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Petrojam Ethanol shifts from processing to imports – Idled plant cuts into profit

A shortage of raw material has pushed Petrojam Ethanol Limited out of the business of manufacturing fuel-grade ethanol into imports and distribution, a shift that is projected to produce a small profit equivalent to 0.03 per cent of the millions reported in its last year as a processor.

PEL, whose plant has been idled for one and a half years said it will reclaim its original role as a producer of dry ethanol once the market for raw material is more certain and it has locked in supplies.

The 40-million gallon plant ceased hydrous or wet-alcohol processing in November 2009, which eliminated lucrative, duty-free exports to the United States.

Supplies of cane-based wet ethanol out of Brazil were adversely affected by excessive rain as well as rising commodity prices. Sugar-commodity prices have rocketed 80 per cent since the plant ceased processing nearly two years ago to US$0.24 per pound. It increased 150 per cent in price over the last five years.

eroding the profit margin

These market changes resulted in eroding the profit margin for production and left PEL without cheap raw material, said PEL manager, Ricardo Neins.

The drying up of PEL’s raw- material source also coincided with the expiration of an agreement between Petrojam and Coimex under which the Brazilian firm guaranteed supplies of wet ethanol and got in return a duty-free conduit into the US market.

PEL will import finished ethanol from the US market to sell locally, Neins said. The company is projecting imports of 15.12 million US gallons of the biofuel and sales of 15.28 million gallons.

It has an immediate customer in sister operation Petrojam Limited, the monopoly refinery whose octane or gasolene products are 10 per cent ethanol.

Parent company Petroleum Corporation of Jamaica is in the process of hiring CBI Jamaica Limited at a cost of US$1.5 million (J$128.4m) to develop and install a 60,000-gallon ethanol storage tank at Petrojam’s Marcus Garvey Drive, Kingston base. Cabinet must sign off on the deal before the contract can be issued.

PEL is budgeted to make J$4.2 million this fiscal year compared to J$211.7 million recorded in 2009/10, based on Jamaica Public Bodies estimates. Additionally, PEL made only J$530,000 profit in fiscal year 2010/11.

It will continue the hunt for cheaper hydrous ethanol in order to restart its US$12-million processing plant.

“We are in the market ,trying to find product. But we would not have budgeted for processing of ethanol this year,” Neins said, adding that the company continues to conduct routine maintenance on the Kingston plant.

“At the current price we would be processing at a negative margin,” he said.

PEL was established in the 1980s to take advantage of United States concessions under the Caribbean Basin Initiative (CBI), extended to regional trading partners who are expected to supply up to seven per cent of the American market with fuel-grade ethanol duty free. Jamaica is the largest supplier of fuel-grade ethanol to the US under the CBI.

“We are always in a mode ready to produce. But we are not able to secure a long term arrangement at this time because of market conditions,” said Neins.

PEL’s South American partner, Coimex, agreed to fund the Jamaican plant’s rehabilitation, while it took a 20 per cent stake in the factory’s operation and provided feedstock for the 40-million-gallon-a-year facility.

The Jamaican Government undertook to repay Coimex’s share of the US$10.5 million factory- repair bill over a three-year period. Coimex had wanted to continue the partnership, but Jamaica chose instead to throw PEL in as sweetener for a sugar-divestment deal it negotiated with Infinity Bio-Energy, but that deal went sour before final consummation, leaving the state in possession of the plant.

 

Source: Jamaica Gleaner



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