses (+) plus share of profit

Traders Exports

External Growers

Financing agentFinancing agent

Cooperative producers

Payment for fruits

Distribution channelDistribution channel


Players’ Role Definition

External Producers Small holders cooperatives Anchor company

- External growers may sell to the anchor company;

-Establish sales contracts;

-Anchor company may participate at harvesting.

- It consolidates the area of small holders;

- It receives for the fruits and pays for the services related to agricultural operations;

- Assist the grower with technical assistance;

- It manages the input purchases;

-It manages the irrigation systems;

-It follows the agricultural plan of the anchor company.

- It coordinates all agricultural activities;

-It receives the right if use regarding the land (CDRU);

- It will share the land for the small holders and will select the growers;

- It will give some guidance for the cooperative technicians considering ag technical assistance.


Ag Production Processing

PINS – BIODIESEL Jatropha

Refinment

Assumptions & Summary

Machinary and Implements Investment

Graphs

Biodiesel Plan

1 Hectare

"n" Hectare(s)

Other Cultures

Simulations "n"

Ag Cost

100% Own Capital

Scenarium

JATROPHA

Logistics and Production

100% Own Capital

50% Own Capital

50% Bank Loan

Tax

Participation in the Project (%)

Assumptions

Sensitivity analysis


Data from EPAMIG

Jatropha US$ 1.00 => R$ 1.85

Area for Production (há) => 50,000 Yields 5 ton/haIrrigation (Irrigation Factor) 1.50 FALSOFINAL YIELD 5 ton/háOIL CONTENT 38% háFRUIT PRICE 0.39 R$/kgPRICE PER TON R$/tonOIL PRICE 1.54 R$/kg

MEAL PRICE

R$/tonBIODIESEL PRICE PER LITER 1.84 R$/LBIODIESEL DENSITY 0.88 Kg/LBIODIESEL PRICE PER KILO 2.09 R$/kg

JATROPHA OIL (100%)BIODIESEL PRODUCTION (100%)

JATROPHA OIL(50%) AND BIODIESEL PRODUCTION (50%)

Revenue options

Assumptions


Historical Prices

Biodiesel Historical Prices (US$/litro)1 1.102 1.20

F Price 1.10 US$Biodiesel 0.99 0.90Auction 1 0.95Auction 2 0.9Auction 3 0.875Auction 4 0.87Auction 5 0.925Estimation price base of Oil (R$/liter) 1.40 Estimation price base of Fruit (R$/KG) 0.35 Biodiesel Price Base (R$/litro) 1.67

Assumptions


IRRIGATION COST Irrigation – Driping

Investments Unities R$ US$

Investment R$/ha 5,000.0

2,702.7

Drains 1,000.0

540.5

Aditional Investment Pipes Renewal 15 years 50,0% 2,500.0

1,351.4 Water 1 ha # days 150,00 Daily irrigation time (h) 12 Water price

K1 R$ / ha / month R$

8,00 96.0

51.9

K2a R$/ ha / month R$

26,00 312.0

168.6

K2b R$ / m3 R$

0,050 Evaporation mm / day 8,00 Evaporation mm / year 1.200 Rain mm / Year 350 Evaporation balance mm / year 850

Yearly water need m3 / year

8.500

Water supply capacity yearly - 80m3/dia/há m3 / year 12,000

Efficiency of 95% 11,400 425,0 229,729,729.7

Total Water expenses 833.0

450.3 Operational enery costs 1 ha

0.5 CV Kwa/h

0,37

Energy consumption Kwa/year

661,50

Energy cost R$/kwa R$

0,106

Electricity cost R$/ha/year 70.4

38.1

Total Energy Cost 70.4

38.1

Equipment Maintainance 5,0% 250.0

135.1

Source: NetafimTarifa Energia

R$1,153.4

US$ 623.5

Irrigation Cost

Assumptions


YEAR KG/HÁ (non irrigated) TOTAL KG/HÁ TOTAL OIL (KG/HÁ)

1 250.00 250 95 2 1000.00 1000 380 3 2500.00 2500 950 4 5000.00 5000 1900

Estabilized

Production Plan

Assumptions


Agricultural Production

0%

10%

20%

30%

40%

50%

60%

Participation (%)

Verti. Integrated

Cooperative

Others


Synthesis (after production stabilization)

Biodiesel (100%)Production Area (ha(s)) ==> 50,000.00

Agriculture

Processing

FRUITS

Revenue R$

Total Gross Sales 96,250,000.00

Production Costs 43,440,000.00

BIODIESEL 100 %

Revenue R$

Gross Total Sales (liter oil)

194,625,550.00

Processing Cost 37,129,582.00


Agricultural Cost(after production stabilization)

• Source: PENSA

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

1

Agricultural cost (R$/ha) after the first year

Fungicide

Insecticide

Fertilizer

Treats and harvest


Agricultural and Processing Production

• Source: PENSA

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

ANO0

ANO 2

ANO 4

ANO 6

ANO 8

ANO 10

ANO 12

ANO 14

ANO 16

ANO 18

ANO 20

ANO 22

ANO 24

ANO 26

ANO 28

ANO 30

Oil and Fruit Production (Kg)

