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    Spanish company Ferry Group is to invest €42/US$55.2 million in a project for the production of biomass fuel pellets in Bulgaria. The 3-year project consists of establishing plantations of paulownia trees near the city of Tran. Paulownia is a fast-growing tree used for the commercial production of fuel pellets. Dnevnik - Feb. 20, 2007.

    Hungary's BHD Hõerõmû Zrt. is to build a 35 billion Forint (€138/US$182 million) commercial biomass-fired power plant with a maximum output of 49.9 MW in Szerencs (northeast Hungary). Portfolio.hu - Feb. 20, 2007.

    Tonight at 9pm, BBC Two will be showing a program on geo-engineering techniques to 'save' the planet from global warming. Five of the world's top scientists propose five radical scientific inventions which could stop climate change dead in its tracks. The ideas include: a giant sunshade in space to filter out the sun's rays and help cool us down; forests of artificial trees that would breath in carbon dioxide and stop the green house effect and a fleet futuristic yachts that will shoot salt water into the clouds thickening them and cooling the planet. BBC News - Feb. 19, 2007.

    Archer Daniels Midland, the largest U.S. ethanol producer, is planning to open a biodiesel plant in Indonesia with Wilmar International Ltd. this year and a wholly owned biodiesel plant in Brazil before July, the Wall Street Journal reported on Thursday. The Brazil plant is expected to be the nation's largest, the paper said. Worldwide, the company projects a fourfold rise in biodiesel production over the next five years. ADM was not immediately available to comment. Reuters - Feb. 16, 2007.

    Finnish engineering firm Pöyry Oyj has been awarded contracts by San Carlos Bioenergy Inc. to provide services for the first bioethanol plant in the Philippines. The aggregate contract value is EUR 10 million. The plant is to be build in the Province of San Carlos on the north-eastern tip of Negros Island. The plant is expected to deliver 120,000 liters/day of bioethanol and 4 MW of excess power to the grid. Kauppalehti Online - Feb. 15, 2007.

    In order to reduce fuel costs, a Mukono-based flower farm which exports to Europe, is building its own biodiesel plant, based on using Jatropha curcas seeds. It estimates the fuel will cut production costs by up to 20%. New Vision (Kampala, Uganda) - Feb. 12, 2007.

    The Tokyo Metropolitan Government has decided to use 10% biodiesel in its fleet of public buses. The world's largest city is served by the Toei Bus System, which is used by some 570,000 people daily. Digital World Tokyo - Feb. 12, 2007.

    Fearing lack of electricity supply in South Africa and a price tag on CO2, WSP Group SA is investing in a biomass power plant that will replace coal in the Letaba Citrus juicing plant which is located in Tzaneen. Mining Weekly - Feb. 8, 2007.

    In what it calls an important addition to its global R&D capabilities, Archer Daniels Midland (ADM) is to build a new bioenergy research center in Hamburg, Germany. World Grain - Feb. 5, 2007.

    EthaBlog's Henrique Oliveira interviews leading Brazilian biofuels consultant Marcelo Coelho who offers insights into the (foreign) investment dynamics in the sector, the history of Brazilian ethanol and the relationship between oil price trends and biofuels. EthaBlog - Feb. 2, 2007.

    The government of Taiwan has announced its renewable energy target: 12% of all energy should come from renewables by 2020. The plan is expected to revitalise Taiwan's agricultural sector and to boost its nascent biomass industry. China Post - Feb. 2, 2007.

    Production at Cantarell, the world's second biggest oil field, declined by 500,000 barrels or 25% last year. This virtual collapse is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos. Wall Street Journal - Jan. 30, 2007.

    Dubai-based and AIM listed Teejori Ltd. has entered into an agreement to invest €6 million to acquire a 16.7% interest in Bekon, which developed two proprietary technologies enabling dry-fermentation of biomass. Both technologies allow it to design, establish and operate biogas plants in a highly efficient way. Dry-Fermentation offers significant advantages to the existing widely used wet fermentation process of converting biomass to biogas. Ame Info - Jan. 22, 2007.

    Hindustan Petroleum Corporation Limited is to build a biofuel production plant in the tribal belt of Banswara, Rajasthan, India. The petroleum company has acquired 20,000 hectares of low value land in the district, which it plans to commit to growing jatropha and other biofuel crops. The company's chairman said HPCL was also looking for similar wasteland in the state of Chhattisgarh. Zee News - Jan. 15, 2007.

