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Vietnam Ethanol Biofuel Plant, Hoa Binh province

Vietnam Ethanol Biofuel Plant, Hoa Binh province

COMPANY BACKGROUND

The certificate of business registration No. xxx dated 06 July 2007 was granted to xxx – Hoa Binh one member limited company by Hoa Binh people’s committee allowing the implementation of investment project on Constructing the xxx manioc starch processing plant in Phong Phu and My Hoa commune, Tan Lac district, Hoa Binh province, with the capacity of 15,000 tons of product/year with the total investment of 32 billion dong.

• Turnover in 2007: VND 14,43,306,000
• Turnover in 2008: VND 22,317,459,410
• Turnover in 2009: VND 79,796,629,800

Major products: Manioc starch
Stable production capacity: 20,000ton/year (designed capacity 30,000ton/year)
Auxiliary product: Dry manioc, manioc starch, manioc dreg and so on.
Material market: Fresh and dry manioc: Mainly of Hoa Binh province and neighboring provinces, the Company directly purchases from farmers and agents, small trader
Output consumption market: Foodstuff, candy, cookies, instant noodle, paper, textile, pharmacy processing companies and so on in Vietnam and mainly exported to China.
Development orientation:

In 2008, the Company expanded its business cooperative manufacture activities and its current members are: xxx manioc starch plant, Phu Tho province and xxx manioc starch plant, Son La province

At first, due to the concentration in investment and lack of market, the xxx starch products were mainly traded through intermediate companies. Since mid 2008, after expanding the market and looking for customers via information channels, becoming member of CAEXPO fair – 2008 in Nam Ninh – China, the Company directly exported its products to the main markets such as China, Taiwan and so on.

Beside manufacturing and consuming the main product of plant – xxx starch of Xxxplant, the Company also sell its products to xxx manioc starch plants and xxx manioc starch plant – Son La and deploys the import of dry manioc product and other agricultural products.

The Company, currently, tends to develop the production of Ethanol bio-fuel to meet the market demand and policy of the State.

BASIS AND PERIOD OF PROJECT FORMATION

xxx – Hoa Binh one member company limited was established in 2006, specializing in produce starch from manioc. The products of Company are mainly for import. Annual productivities rapidly grow, contribute to the development of manioc material in the region and neighboring areas; and contribute to the hunger and poverty eradication for farmers (mostly in rural areas). However, the manioc starch is still semi-product and it can be used to generate many other products with higher value. The import is at times inactive because of the foreign partners.

Meanwhile, at present as well as in the future, the bio-fuel in the place of fossil fuel is a strong trend in Vietnam. The Government has approved the Project on Development of bio-fuel up to 2015, with vision to 2025. xx – Hoa Binh one member limited company recognizes the necessity of investment in the bi0-fuel production from manioc to meet the market demand, bring about the obvious socio-economic efficiency.

The projects of this investment are as follows:
+ Invest in constructing a new plant for producing bio-fuel
+ Expand an existing manioc starch plant to produce more bio-fuel.

The selection of investment project shall be analyzed in the Project.

TARGET OF PROJECT:
Invest in constructing manioc ethanol bio-fuel production plant with the capacity of 20,000,000 liters/year.

MARKET RESEARCH

Introduction of Ethanol production technology:

Fermentation, one of the oldest technology applied by human, to produce various kinds of products, including foodstuff, aromatic spices, beverage, pharmaceutical products and chemicals. However, at present, there are many simpler products which are synthesized from oil and gas at low cost. The future of foodstuff fermentation industry depends on the high efficiency use capacity and special enzymes for synthesizing complex products and the adaptation to different materials as well as different quality of material. thanol is made from various kinds of agricultural products as cereals, fruits and glucose compound.

Energy crisis in 1970 recovered the interest in producing ethanol through fermentation, however, the use of ethanol still depends on productivity and cost of natural ethylene.

Price of sugar and cereals, like that of oil and petroleum, had shot significantly since 1973 and may increase more and more (now reach USD100/barrel).

The glucosic or starch materials can be fermented through various steps to be converted into ethanol. Many different kinds of materials are used to produce ethanol by traditional fermentation method, applied to three kinds of agricultural products: sugarcane, starch and materials containing cellulose. Sugar (from sugarcane, beets, fruit and so on) can be converted into ethanol, Starch (from seeds, bulbs) must, at first, be hydrolyzed into fermentable glucose under the effect of enzymes. Cellulose from timber, agriculture waste containing glucose solution can be converted into glucose by mineral acids. After generating basic glucose, it shall be fermented by enzymes and converted into ethanol.

