Bioethanol in Brazil a norwegian experience

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Bioethanol in Brazil a norwegian experience

• BNCC
• 4 November 2008

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Global energy outlookA radical change in the
energy chain

• The world must move from a global energy system
  that is

• To a competitive energy future based on new
  policies on

VULNERABLE DIRTY EXPENSIVE
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)
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Core knowledge

• A significant part of the worlds 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
• Value chain secured land positions and
  agri-industrial assets
• Production start-up in 2008 and expansion in
  2009/10
• Strategic growth opportunities

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COMPANY PRESENTATION
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Biofuels transportation fuel derived from
biomass

• Liquid or gas transportation fuel derived from
  biomass
• Automotive transport the most common use
• Cost, energy efficiency and carbon footprint
  varies among different technologies and biomass
• Bioethanol and biodiesel are the most common
  biofuels
• Ethanol is currently accounting for more than 90
  of total biofuel usage

• BIOETHANOL
• Production process based on conversion of biomass
  into sugars, and/or fermentation of carbon sugars
  with final distillation of ethanol to fuel grade
• Feedstocks includes cereal crops, corn (maize),
  sugar cane, sugar beets, potatoes, sorghum,
  cassava
• 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
• 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
• 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
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Sugar cane ethanol essentials

• Cost winner among current biofuels
• Economically viable gt40 /bbl oil
• High land efficiency
• The most land efficient biomass for bioethanol
• 50 more efficient than US corn
• High energy efficiency
• One of the plant kingdoms most efficient
  photosynthesis
• By far the most energy efficient feedstock for
  bioethanol
• Energy output/input ratio 9,3

• Sustainable at right location
• 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

COMPANY PRESENTATION
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The low cost sugar cane ethanol
ESTIMATED COST OF BIOFUELS Compared with the
prices of oil and oil products (biofuels
exclusive taxes)
COST WINNER
Source The Royal Society, Sustainable biofuels,
January 2008
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Sugar caneThe 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.

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Sugar caneThe leading product in terms of land
efficiency
-52.3
-60.0
COMPANY PRESENTATION
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Sugar caneBy far the most energy efficient
feedstock
Sugarcane ethanol 8.0-9.0 vs. US corn ethanol
1.5-1.8
COMPANY PRESENTATION
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Current bioethanol market
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COMPANY PRESENTATION
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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

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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

Source The Economist Intelligence Unit, August
2008
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A changing business environment in BrazilThe
emergence of a new private market economy
NEW PARADIGMS
OLD PARADIGMS

• Hyperinflation
• Massive shortages
• Financial turmoil
• Low capital inflow
• Devaluation of the real in 1999
• Heavy and complex tax burdens
• Underdeveloped bank structure and little
  opportunity to manage risks locally
• Little investments in infrastructure
• By 2001-02, the economy was stable but hibernate,
  at the same time as inflation again threatened

• Declined interest rates and rising market
  competition acts as defense against inflation
• Economy resistant to turbulence due to structural
  demand and focus on commodities
• Reduced public debt and regained investment-grade
  status
• High capital inflow
• Program of large infrastructure investments
• Economic reforms and sound macroeconomic policies
• Relaxation of restrictions on investment
• Local and international banks increase presence
• New equity and debt issues expected
• MA activity
• Increased focus on environment and sustainability

Source The Economist Intelligence Unit, August
2008, McKinsey, Newsweek, CIA, UN
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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
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Brazil offers sustainable bioethanol production
BRAZILS 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

• 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
• Infrastructure developing export potential
  increasing

Source Infoamricas, MB Agro
COMPANY PRESENTATION
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Brazil is the worlds leading sugarcane producer

• 2007/2008 harvest 487Mtons from 350 plants
• Of which 250 were combined mills and distilleries
  and 100 pure play ethanol
• Sugarcane cultivation covers 7.8M ha, 2.3 of
  domestic arable land
• Less than 50 of this goes to ethanol, rest
  become sugar.
• Sugarcane is grown mainly in South-Central and
  North-easthern regions, with two different
  harvest periodes
• South-Central 85 of production
• Sao Paulo gt 60 of production
• Sugar mills in Brazil are becoming
  power/electricity self-sufficient
• Re-use of bagasse new power source for electricty
  supply
• Industry developed over the last 30 years
• Continual technological improvements