Oil Production Fruit Production

YEARS


Agricultural Revenue and Costs

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

Fruit Revenue x Agricultural Costs (R$)

Agricultural Costs Fruit Revenue

YEAR


Processing Plant Ownership

0%

20%

40%

60%

80%

100%

120%

Participation (%)

Processing Plant

Anchor Company

Cooperative

Other


Synthesis (after production stabilization)

Oil Extractor Plant (CAPACIty of 150 ton/day)DEPRECIATION FACTOR 10%

PERIOD 30 YEARS

Plant Installation Schedule Year # Plants Investment Total # of Plants Total Investment

0 1 8,879,220.74 1 8,879,220.74 1 1 8,879,220.74 2 17,758,441.48 2 2 17,758,441.48 4 35,516,882.97 3 1.5 13,318,831.11 5.5 48,835,714.08

Irrigation Investment (R$) R$ 6,000.00 Rate 10%Reinvestment 10 YEARS

BIODIESEL PLANT- 100,000 ton/year

Plant Installation ScheduleYear # Plants Investment Total # of Plants Total Investmentano 2 1 R$ 42,257,600.00 1 R$ 42,257,600.00

Agriculture

Processing


Total Investment

• Source: PENSA

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

Year 0 Year 1 Year 2 Year 3

Total Investment (R$)

Agric Investiment

Extraction Investment

Biodiesel Investment

Crop Implementation Investment


Processing Revenue and Costs

• Source: PENSA

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

Total Revenue x Total Processing Cost for Biodiesel (R$)

Oil Extraction Cost Biodiesel Cost Biodiesel Revenue Oleaginous Revenue

YEAR 1 -30

65 www.codevasf.gov.br• Source: PENSA

Transportation Cost

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Ano 0 Ano 2 Ano 4 Ano 6 Ano 8 Ano 10 Ano 12 Ano 14 Ano 16 Ano 18 Ano 20 Ano 22 Ano 24 Ano 26 Ano 28 Ano 30

Total Costs X Transportation Costs

Transp Cost Total Cost

YEARS 1 -30


Consolidated Analysis

• Source: PENSA

- R$ 50,000,000.00

R$ 0,00

R$ 50,000,000.00

R$ 100,000,000.00

R$ 150,000,000.00

R$ 200,000,000.00

R$ 250,000,000.00

ANO 0

ANO 2

ANO 4

ANO 6

ANO 8

ANO 10

ANO 12

ANO 14

ANO 16

ANO 18

ANO 20

ANO 22

ANO 24

ANO 26

ANO 28

ANO 30

Gross Sales X Transportation Costs X Net Profit

Trabsp Costs Gross Sales Total Cost Net profit

YEAR 1 - 30


Financial Analysis

Source: PENSA

Jatropha Agriculture Processing Consolidated

IRR IRR: 36.62% IRR: 41.31 % IRR: 38.90 %

100% Own Capital NPV: R$ 233,621,565.47 NPV : R$ 270,271,090.26 NPV: R$ 502,203,902.80

50% Own Capital NPV: R$ 464,130,305.30 NPV: R$ 406,606,107.32 NPV: R$ 829,930,605.91

Cenário 100% Loam NPV : R$ 1,023,530,492.47

NPV: R$ 636,457,440.14 NPV: R$ 1,761,838,563.94

Total Investment R$ 180,065,000 R$ 86,653,704 R$ 224,461,104.00

Total Cost R$ 1,063,800,000 R$ 898,186,514 R$ 2,083,412,189


Natural Conditions

Source: EMBRAPA and PENSA

Characteristic Ideal Valley of the São Francisco River

Temperature 25 a 30 oC 26.3 oC

Precipitation 350 - 850 mm 400 - 1000 mm (Year)

Luminosity 5 (hours of light per day)

6 (hours of light per day)

Altitude 200 – 400 m 370 m

Soil Depth > 80m 90 cm

Soil Texture Medium Medium

Humidity >40% 65 a 70%


Agricultural Production Cost Comparative Analysis

Source: PENSA

Valley of the São Francisco River X São Paulo

Comparative Agricultural Cost (R$/ha)

R$ -R$ 200R$ 400R$ 600R$ 800

R$ 1,000R$ 1,200R$ 1,400R$ 1,600

Ano 1

Ano 3

Ano 5

Ano 7

Ano 9

Ano 1

1

Ano 1

3

Ano 1

5

Ano 1

7

Ano 1

9

Ano 2

1

Ano 2

3

Ano 2

5

Ano 2

7

Ano 2

9

São Paulo Valley of the São Francisco River

70 www.codevasf.gov.brSource: PENSA

São Paulo

621.90 547.90

837.17

585.00

50.00

113.29

R$ -

R$ 200

R$ 400

R$ 600

R$ 800

R$ 1,000

R$ 1,200

R$ 1,400

R$ 1,600

Despesas Adm

Insumos

Operções

São Paulo Vale S. Francisco

Implementation Year – Year 1


71 www.codevasf.gov.brSource: PENSA

São PauloYear 2 – First Production Year

369.05

659.50

397.40

320.00

65.95

50.00

R$ -

R$ 200

R$ 400

R$ 600

R$ 800

R$ 1,000

R$ 1,200

Admin Expen.

