An­tho­ny Wil­son

The ANSA McAL group has com­mit­ted to spend TT$17 mil­lion on a fea­si­bil­i­ty study for a green­field ethanol project in Guyana with cap­i­tal ex­pen­di­ture es­ti­mat­ed to be up­wards of US$300 mil­lion (TT$1.9 bil­lion). The pro­pos­al of the fea­si­bil­i­ty study is to de­ter­mine whether the project can be done on terms ac­cept­able to both the Gov­ern­ment of Guyana and the group, which is based in Port-of-Spain, but does busi­ness through­out the re­gion. ANSA McAL hopes to com­plete the fea­si­bil­i­ty study by the fourth quar­ter of 2012. Among the is­sues to be analysed by the study would be: the eco­nom­ics of the project; soil test­ing; an as­sess­ment of the most ap­pro­pri­ate sug­ar­cane va­ri­ety; the plant tech­nol­o­gy need­ed and the com­mer­cial off­take agree­ments. The fea­si­bil­i­ty study was the sub­ject of a Mem­o­ran­dum of Un­der­stand­ing signed by ANSA McAL and the Gov­ern­ment of Guyana in Sep­tem­ber last year. The ex­is­tence of the MoU was on­ly made pub­lic last month be­cause of the gen­er­al elec­tions in Guyana late last year and be­cause the group and the gov­ern­ment had some lo­gis­ti­cal is­sues to work out. The idea for the ethanol project came out of a glob­al fore­sight­ing re­view that the group un­der­took some 18 months ago. The con­sor­tium quick­ly re­alised that large sums of cap­i­tal in­vest­ment were be­ing al­lo­cat­ed to two ar­eas: health­care and al­ter­na­tive en­er­gy.

That was the premise, which is based on the as­sump­tion of fu­ture pop­u­la­tion growth and in­creas­ing glob­al wealth, un­der which the group de­cid­ed to ex­plore the pos­si­bil­i­ty of do­ing a world-class, world-scale ethanol project, said Aneal Ma­haraj, ANSA McAL's group fi­nance di­rec­tor. Speak­ing at a news con­fer­ence in the Guyana Pe­ga­sus ear­li­er this month, Ma­haraj said the pre­lim­i­nary in­di­ca­tions were that the plant would pro­duce 40 mil­lion gal­lons of ethanol from 2 mil­lion tonnes of sug­ar­cane. The vi­sion­ing ex­er­cise land­ed on ethanol be­cause of the rapid growth in the de­mand for re­new­able en­er­gy. "Ethanol is fu­el­ing the growth in re­new­able en­er­gy. Sev­en­ty-five per cent of all bio­fu­el pro­duc­tion in 2011 came from ethanol and that's sig­nif­i­cant," ac­cord­ing to Ma­haraj. "We be­lieve the re­new­able en­er­gy space is a mul­ti-gen­er­a­tional project where it is go­ing to a great deal of in­vest­ment up front and grad­u­al­ly as con­sumer be­hav­iours change this could be a very sig­nif­i­cant busi­ness go­ing for­ward," he said. The ethanol project is be­ing dri­ven by ANSA McAL's new busi­ness de­vel­op­ment team, which is head­ed up by An­tho­ny Sab­ga III. The ob­jec­tive of the team is to grow the ANSA McAL busi­ness, both through ac­qui­si­tions and by or­gan­ic means. The de­ci­sion by the ANSA McAL group to ex­plore the fea­si­bil­i­ty of ethanol pro­duc­tion in Guyana comes amid a fun­da­men­tal shift in the Unit­ed States pol­i­cy with re­gard to ethanol that lib­er­alis­es trade in the com­mod­i­ty in the west­ern hemi­sphere-po­ten­tial­ly in­creas­ing the prospects of new green­field projects. At the end of last year, the US Con­gress de­clined to ex­tend the US$0.54-per-gal­lon tar­iff that had been im­posed against im­port­ed ethanol.