The more use of bio-fuel shall deduct the greenhouse effect and environmental pollution.

Such bio-fuel as ethanol is one of the best tools to fight against the air pollution from vehicles. Ethanol composed of 35% of oxygen. The additional oxygen added into fuel shall enhance the complex burn period and minimize the toxic exhausted gas.

Petroleum mixed with 10% of ethanol shall reduce the waste which causes greenhouse effect as CO (carbon monoxide) (25-30%), particular matters) (50%) and evaporated organic compounds (7%)

Ethanol may be used in the place of such toxic chemicals as benzene (toxic compound in petroleum). In addition, ethanol is free from sulfur.

The increasing use of bio-diesel shall raise the environmental benefit and the rate of use of ethanol converted from cellulose has increased reasonably in Ontario Canada.

Canadian government foresees that, if about 35% of petroleum containing ethanol is used, the Greenhouse gas shall cut off about 1.8 million ton/year, equivalent to the exhausted gas from more than 400,000 cars.

The American Lung Association of Metropolitan Chicago supposes that the use of ethanol petroleum shall reduce 25% of exhausted gas since 1990.

Ethanol can significantly balance the energy, e.i. generating more energy than the cost to generate itself. This is an useful energy which is generated through effective procedures.

It consumes less than 35,000BTU of energy to generate ethanol from corn, meanwhile, ethanol generates at least 77,000BTU of energy. Thus, the capacity of balancing energy of ethanol is very high.

Researches from various sources show that ethanol can significantly balance the energy. Most recently, The U.S Department of Agriculture) showed that ethanol saves at least 77% of energy.

Although at present in the US, ethanol is mostly produced from corn, they developed new technology to produce ethanol from various sources of energy

Thanks to the tremendous material reserves, the U.S is able to generate a large number of ethanol, enhance the energy safety, economic safety and environmental protection.

Flexible fuel vehicles (FFV) are those vehicles which can use fuel mixture with 85% ethanol. If E85 (mixture with 85% of ethanol, 15% of lead free petroleum) is not available, the vehicle can use directly the lead free petroleum or any kind of fuel with 85% of ethanol.

The giant car manufacturers as Daimler Chrysler, Ford, General Motors, Mazda, Mercury, Isuzu and Mercedes manufactured vehicles which can consume E85. FFV has been produce over the years with latest models are introduced.

E85 fuel is the mixture of 85% ethanol and 15% of lead free petroleum, U.S department of Energy considers this fuel is an alternative energy.

Currently, there are more than 4 million of vehicles used on the roads of the U.S and car manufacturers are producing more and more of this kind of vehicle. To serve this kind of FFV, many petroleum stations have been installed all over the U.S.

When the E85 is not available, FFV can directly consume petroleum and mixture with ethanol at any ratio up to 85%. The important thing is that there is no vehicle which only consumes “ethanol”. All cars can consume E10 without modifying the motor.

The E85 fuel is for FFV, however, some misunderstood that ethanol is the mixture of 85% ethanol and 15% of petroleum.

The ethanol manufacturers are making best effort but it still lacks of about 6 billion Gallons (1 gallon = 3.8 liters)

At present, in the U.S, there are about 97 ethanol producing plants which are run at best capacity, 09 plants are being expanded and 35 plants are being constructed.

According to statistics, up to 2012, the U.S shall consume up to 7.5 billion of gallons of this kind of fuel, the number at present is 5 billion of gallons.

The unusual demand for ethanol makes the manufacturers work at their best effort, sell it at higher price and keep on building new ethanol plants.

The trend of ethanol consumption worldwide

The countries in the worlds are producing and consuming a large number of ethanol and expanding the ethanol production scale. Brazil and Switzerland is using a large number of ethanol for fuel. Some states of Canada encourage the use of ethanol by reducing the price to 45cents/gallon.

India government is encouraging the use of ethanol for vehicle fuel. Currently, some manufacturers in India use redundant alcohol to mix with petroleum or for oxidization matter for petroleum.

According to the tests of Indian Institute of Oil and Gas, some states study the use of about 10% of ethanol mixed with petroleum and 15% of ethanol mixed with diesel oil for vehicles.

In France, ethanol is generated from grapes which are unqualified for wine production.