SUGARCANE PRODUCING REGIONS IN BRAZIL Areas
marked in red indicate where sugarcane is
harvested and sugar, ethanol and bioelectricity
plants are located.
Source UNICA, NIPE-Unicamp, IBGE, CTC
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Brazilian industrys impact on the environment

• Soil occupation not in conflict with food
  production or rain forests
• 1,0 of Brazils 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 Canes Energy. 2007. UNICA
COMPANY PRESENTATION
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• 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

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Umoe BioEnergy is an integrated bioethanol company

• 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

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COMPANY PRESENTATION
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History
COMPANY PRESENTATION
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Value chain integrated bioethanol company
LAND
AGRICULTURAL
INDUSTRIAL
SALES
12 - 18 months
0 - 9 months
OWN LEASE THIRD PARTY
FORMING PLANTING CARING HARVESTING

• ETHANOL PRODUCTION
• - RECEPTION
• - CRUSHING
• FERMENTATION
• DISTILLATION
• COGENERATION / POWER

MARKETING DISTRIBUTION

• 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
• Sophisticated logistic management

• Key success factors
• Proven technology
• Operational excellence
• Equipment sourcing

• Bioethanol sold through gasoline distributors
• Petrobras
• Shell
• Exxon
• Texaco

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COMPANY PRESENTATION
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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 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

LAND
AGRICULTURAL
INDUSTRIAL
SALES
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Company growth vision

• Become a major, long term and sustainable
  producer of bio-ethanol
• Create an international business operation based
  on best practice governance principles
• Become a preferred supplier of bio-ethanol to
  international oil companies and other buyers
• By 2013 sustainably control
• 1,000M liters/year bioethanol production
• 12.0Mtons per annum sugarcane crushing capacity
• 150.000 ha land
• 1,000 MW electric power production capacity

COMPANY PRESENTATION
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Regional focus within the Sao Paulo state

• Operational assets in Paranapanema region
• Brazilian head office in city of Ribeirao Preto
• Agricultural assets
• 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
• 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
• Municipality Narandiba
• Crushing capacity 1.0Mtons
• Production start Sep08 / 100 complete
• Production works 2 - Greenfield mill constructed
  (EPC)
• Municipality Sandovalina
• Crushing capacity 1.9Mtons (2.6Mtons in 2010)
• Ramp-up Nov08 / 99 complete

SAO PAULO
WORKS 1 - NARANDIBA
WORKS 2 - SANDOVALINA
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Sao Paulo
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Agricultural operations

• Key strategic part of the value chain
• 70 of the companys 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
• High level of RD in agri-industry

COMPANY PRESENTATION
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Agricultural equipment
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Industrial operations

• PRODUCTION WORKS 1
• Remodeled distillery
• Municipality Narandiba
• Crushing capacity
• 1.0Mtons in 2008
• Started production Sep08
• 100 complete

• PRODUCTION WORKS 2
• Greenfield mill constructed (EPC)
• Municipality Sandovalina
• Crushing capacity
• 1.9Mtons in 2009
• 2.6Mtons in 2010)
• Ramp-up Nov.08
• 100 complete

COMPANY PRESENTATION
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Industrial operations Narandiba
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Industrial operations Sandovalina
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Current manning
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COMPANY PRESENTATION
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Paranapanema project Phase 1 and 2
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COMPANY PRESENTATION
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Phase 1 - ongoing project
COMPANY PRESENTATION
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Phase 2 - investment plan project
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COMPANY PRESENTATION
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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

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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

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Shareholders
COMPANY PRESENTATION
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The Umoe Group

• Norwegian investment company and one of Norways
  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

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COMPANY PRESENTATION