Thick and fast

Thick and fast

The National Oilseeds and Vegetable Oils Development Board (novod) was put in charge of plantation outside forestland. The Union ministry of rural development was to be the nodal body for the biodiesel programme. Oil extraction was to be under the Khadi and Village Industries Commission; the Union ministry of petroleum was to be responsible for creating 'micromissions' on transesterification, blending and trade; the Council of Scientific and Industrial Research was to coordinate the micro-mission on r&d, quality and improvement of seeds, and improving production technology. But the grand plan is taking time to germinate. It is understood that the detailed project report is under consideration of the Planning Commission.

However, in October 2005, the Union ministry of petroleum and natural gas (mopg) announced the biodiesel purchase policy: from January 1, 2006, public sector oil marketing companies -- Indian Oil, Hindustan Petroleum and Bharat Petroleum -- will purchase biodiesel from private operators at Rs 25 per litre. The purchase price, which is a point of contention between the government and biodiesel producers, has reportedly come from estimates of the Planning Commission (see table: Components of biodiesel pricing).

The government says it wants to regulate the biodiesel industry to avoid adulteration and sub-standard produce. The manufacturers will have to be registered and get their samples tested at approved laboratories. This precludes manufacturers from selling to anybody other than oil companies. Industry says this will keep the price regulated and low. It wants to have the option to sell in the open or to other users like railways or bus companies. Or it is looking at the lucrative and growing export market for its golden tree.

Economics of the golden tree
Biodiesel plantation economics is fuzzy. The moot point concerns the productivity of the plant -- jatropha or any other -- and the cost of growing it. Jatropha's estimated yield varies from 0.4 tonnes per ha to 6 tonnes per ha. In other words, the farmer could get at the very minimum (at Rs 5,000 per tonne) as little as Rs 2,000 per ha or at the very maximum (at the same price) Rs 30,000 per ha each year on a recurring basis.

Currently, there is no real-time plantation to provide accurate yield estimates. The highly volatile market is speculating based on the seeds being collected from trees in forests and other village lands -- seeds bought at Rs 5/kg from collectors in Pendra Road sell for Rs 45 in Lucknow. The price of seed will make the price of biodiesel out of reach. Take the example of Laxmi Biotech of Indore, which has set up a plant at the cost of Rs 25 lakh with a capacity of five tonnes per day. Its ceo Prabhu Shukla says jatropha seeds are not available and they have had to buy vegetable oil for Rs 28 a litre: "How will we sell at Rs 25? Till recently, Gujarat Oleochemicals was selling biodiesel made of imported palm oil at Rs 55 a litre."

The oil yield of the jatropha seed -- 30-35 per cent -- means three kg of seeds can produce one litre of oil. If the farmer (or industry) is paid Rs 5-6 per kg it would mean that the raw material would cost Rs 15-18 per litre. Add another Rs 7-10 as the cost of oil extraction and transesterification, according to industry sources. In other words, at the lowest price of raw material purchase, the cost is Rs 22-28 per litre. Industry says the price of Rs 25 per litre isn't viable. S Behuria, chairperson of the Indian Oil Company, says to be competitive, biodiesel price must match that of diesel. Industry says the price should be based on costs of producing the cleanest low sulphur diesel. Biodiesel is an environment-friendly and must be costed as such (see box: Reduced emissions).

Given the state of the Indian oil market, companies are already planning to either export the biodiesel or import cheaper raw material like palm oil. They are looking at the large European Union market, which having decided to blend 2 per cent biodiesel by 2005 and 20 per cent by 2020 has created a demand for 8 million tonnes of biodiesel. It is cheaper for Europe to buy biodiesel from developing countries like India, otherwise it will need land the size of Belgium to grow rapeseed, which it uses for its raw material.

Many believe that the fascination with jatropha is part of the biodiesel problem. While jatropha is in short supply, there are a number of other plants that are more widespread. H M Behl, scientist at the National Botanical Research Institute, Lucknow, has been investigating the properties of biodiesel from several sources. He feels the present purchase policy will benefit only large companies who have holding power and can take losses in the initial years. "Government should price the vegetable oil," he reckons, as it will encourage growers and not manufacturers (see box: Why only jatropha?).

But as the price of raw material is the most important component of this business, the industry's effort is to find cheap and reliable sources. Large business houses have their own business model. They prefer growing large-scale plantations for cost-effective and assured raw material.

The market model
The market is way ahead of any government plans on biodiesel. Many old and new players are making it their business. Biodiesel companies are literally the new bpo business. There are also large players in the nascent market, like the Indian giant Reliance or the uk -based firm D1 Oil, which is the largest player and has plans of 267,000 ha of plantations by early 2007 and 5 million ha in five years.

D1 has already signed agreements with a bevy of private companies, research labs, and even cash-strapped agriculture universities -- in fact, the Union government is holding discussions with the company on how it can help India meet its biodiesel targets. Rather than join the scramble for seeds picked from the wild, the company is investing Rs 8 crore in r&d to produce high quality seeds, says Sarju Singh, managing director of D1 Oils India, the uk company's Indian subsidiary. Last year, it set up a facility in Coimbatore for developing elite seeds, formulations of bio-fertiliser suited for jatropha, soil preparation and best agronomical practices.

The company started out making its small biodiesel refineries for transport companies in Europe. To make them viable, it needed a cheaper source of vegetable oil. The answer: jatropha, which will cost us $200 per tonne less to cultivate in India than rapeseed oil in Europe, the main biodiesel feedstock in Europe at present, says Philip Wood, D1 Oils chief executive officer (global operations). But this company, which specialised in smaller refinery technologies is not even willing to sell these in India. It wants to control the lucrative market.