In Brazil, in 1970s, when the oil price increases, the country set up a program of producing ethanol for vehicles to minimize the imported oil. In Brazil, ethanol is mainly made from sugarcane. Pure ethanol (100% ethanol) is used for about 40% of vehicles in Brazil. The remaining vehicles use the mixture of 24% ethanol and 76% petroleum. Annually, Brazil consumes nearly 4 billion of ethanol gallons. In addition, Brazil also exports ethanol to abroad.

In many years, Switzerland uses ethanol to produce chemicals. For many reasons, since 1980, the consumption of crude oil in Switzerland has been knocked off to a half. Concurrently, the consumption of petroleum and diesel for transportation increased. The amount of exhausted gas reasonably decreased thanks to the installation of converter in exhaust system of vehicles to minimize the amount of CO. CO2, Nitrogen oxide.

Currently, Switzerland considers the mixture of petroleum and ethanol and diesel is the alternative fuel to minimize the air pollution.

Analyzing the necessity of investment

As above analyzed in part of above market and material region, construction investment of bio-fuel production plant supported for policy of replacing gasoline gradually is suitable with enterprises with necessary conditions. xxx Hoa Binh One Member Limited Company is one of enterprises which are producing and doing business in san starch product effectively in our country with increasing output and turnover over years:

Turnover in 2007: 14.4 billion dong
Turnover in 2008: 23.3 billion dong
Turnover in 2009: 79 billion dong

The company has good relationship with material region in provinces of Hoa Binh, Phu Tho, Son La, Tay Nguyen, etc to ensure full material supply for Company. Current starch product is for export. Because it is in half-finished goods form, received efficiency is not effective. Therefore, bio-fuel production investment from san is correct direction with full conditions on material source, production technology, capital source, etc. Together with bio alcohol production chain investment, investment in treatment system of waste water according to environment ensuring requirement shall give double effectiveness from creating energy source (biogas) to reuse for the works as power generation, steam supply and ensure that the impact of the Project for the environment is in allowable limit.

Therefore, it can be defined that the project is constructed on the firm basic:

– According to policy of State on bio-fuel production development
– Meeting the demand of the market
– Having reliable material supply region.

It is defined in “The report of production situation, orientation and development solution of san tree in next time” of Ministry of Agriculture and Rural Development that “-Ensure full supply of materials for starch processing plants and Ethanol production plant to operate until the maximum capacity. Planning of focused material san has scale from hundred to thousands of ha”. San material consumption shall help the agriculture developing firmly and stably because the economic efficiency increases much than only starch production (half-finish goods) as previously. This also helps material region (mainly mountainous region) to develop better in socio-economical field.

ADVANGATES & DIFFICULTIES

Advantages:

Reliable market due to orientation of increasing bio-fuel usage with State encouragement.
Stable san material with development possibility by enlarging cultivation area as well as applying new transplant with high productivity.
xxx Hoa Binh One Member Limited Company is doing business in san starch product, so it has good relationship with material region and experience in doing business.
xxx Hoa Binh One Member Limited Company has skillful staff that is convenient for alcohol production technology approach to operate the alcohol plant effectively.
The project is supported and gives good development conditions by the local
Especially, the Government has favorable policy for projects under field of bio-fuel production.
Difficulties:

Because this project requires large capital source, it needs the help from banks in borrowing capital for the project implementation.
As one of leading enterprise in implementing developing project of bio-fuel of the Government, the enterprise shall face initial difficulties in approaching new technology and market.
However, they are apparent difficulties needed to overcome by enterprise.
CHOOSING INVESTMENT METHOD

1. Expected investment scale

Product orientation
Ethanol bio-fuel product must reach Vietnam standard in national fuel standard system and these products are sold for petrol business unit as Vietnam National petroleum corporation, Military Petroleum Joint Stock Corporation, etc.

Expected capacity scale
On the balance basic between capacity of xxx Hoa Binh One Member Limited Company on field of finance, technical infrastructure, etc. with new developing demand of market, capacity module of equipment chain on the market, xxx Hoa Binh One Member Limited Company decided to choose capacity scale of the project as alcohol production: 600 liter/day – 20 million liter/year.

2. Investment method

With conditions of xxx Hoa Binh One Member Limited Company, there are two investment methods:

A. New construction in ethanol bio-fuel Plant
B. Construction enlargement of ethanol bio-fuel production system on the platform of available san starch production plant, combining with the finishing the technical infrastructure in Phong Phu commune, My Hoa, Tan Lac District, Hoa Binh province.