    The Zimbabwean national police begins planting jatropha for a pilot project that must result in a daily production of 1000 liters of biodiesel. The Herald (Harare), Via AllAfrica - Jan. 12, 2007.

    In order to meet its Kyoto obligations and to cut dependence on oil, Japan has started importing biofuels from Brazil and elsewhere. And even though the country has limited local bioenergy potential, its Agriculture Ministry will begin a search for natural resources, including farm products and their residues, that can be used to make biofuels in Japan. To this end, studies will be conducted at 900 locations nationwide over a three-year period. The Japan Times - Jan. 12, 2007.

    Chrysler's chief economist Van Jolissaint has launched an arrogant attack on "quasi-hysterical Europeans" and their attitudes to global warming, calling the Stern Review 'dubious'. The remarks illustrate the yawning gap between opinions on climate change among Europeans and Americans, but they also strengthen the view that announcements by US car makers and legislators about the development of green vehicles are nothing more than window dressing. Today, the EU announced its comprehensive energy policy for the 21st century, with climate change at the center of it. BBC News - Jan. 10, 2007.

    The new Canadian government is investing $840,000 into BioMatera Inc. a biotech company that develops industrial biopolymers (such as PHA) that have wide-scale applications in the plastics, farmaceutical and cosmetics industries. Plant-based biopolymers such as PHA are biodegradable and renewable. Government of Canada - Jan. 9, 2007.

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Friday, September 29, 2006

The rural poor as energy producers - a critique of the "bottom of the pyramid" development discourse

We want to highlight a very lively discussion that is currently going on in the field of development economics, because it sheds light on why we think biofuels production in the South makes sense from the perspective of development, social justice and poverty alleviation.

At Biopact, our original interest in the bioenergy sector stems from professional engagements in the (poor parts of) emerging economies and from working in the field of development economics. Simply put, it quickly became apparent to us that the potential for the production of biofuels in the South offers a genuine way to tackle poverty. The simple reasoning is that (1) energy prices and GHG emissions costs worldwide are rising sharply (oil prices tripled in under 3 years time with no serious declines in sight for the long-term; carbon-markets are being introduced on a planetary scale) (2) biofuels offer an immediate alternative to fossil fuels and there is an ever growing global demand for them; contrary to other renewables (like wind or solar), the energy and carbon-neutrality coming from bioenergy can be traded physically as a commodity as well as virtually in the form of carbon credits (this is important because it allows producers to play on two markets at the same time) (3) poor farmers in the South have a competitive advantage (land, labor, climate) and can thus boost their incomes by becoming energy producers who can sell to us competitively. A simple proposition. It is crucial that we stress this productive capacity of the poor and their ownership over it. Of the 3 billion people that live on less than two dollars a day, some 70% live in rural areas with more than half of them being farmers. With moderate capital interventions and basic knowledge and tech transfers, they can diversify into energy production over which they retain control.

Now over the past several years, there has been a new and some say offensive and even dangerous trend in the field of development economics which turns this logic on its head. The trend is called 'development through enterprise' and is highly successful amongst business leaders from the West, the World Bank and some political forces. It effectively comes down to the privatisation of poverty alleviation. Instead of stressing the productive capacities of the poor, this trend sees them as a huge pool of consumers to which companies can sell and make a profit by doing so. In this vision, consumerism is presented as a the better way to alleviate poverty, as follows:
  • There is much untapped purchasing power at the bottom of the pyramid. Private companies can make significant profits by selling to the poor.
  • By selling to the poor, private companies can bring prosperity to the poor, and thus can help eradicate poverty.
  • Large multinational companies (MNCs) should play the leading role in this process of selling to the poor.
This 'Bottom Of the Pyramid' (BOP) proposition, named after a best-selling book by C.K. Prahalad, suggests that the consumption choices available to the poor can be increased by targeting various products and that this broadening of consumption choices will increase their welfare, assuming they are ‘rational’ consumers. This is the basic poverty alleviation proposition: more choice leads to more wealth, even for the poor.

Recently, Professor Aneel Karnani, an influential development economist at the Ross School of Business (University of Michigan), looked carefully at this 'development through enterprise'-trend and his conclusions are devastating: the 'BOP'-discourse is riddled with fallacies, is a self-serving illusion, and may even result in increased poverty. Prof Karnani published his critique at a portal called 'NextBillion' (which is entirely devoted to the promotion of the 'BOP' proposition), where the discussion is ongoing. His main thesis is that the only real poverty alleviation strategy consists of increasing the real incomes of the poor by looking at them as producers, not as consumers.