It is looking for land for captive plantation. In the interim, it's working on tripartite agreements -- loans from banks to farmers to grow oilseed and local contractor companies to source and control the markets. It has entered into a joint venture (jv) agreement with Chennai-based Mohan Breweries to create D1 Mohan. This will operate and control future projects in the region. In January 2005, D1 Mohan increased its 2005 planting target from 5,000 ha to 100,000 ha. By April 2005, D1 Mohan had signed a memorandum of understanding with the State Bank of India to provide loans worth Rs 130 crore to farmers in Tamil Nadu for planting 40,000 ha of Jatropha. D1 will sell seed, fertiliser and probably consultancy. "In states like Andhra Pradesh (ap) and Chattishgarh we are planning a mix of joint ventures and contracts," say company officials. Under the 50:50 joint venture with Mohan Breweries, the British firm is planning to set up an 8,000-tonne refinery near Chennai with an investment of us $2 million. This will be a pilot plant that will be followed up with 100,000-tonne capacity plants in each district in Tamil Nadu once the availability of the oilseed increases.

Hyderabad-based plant biotechnology company Nandan Biomatrix has also tied up with D1 oils, as well as uk-based Synergy Foundation and also the International Crops Research Institute for the Semi-Arid Tropics (icrisat). Nandan enters into a 'forward sales agreement' to produce good quality jatropha seeds. The landowners lease out their land. The third party is the landless, who put in their labour. "This particularly benefits the landless who get sustainable employment," says C S Jadhav, director marketing. This is how they plan to cover 50,000 ha through its 25 franchisees in various parts of the country over the next two years. The company will concentrate on r&d to produce clones from its 18 mother plants to supply to farmers and has tied up with icici -Lombard and Oriental Insurance to provide the farmers insurance at 1.3 per cent per year. D1 Oils has also been looking at partners in Rajasthan and, more recently, in the Northeast.

The Indian arm of D1 Oils is working with various state governments on wasteland policy as well. But, according to Singh, for the moment the focus is unproductive land belonging to farmers. A fact-finding team of D1 Oils is looking at the government wastelands on the offer. "So far we have found that a lot of it is encroached or too rocky to really take up plantations," says Singh. Most industries are desperately looking to the state governments (like the more than willing Chattisgarh) to give them state-owned land at throwaway prices or to allocate large tracks of forestland for biodiesel plantations.

A different business model
Mani Shankar Aiyer, the present Union minister for petroleum and natural gas is also the minister for Panchayati Raj. On November 5, 2005, Aiyer -- wearing his Panchayati Raj hat -- announced a new model for the biodiesel programme involving panchayats. He called it the P-4 model: public-private-panchayat-partnership. This would involve the local government in identifying village wastelands and common lands for plantation, and set up systems for seed collection and local oil extraction. The minister also wanted the local self government bodies to set up transesterification plants through agreements with the private sector. A plethora of schemes are directed at panchayats; they could use these for creating plantations.

But the plans articulated by the minister could come to nought unless there is a supportive and facilitating framework. This is precisely what the states of ap and Uttaranchal are finding in their biodiesel rush.

In June 2004, the ap government decided to introduce large-scale jatropha plantations in the rain shadow districts (rainfall below 600 mm) of the state. The aim: to cover 1.5 million ha in four years. A department of rain shadow areas development (rsad) was created and put in charge of the biodiesel programme. Within a year, district collectors, along with project directors of the district water management agency (dwma) identified about 16,000 ha covering 15,000 farmers -- half the land and farmers are in irrigated regions and the remaining in rainfed areas. Government estimates show in 2004-05, 37 million tonnes of seed were procured and 17.2 million jatropha seedlings were given free of cost to farmers. Land development work like digging pits and bunding is being funded through the food for work and other development programmes.

The state is looking at the biodiesel programme as a rural development package. The government has announced a 90 per cent subsidy (up to Rs 50,000) to all farmers for installing drip irrigation systems, says Manohar Prasad, secretary rsad. The state is targeting cultivable lands of private landowners instead of 'wastelands'. It's put in place plans to reduce risks to farmers: it wants agreements between farmers, the private sector and the state biodiesel board to ensure industry purchases the produce. The government has worked out a minimum income plan in case of low yields to protect the farmer. It has reduced the value added tax (vat) on biodisel to 4 per cent.

The state is also seeking out those interested in setting up transesterification units. Prasad says the response is "overwhelming". For example, Solarsa India Private Ltd, a unit of Renewable Energy and Sustainable Technologies, usa , proposes to set up a plant with an annual capacity of 300,000 tonnes at a cost of about Rs 300 crore. This involves jatropha plantation in about 4,050 ha of wasteland.

Uttaranchal, too
The Uttaranchal government has a slightly different approach. A K Lohia, general secretary of the new State Biofuels Board, says the state's vision is "employment generation through jatropha plantations to help alleviate poverty and ecological restoration". The Uttaranchal Biofuel Mission was launched in August 2004. He says the state has around 1.2 million ha of "almost blank land", and soil erosion is a big problem. The state goal is to plant on 0.2 million ha, and will use joint forest management committees -- van panchayats -- to do this. A pilot project was carried out in 2004 on 360 ha. This year's target of 9,000 ha in plantation has been achieved, the government claims. The lands targeted are degraded forests under fd and local government.

"Our target beneficiaries are the poorest. Each of the 429 van panchayats in seven districts will identify ten families to work on 20 ha of land," says Lohia. T12jav.net12jav.net