Biofuels: Guide to Investments and Lessons Learnt

PERU:
Investment Opportunities
In Biofuels
Biofuels: Guide to Investments
and Lessons Learnt
April 2008
PERU:
Investment Opportunities
In Biofuels
World sugar cane yields per hectare
Extraordinary resources
There is a growing international
concern due to the high oil prices, the
possibility of exhausting the existing
reserves and the polluting impact of its
intensive use. For these reasons,
various countries and regions have
approved legislation to require or
foment the increasing use of renewable
fuels, which raises projections for the
worldwide demand of biofuels.
Peru’s extraordinary climate and soil
conditions allow it to have one of the
world’s highest sugar-cane production
yields (more than 100 tons per hectare
in several of its producing areas), with
the additional advantage of being able
to program harvests throughout the 12
months of the year. Peruvian
productivity in palm oil is also very high.
Sugar cane and palm oil are the
principal crops for the production of
ethanol and biodiesel, respectively.
In addition Peru has a great potential
for other crops used in the production of
ethanol, such as sorghum and sweet
potato, as well as jatropha (pinion),
higuerilla (castor oil) and canola for
biodiesel. The projected development
of these crops is extremely
encouraging.
Peru
Senegal
Burkina Faso
Colombia
Brazil
Mexico
China
Argentina
India
0
20
40
60
80
tons/hectare
Source: The FAO (2003)
Concrete advances
Peruvian law also promotes the
production and use of biofuels.
Supreme Decree 021-2007, Regulation
of Biofuels Commercialization, provides
for the mandatory use of blends with
the following chronogram:
Diesel with 2%
January 1st, 2009
biodiesel
Gasoline with 7.8% January 1st, 2010
ethanol
Diesel with 5%
January 1st, 2011
biodiesel
The mandatory use of these
blends in the Peruvian market
will require the production from
12,000 hectares of sugar cane
and 60,000 hectares of palm oil
in order to produce ethanol and
biodiesel, respectively.
•
MAPLE-Etanol will construct an
ethanol plant with a projected
investment of US $ 100 million, and
will grow 11,000 hectares of sugar
cane in Piura.
100
120
PERU:
Investment Opportunities
In Biofuels
•
Local company Agroenergía is in
the process of developing 4,000
hectares of sugar cane crops in
Piura and 10,000 hectares of palm
oil in San Martin for the production
of ethanol and biodiesel,
respectively.
•
Two biodiesel production plants
have already been set up in Lima,
under Heaven Petroleum Operators
and Biodiesel Peru.
•
• Use of underground water1,
• Application of efficient water use
technologies,
• Conversion of crops towards
varieties with less water
consumption,
• Crops such as sweet sorghum
with short growing seasons, to
use the water available in rainy
periods,
• Treatment and reusability of
sewage from cities,
• Water channeling and storage
projects,
• Joint ventures with associations
of small producers, among
others.
The company Pure Biofuels is in the
process of constructing a biodiesel
production plant in Lima, linked to
its development of 14,000 hectares
of palm oil in Huánuco.
Opportunities for ethanol
investments
Around 80,000 hectares of sugar cane
are grown along the Peruvian coast for
sugar production in ten major agroindustrial complexes.
•
•
Several sugar companies are
indicating their interest in devoting
part of their cane production to
producing ethanol; while agroindustrial company Cartavio already
has this capacity.
In turn, the Peruvian State has been
promoting strategic partnerships for
investment in the agribusinesses of
Pomalca, Tumán and Cayaltí, along
the Northern coast.
The conversion of crops offers farmers
in the country’s coast, sierra and
northeastern departments an
opportunity to migrate their present
production of rice or alfalfa towards
more profitable crops such as sugar
cane, cotton or banana trees. This
process is being implemented
progressively.
1
Idle land and innovative solutions
The Peruvian coast has more than
100,000 hectares of idle land, which
can have access to water by means of
investment in innovative solutions such
as:
Natural Resources Institute (INRENA)
“Reserves of underground water in
Peruvian coast” (Spanish)
http://www.inrena.gob.pe/irh/irh_proy_asubt
erraneas.htm
INRENA “Studies on underground water
reserves per valley”
http://www.inrena.gob.pe/irh/irh_estmanual
es_estudios_asubt.htm
PERU:
Investment Opportunities
In Biofuels
canola for the production of biodiesel,
are extremely encouraging.
Approximately 350,000 hectares
of rice are grown in Peru’s
departments of Tumbes, Piura
and Lambayeque on the coast,
and San Martin in the northeast.
Opportunities for investments in
biodiesel
Palm oil, produced in deforested areas
of the Peruvian rainforest, has great
potential for the profitable production of
biodiesel. Private Peruvian companies
such as Industrias del Espino
(Agroenergía) and Pure Biofuels are
undertaking large developments.
Likewise, producer associations are
being formed in the departments of San
Martin, Loreto, Ucayali and Huánuco
with clusters of more than 5,000
hectares each and the capacity of being
strategically associated with investors
and buyers:
Region
San Martin
Loreto
Ucayali
Huánuco
Agricultural
Association
Caynarachi
Tocache
Rioja
Yurimaguas
Iquitos – Nauta Axis
Aguaytia
Neshuya
Honoria
Aucayacu
The Development Financing
Corporation (COFIDE) offers a
Structured Financial Product (PFE) that
is a line of financing for associations of
agriculturists and productive chains.