After analyzing on the real conditions, xxx Hoa Binh One Member Limited Company chooses B method because of following reasons:

– Large platform (10 ha) which is enough for enlargement demand
– Location of the plant is the central of material region
– Infrastructure availability: Transportation, power supply, water drainage.
– Available management staff and technical workers can approach alcohol production technology.
– Investment cost is much smaller than construction in new place.
– Alcohol and san starch production can support each other in production process according to the situation of market and material.

The investment form is defined as: Construction enlargement of ethanol bio-fuel production system on the platform of available san starch production plant, combining with finishing the
technical infrastructure in Phong Phu commune, My Hoa, Tan Lac District, Hoa Binh province.

TOTAL INVESTMENT AND ECONOMIC EFFECTIVENESS

1. Total investment

– Investment basis: According to the Circular No. xxx dated 25th July, 2007 of the Ministry of Civil Construction for guiding the management of investment expenditures on
construction.

– According to the expense account for investment on basic design, investment summary as follow:

Total investment 280,360 million VND
+ Total fixed investment 273,300 million VND
– Equipments: 167,575 million VND
– Build 50,673 million VND
– Project management and other expense: 6,246 million VND
– 5% of back up expense 11,172 million VND
– Interest during the construction time: 22,274 million VND
– Current fixed asset: 15,360 million VND
+ Mobile capital: 7,060 million VND

2. Capital source
– Self-financing: 80,360 million VND, account for 28.66% of the total investment.
– Loan from commercial banks: 200,000 million VND, account for 71.34% of the total investment. Including:
+ Expense for domestic equipments – 167 billion VND
+ Construction expense (except the general layout expense) – 26.2 billion VND
+ Expense for the power – 6.8 billion VND
Interest for loan: 13% year.
Loan time: 8 years

RESULT OF ECONOMIC ANALYSIS

Net value

Net value of the project is calculated on basis of discount of project cash flow through the years with discount interest rate of average 17.02%. Through calculation, NPV of the project
is 23.493 million VND, resulting that the project is feasible.

– In opinion of total investment: NPV = 22.499 million VND
IRR = 18.73%
Time for returning capital: 12.78 years

– In opinion of investor: NPV – 30.976 million VND
IRR = 22.93%
Time for returning capital: 11.72 years

Capital return rate

The IRR is the discount rate with corresponding NPV = 0. In other words, the IRR is the discount rate so that total price of receivables in the future brought about by investment is equal to the investment capital. Project to be invested must have IRR being greater than or equal to normal loan interest rate. Here, IRR of the project is 18.73%, which is higher than long term loan interest rate used in financial solution. In conclusion, the project is feasible, based on the calculated IRR.

Time for investment capital return

Time for investment capital return is determined via net income and deducted gradually from investment capital until the balance is reached. The time until the balance is reached is the time for returning the project capital. For project of producing biological fuel, time for capital return is 12.78 years; investor’s time for returning capital is 11.72 years.

Profitability index

Profitability index (PI) is the difference between net current value of total ingoing cash flow and outgoing cash flow of the project. Through calculation, PI of the project is 1.082, which is greater than 1 and is the basis for concluding the feasibility of the project.

Breakeven point

Breakeven point can be calculated according to output or turnover of the project. Accordingly, we have output breakeven point or turnover breakeven point. The purpose of analyzing the breakeven point is to plan the profit gained on basis of establishing a relationship between expense and income. The lower the breakeven point is, the more efficient the project and the smaller the risk is. For project of producing biological fuel Ethanol, we are searching for an output breakeven point, meaning to determine annual capacity of the production line at which the total turnover of the plant is just enough to cover the expenses (including both direct and indirect expenses); in other words, the income before-tax is equal to 0. Through calculation, we determine that with average capacity of about 45.6%, equivalent to 9,120 thousand liters of final product per year in stable stage of the project, the enterprise will be at the breakeven point through the years.

PROJECT SCHEDULE

– Total time for work completion, from the approval of the project: 18 months
– Total time for construction and installation of equipments: 15 months.

CONCLUSION AND RECOMMENDATIONS

1. Conclusion: With above calculation results, we can determine that this project is feasible. The important point is that the Project is appropriate with strategy of the State, makes contribution to stable development of cassava cultivating and procession of the country.

2. Recommendation: Via analysis of the project, we can see that to implement the State’s strategy on biological fuel successfully, the State should have specific policies on supporting the project investors with regard to planning of developing material regions, product consumption and distribution system, especially in investment capital borrowing.

Provinces, especially Hoa Binh, should create favorable conditions for xxx Hoa Binh Co., Ltd. to establish a neat connection with material regions which keep developing their productivity, area and output to assure stable material supply to the Plant.