Chemrez mulls 3rd biodiesel plant worth P2B

Once the Biofuel Act takes effect, Chemrez Technologies Inc. will start planning the construction of its third biodiesel processing plant, a ranking company official said yesterday.

Chemrez chief operating officer Dean Lao Jr. said the third plant, which can produce 240,000 tons of biodiesel annually, is specifically intended to fill in the expected surge in biodiesel demand once the mandatory use of biodiesel is raised to two percent.

The Biofuel Act, which was recently passed in both houses of Congress and is just awaiting ratification and the signature of President Arroyo, mandates the use of one percent biodiesel upon effectivity and will be increased to two percent after two years.

Since the proposed third biodiesel plant is expected to be three times bigger in terms of capacity, Chemrez may be spending more than P2 billion for the plant," Lao said.

The country’s largest biodiesel manufacturer spent about P650 million to build its second plant with an annual output of 60,000 tons. Its first plant only has annual capacity of 15,000 tons.

The construction of a third plant would also support Chemrez’s bid to tap more export markets. Lao said they are particularly zeroing in on neighboring countries like Japan and Malaysia as potential international markets of its biodiesel products.

By next year, he said they hope to start selling its biodiesel to Japan, as the Asian giant has just mandated a five percent blend of biodiesel. "Japan has a five percent mandate. We are optimistic of sales (to Japan)," Lao said.

He said they are planning to enter the Malaysian market by 2008 as this will be the start of the mandated biodiesel blend in that country.

At present, Chemrez is already selling its products to Europe, particularly Germany.

Chemrez, which recently listed its shares in the Philippine Stock Exchange, produces the biodiesel brand BioActiv BD 100.

Once enacted, the Biofuels Act will set up mechanisms that will encourage investments in the local biofuels industry. It specifically provides incentives for the production, distribution and use of locally-produced biofuels, such as the assurance of a mandated market for their product, specific tax and value added tax (VAT) exemptions and financial assistance from government financial institutions.

Chemrez believes the passage of the Biofuels Act into law will lure more investors into the country’s biofuel industry.

The Biofuels Act of 2006 is considered a landmark legislation which is expected to liberate the country’s transport sector from full dependence on imported fuel by mandating a certain percentage of locally-sourced biofuel blends in gasoline and diesel sold and distributed in the country. 

The entry of more investors into the industry is crucial as the law mandates that the minimum prescribed blend may only be decreased within the first four years from the Act’s effectivity, should locally-sourced biofuels be unable to meet the initial mandated percentages.

The mandatory blending of biofuels into diesel and gasoline is also crucial to the government’s goal of achieving energy independence from imported petroleum products.

This law is vital to creating a sustained market for local manufacturers of biofuels, as well as local planters of the feedstock used for biofuels.

Based on initial estimates; a one-percent biodiesel and five-percent bioethanol use in 2007 will translate to a combined foreign exchange savings for the country of about $167 million annually.

By 2010, the use of 10-percent bioethanol and two-percent biodiesel will result in annual foreign exchange savings of about $389 million.