Let's quickly add at this moment that this is exactly what we are aiming for at the Biopact. It is the most basic of our objectives to help farmers in the South to become energy producers who are able to sell to businesses and consumers on a global market. The bioenergy sector is one where the rural poor can be effectively looked at as producers, more so than in any other sector perhaps. Rather than approaching them as consumers to which we must sell, we look at them as producers (in this case of energy) who can sell to us. This all sounds very basic, but as Karnani indicates, the ideological framework behind this is more complex than it looks.

So how does Karnani deconstruct the neo-liberal 'bottom-of-the-pyramid'-proposition, and why is his stress on the productive capacities of the poor so important to us? Let's have a closer look:
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In order to understand the dangers posed by the increasingy successful 'development through enterprise' ideology, we must follow Karnani's arguments in detail. They will show why the Biopact stresses employment opportunities brought by bioenergy, and the need to strengthen the productive capacity and ownership of rural farmers.

Karnani himself illustrates his paper with many examples, amongst them several about the plantation sector and the energy sector, which we have retained because they are related to the biofuels sector as it is developing in the South.

The BOP-proposition and neo-liberal development economics exploit the poor
The BOP proposition suggests that the consumption choices available to the poor can be increased by targeting various products and services, such as shampoo, iodized salt and televisions, at the bottom of the pyramid. Holding the poor consumer’s income constant, the only way he can purchase the newly available product is to divert expenditure from some other product. Still, this increased choice will increase his welfare, assuming he is a ‘rational’ consumer. However, as a practical matter, this is unlikely to result in a significant change in his poverty situation. Additionally, if for some reason, the poor consumer is irrational in his resource allocation choice, the BOP initiative might even result in reducing his welfare. The BOP initiative could result in the poor spending money on products such as televisions and shampoo that would have been better spent on higher priority needs such as nutrition and education and health.

C.K. Prahalad, the biggest proponent of the BOP-idea, dismisses such arguments as patronizing and arrogant; how can anybody else decide what is best for the poor? He argues that the poor have the right to determine how they spend their limited income and are in fact value-conscious consumers; the poor themselves are the best judge of how to maximize their utility. This is free market ideology taken to an extreme, and is a potentially dangerous aspect of the BOP proposition.

The poor in fact are vulnerable by virtue of lack of education (often they are illiterate), lack of information, and economic, cultural and social deprivations. A person’s utility preferences are malleable and shaped by his background and experience, especially so if he has been disadvantaged. We need to look beyond the expressed preferences and focus on people’s capabilities to choose the lives they have reason to value.

The problem is that the poor often make choices that are not in their own self interest. (The rich also often make choices not in their self interest, but the consequences are not as severe in their case.)

Raising real incomes
Not only is there no fortune, there is not even glory at the 'bottom of the pyramid'. It is a fallacy to claim that there is much ‘untapped’ purchasing power at the BOP. The poor, in fact, obviously consume most of what they earn, and as a consequence have a low savings rate. Contrary to the BOP argument, getting the poor to consume more will not solve their problem. Their problem is that they cannot afford to consume more.

The only way to help the poor and alleviate poverty is to raise the real income of the poor. There are only two ways to do this: 1) lower prices by appropriately lowering the quality of the goods that the poor buy, which will in effect raise their income, and 2) raise the income that the poor earn. The BOP proposition eschews the first approach because it insists on not lowering quality. It deemphasizes the second approach because it views the poor primarily as consumers rather than as producers.

Lowering prices of products
One way to alleviate poverty is to reduce the prices of the goods and services the poor buy (or would buy), thus increasing their effective income. To have a significant impact on the purchasing behavior of the poor, the BOP proposition calls for price reductions of over 90%. This is too ambitious a target and rarely achieved; let us consider instead price reductions of at least, say, 50%.

There are only three ways to reduce prices: 1) reduce profits, 2) reduce costs without reducing quality, and 3) reduce costs by reducing quality. If it is true that the average profit margin in a market is well over 50%, we should certainly endeavor to make the market more ‘efficient’ and reduce monopoly profits resulting in significant price reduction. Even allowing for the fact that the poor are often subject to local monopolies, this must be a rare situation. Therefore, the only realistic way to reduce price is to reduce cost. The BOP proposition is adamant that we should not reduce quality in this process.