Ag inputs

Operations

São Paulo São Francisco



• Tax Generatation:– Total: R$ 51,299,090.00;

– Produção Agrícola: R$ 16,974,775;

– Produção Industrial: R$ 34,324,315;

• Job Generation: 0,8 employees/há (direct),(based on interviews);

• Agricultural : 20 thousand jobs for na area os 25,000 hectars (Vertically integrated areas);

• Vegetal Oil Extractor: 25 direct jobs and 8 indirect (Algoden);• Biodiesel Plant : 30 direct jobs and 10 inderect (Dedini);



• Additional Revenues for Agricultural Input Firms: R$ 16,000,000.00;

• Additional Revenues for Transportation Firms : R$ 4,375,700.00¹;

• Economic diversification;

• ¹ using the Port of Aratu (Salvador, Bahia State).



Sensitivity Analysis

6.00 5.75 5.50 5.25 5.00 4.75 4.50 4.25 4.00

1.74 44.22% 42.06% 39.88% 37.67% 35.42% 33.13% 30.80% 28.41% 25.98%

1.70 42.88% 40.77% 38.63% 36.45% 34.24% 31.99% 29.69% 27.35% 24.95%

1.67 41.56% 39.49% 37.38% 35.24% 33.07% 30.85% 28.60% 26.29% 23.93%

1.64 40.23% 38.19% 36.13% 34.02% 31.89% 29.71% 27.49% 25.23% 22,91%

1.60 38.92% 36.92% 34.88% 32.82% 30.72% 28.58% 26.40% 24.17% 21.88%

38.90%

6.00 5.75 5.50 5.25 5.00 4.75 4.50 4.25 4.00

1.46 48.15% 45.89% 43.59% 41.26% 38.90% 36.49% 34.05% 31.55% 29.00%

1.43 48.15% 45.89% 43.59% 41.26% 38.90% 36.49% 34.05% 31.55% 29.00%

1.40 48.15% 45.89% 43.59% 41.26% 38.90% 36.49% 34.05% 31.55% 29.00%

1.37 48.15% 45.89% 43.59% 41.26% 38.90% 36.49% 34.05% 31.55% 29.00%

1.34 48.15% 45.89% 43.59% 41.26% 38.90% 36.49% 34.05% 31.55% 29.00%

38.90%

6.00 5.75 5.50 5.25 5.00 4.75 4.50 4.25 4.00

1.92 50.96% 48.61% 46.24% 43.83% 41.38% 38.89% 36.36% 33.78% 31.14%

1.89 49.55% 47.24% 44.91% 42.54% 40.13% 37.69% 35.20% 32.66% 30.06%

1.85 48.15% 45.89% 43.59% 41.26% 38.90% 36.49% 34.05% 31.55% 29.00%

1.81 46.74% 44.52% 42.27% 39.98% 37.66% 35.29% 32.88% 30.43% 27.92%

1.78 45.35% 43.17% 40.96% 38.71% 36.43% 34.10% 31.74% 29.32% 26.85%

38.90%

IRRYields (ton fruit/ha)

Biodiesel Price (R$/litro)

IRR 100% Own Capital


Exchange Rate (R$/US$)

Vegetal Oil (R$/kg)





CODEVASFDirector of the area of Integrated Development and Infra-StructureClementino de Souza Coelho

Board Assistant of the area of Integrated Development and Infra-StructureAlvane Ribeiro Soares First Secretary of the area of Integrated Development and Infra-StructureGuilherme Almeida Gonçalves de Oliveira

PENSACoordinator: Prof. Dr. Marcos Fava NevesExecutive Manager of the Project: Luciano Thomé e CastroExecutive Manager of the Project : Ricardo Messias RossiExecutive Assistant of the Project: Vinicius Mazza da SilvaExecutive Assistant of the Project : Marina Darahem Mafud

Technical TeamResponsible Researcher: Marco Antônio ConejeroAssistant Researcher: José Carlos de Lima JuniorContributor: César Augusto Mendonça Zambrano e Eduardo José Sia

Translation: Central de Traduções


For further Information:

E-mail: [email protected]

Mail Address:Av. Pres. Vargas, 2001- Conj. 143/144, Jardim AméricaRibeirão Preto - SP - CEP: 14.020-260Tel.: +55 (16) 3911 6088

Responsible Team

1 Investment Opportunity in Biodiesel in the Valley of the São Francisco River INTEGRATED...

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