The US leg­is­la­ture al­so failed to ex­tend the tax cred­it of US$0.46 per gal­lon that Amer­i­can ethanol pro­duc­ers, who most­ly man­u­fac­ture the com­mod­i­ty us­ing corn, were en­ti­tled to claim. The tar­iff pro­tec­tion and the tax cred­it were in place in the US since 1980, are es­ti­mat­ed to have cost the Amer­i­can tax­pay­ers US$45 bil­lion and were meant to en­cour­age the pro­duc­tion and use of al­ter­nate fu­els, in the con­text of the US de­pen­dence on oil im­ports to run its mas­sive econ­o­my. Both of these mea­sures-the elim­i­na­tion of the tax cred­it, which was in ef­fect a sub­sidy to US farm­ers, and the scrap­ping of the im­port tar­iff, which im­posed a wall over which ethanol im­porters in­to the US had to scale-had the ef­fect of pro­tect­ing US ethanol pro­duc­ers. The im­pact of the elim­i­na­tion of the mea­sures is that it will make ac­cess by im­ports in­to the bio­fu­el mar­ket in the US, which is the world's largest, po­ten­tial­ly eas­i­er and more prof­itable. There are oth­er de­vel­op­ments that have changed the par­a­digm of the ethanol mar­ket in this hemi­sphere re­cent­ly. A March 1 re­port by the agri-busi­ness re­search and ad­vi­so­ry de­part­ment of the Dutch fi­nan­cial gi­ant Rabobank in­di­cat­ed that Brazil, the world's largest pro­duc­er of sug­ar­cane, may be un­able to sup­ply the coun­try's ethanol de­mand this year. "The re­al­i­ty is that the Brazil­ian cane in­dus­try may strug­gle to ful­ly sat­is­fy even its own do­mes­tic de­mand in 2012 ow­ing to a sharp down­turn in cane pro­duc­tion and an un­cer­tain out­look for out­put growth.

Brazil be­came the lead­ing im­porter of ethanol from the US in 2011, a sit­u­a­tion many would have con­sid­ered un­think­able on­ly a few years ago," ac­cord­ing to the Rabobank re­port. On Tues­day, Bloomberg not­ed that Brazil was strug­gling to make enough ethanol to sat­is­fy its do­mes­tic de­mand just as the US scrapped its re­stric­tions on im­ports of the com­mod­i­ty. In­vest­ment in new sug­ar­cane as­sets and plan­ta­tions in Brazil plum­met­ed from US$7.84 bil­lion in 2008 to US$700 mil­lion in 2011, ac­cord­ing to a Bloomberg an­a­lyst in the ar­ti­cle which stat­ed that "Brazil may be­come a net im­porter of ethanol this year, with pur­chas­es of 1.66 bil­lion liters dur­ing the 2011-2012 sea­son ex­ceed­ing ex­ports for the first time in at least 10 years." Brazil pro­duces its ethanol from sug­ar­cane, un­like the US where the com­mod­i­ty is pro­duced from corn. The elim­i­na­tion of US tar­iff pro­tec­tion for its ethanol pro­duc­tion places Caribbean pro­duc­ers of the com­mod­i­ty on the same tar­iff foot­ing as oth­er hemi­spher­ic sup­pli­ers. Pre­vi­ous­ly, the re­gion had a tar­iff ad­van­tage by virtue of the fact that it still re­ceives pref­er­en­tial trade ac­cess to the US un­der the Caribbean Basin Ini­tia­tive (CBI).

CBI coun­tries do not pay the tar­iff on ethanol that they process (ba­si­cal­ly re­mov­ing the wa­ter from the ethanol) up to a lim­it of sev­en per cent of US ethanol con­sump­tion. An­gos­tu­ra Hold­ings Ltd and some Ja­maican com­pa­nies used this tar­iff ad­van­tage to im­port hy­drous (with five per cent wa­ter con­tent) ethanol from Brazil, re­move the wa­ter and then sup­ply an­hy­drous ethanol (near­ly 0 per cent wa­ter) to the US mar­ket un­der the CBI pro­vi­sions, ac­cord­ing to Joel Velsco, chief rep­re­sen­ta­tive of the Brazil­ian Sug­ar­cane In­dus­try As­so­ci­a­tion in North Amer­i­ca, quot­ed in a April 2010 Forbes mag­a­zine ar­ti­cle. The CBI pro­vi­sions al­so al­low re­gion­al coun­tries to sup­ply an ad­di­tion­al 35 mil­lion gal­lons of ethanol, with a 30 per cent of lo­cal feed­stock re­quire­ment and an un­lim­it­ed amount with 50 per cent lo­cal feed­stock re­quire­ment, ac­cord­ing to a pa­per by Doug New­man, an of­fi­cial of the US In­ter­na­tion­al Trade Com­mis­sion, pre­sent­ed at a con­fer­ence in the Do­mini­can Re­pub­lic in March 2009.