Further information on the PFE can be
found at:
http://www.cofide.com.pe/pfe/index.htm
The development of new energy crops
such as sweet sorghum and sweet
potato to produce ethanol, and jatropha
(pinion), higuerilla (castor oil) and
Peru: Map of biofuels production
JATROPHA
SUGAR
CANE
SUGAR
CANE
SWEET POTATO
HIGUERILLA
(CASTOR)
SWEET
SORGHUM
OIL PALM
SUGAR
CANE
Industrial
Crops
CANOLA
Experimental
Crops
Impacts on investment and
employment:
According to the statistics of investment
in sugar cane and palm oil, an
investment of US $ 2,000 to US $ 3,000
per-hectare is estimated for agricultural
production. In addition, the creation of
one (1) direct or indirect job is expected
for each three (3) hectares cultivated.
Guidelines for the promotion of
biofuels
The Peruvian State is promoting the
cultivation and production of biofuels
with the following principles:
1. Not to affect woodlands or
protected areas, while
contributing to reforestation.
2. Not to affect the environment’s
biodiversity, nor generate
polluting waste.
3. Not to compete with the food
supply.
PERU:
Investment Opportunities
In Biofuels
4. To promote joint ventures with
agriculturists and to contribute
to improving the quality of life for
rural families.
5. To use efficient technologies in
the use of the water.
6. To contribute to territorial
ordering and economic
ecological zoning.
7. To contribute to technological
development and technical
assistance.
Lessons learnt and policymaking
An integrated policy of public-private
partnerships is being conducted to
promote investment with technological
content in agriculture sector and its
services. The items of the policy are:
a) An ambitious plan of concessions of
Peru-Brazil corridors, ports, airports
and telecommunication
infrastructure oriented to increase
agricultural land usage and
efficiency in sierra and Amazon
regions.
d) Development of new and improved
crops to take advantage of
biodiversity and exceptional climate
and soil conditions in Peru. There is
potential for sweet sorghum,
jatropha, canola, and ricino (castor),
as alternative crops for ethanol and
biodiesel.
Strategic location and business
climate
The country’s central location on the
western coast of South America makes
possible its projection as a regional
production and commercial hub.
Numerous ports, airports and a system
of Peru – Brazil highways are being
consolidated in order to enable Peru to
serve as an efficient bridge for
connecting the markets of South
America, Asia and the United States.
-
b) An innovative credit program for
farmers associations implemented
by Peruvian Development Bank
(COFIDE), which is allowing them to
export coffee, cacao, cotton, and
others, and will be extended to
biofuels crops such as oil palm or
jatropha.
c) Promotion of investment in
agribusiness projects associated to
new ideas. Private initiatives are
blossoming in water recycling and
water saving technologies,
underground water use, crop
conversion from rice, as well as,
reforestation and partnership with
small-size farmers. Multisectorial
coordination between land, water,
and catastro authorities is facilitated
through the identification of specific
zones called Agricultural Parks.
-
Highly skilled, low cost - Peru
has highly skilled human resources
at low cost, which gives it a
competitive advantage on an
international level. For an 8-hour
work day, the average salary for a
farmer in Peru is 5.9 dollars, which
makes the cost of manual labor
much lower than its principal
competitors like Mexico and Chile
(costs of 2 to 1 compared to Peru),
South Africa (4 to 1), Israel and
France (9 to 1), Spain (11 to 1) and
the United States (16 to 1) (Source
ILO).
Trade agreements with the
leading world markets - Peru
enjoys preferential access to the
principal international markets. Peru
has concluded negotiations for an
FTA with the United States, is a
member of the Andean Community
(CAN), enjoys an SGP with the
PERU:
Investment Opportunities
In Biofuels
Contact us:
www.proinversion.gob.pe
Antonio Castillo.
Director of Investment Promotion
acastillo@proinversion.gob.pe
Ricardo A. Diaz.
Biofuels Project Coordinator
rdiaz@proinversion.gob.pe
DOCUMENTS
European Union, maintains
Economic Supplementation
Agreements with most Latin
American countries, including the
MERCOSUR nations, and has been
negotiating FTAs with Canada,
Thailand and Singapore. In
addition, it should be indicated that
Peru is a member of the AsiaPacific Economic Cooperation
Agreement (APEC).
-
-
Tax advantages - Exports from
Peru are not subject to VAT. In
addition, other taxes such as tariffs
on intermediate imports are fully
refunded.
Legal framework - Both Peruvian
and foreign investors can pursue
their agrarian and agro-industrial
activities with total guarantees,
thanks to the legal framework
offered by Peru.
Private initiatives are of the utmost
importance for PROINVERSION.
This mechanism is governed by
Law 28059 (Framework for
Promotion of Decentralized
Investment) and regulated by
Supreme Decrees 015-2004-PCM
and 013-2007-PCM, allowing the
private sector to develop investment
projects based on the State’s
assets or services, such as idle
land.
Biofuels Market Law – No. 28054
Regulation of Biofuel Commercialization,
DS-021-2007
PROBIOCOM Program Guidelines