Unless all current producers are grossly inefficient, the only way to reduce cost by over 50% without reducing quality will always require a significant improvement in
technology. Good examples of this are found in the areas of computers, telecommunications and various electronic products. It is difficult to find examples of such dramatic cost reduction in other product categories. Thus it is not surprising that the BOP proposition repeatedly uses the same examples. Note that the ultimate impact on the real income of the poor due to these major price reductions is quite low because the poor spend only a small part of their income on such electronic products. Rather they spend over 80% of their income on food, clothing and fuel – products that have not benefited from such dramatic technological changes in a long time.

Cost-quality trade-offs
Contrary to the BOP proposition, it is often necessary to reduce quality in order to reduce costs; the challenge is to do this in such a way that the cost-quality trade-off is acceptable to poor consumers. A good example of this logic is the low-price detergent introduced by Nirma in India. In 1969 Karsanbhai Patel started a small business to sell a cheap detergent powder he had formulated in his kitchen. The quality of Nirma was clearly inferior to that of Surf, the product marketed by Hindustan Lever, the Indian subsidiary of Unilever. “Nirma contained no ‘active detergent’, whitener, perfume, or softener.
Indeed tests performed on Nirma confirmed that it was hard on the skin and could cause blisters” (Ahmad and Mead, 2004). Largely because of this Nirma sold at a price about one-third the price of Surf. Nirma rapidly became a success. In 1977, Surf had a market share of 31 % compared to 12% for Nirma. Ten years later in 1987, the market share of Surf had come down to 7% while that of Nirma had gone up to 62%. Contrary to the BOP proposition, the poor do like inexpensive, low-quality products! This is not because they cannot appreciate or do not want good quality. They simply cannot afford the same quality products as the rich; so, they have a different price-quality trade-off. They are even willing to put up with a detergent that sometimes causes blisters!
Most often, reducing costs while reducing quality does not require a major technological advance. Prahalad and Hart (2002) admire the R&D prowess of Unilever to harness state-of-the-art technology to serve the poor. Yet in this famous example of Nirma, it was a lone chemist who formulated the product in his kitchen.

Nirma is a perfect example of a win-win situation. The company has created a large market and made significant profits. The poor are better off now that they can buy an affordable detergent. In a real sense they are economically better off. We need more products like Nirma. Unfortunately, examples like Nirma are not common. Selling inexpensive, low-quality products does not hurt the poor. Insisting on not lowering the quality actually hurts the poor by depriving them of a product they could afford and would like to buy. The BOP proposition argues that selling low quality products to the poor is disrespectful. Quite the contrary, imposing our price-quality trade-off on the poor is disrespectful of their preferences. The myth is that low-quality implies terrible, shoddy, or dangerous products. It is better to think of quality as a relative concept.

Quality broadly defined
Garvin (1987) develops a framework for analyzing quality by considering eight dimensions of quality: performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality. To further expand this concept, other dimensions might be added such as availability, timeliness, convenience, and
customization. The customer takes into account all these dimensions and arrives at a subjective judgment of the overall quality of the product (or service), and is, by definition, willing to pay a higher price for a product with higher quality – this is the price-quality trade-off. Holding technology and firm capabilities constant, it costs more to produce higher quality products – this is the cost-quality trade-off. To profitably serve the poor, the firm needs to make the cost-quality trade-off in a manner consistent with the price-quality trade-off made by the target customer.

The Poor as Producers
The BOP proposition focuses on the poor as consumers. To the contrary, we argue for the need to view the poor primarily as producers, not as consumers. Rather than emphasizing selling to the poor, we should emphasize buying from the poor. By far the best way to alleviate poverty is to raise the income of the poor. Even though the BOP proposition conceptually focuses on the poor as consumers, it sometimes cites examples of successful organizations that treat the poor primarily as producers. We agree with these examples and will highlight some of them below. In discussing solutions to poverty, it is useful to conceptually separate the role of the poor as
consumers and producers.

Create Efficient Markets: a successful farmers' cooperative
The poor often sell their products and services into inefficient markets and do not capture the full value of their output. Any attempt to improve the efficiency of these markets will raise the income of the poor. Amul, a large dairy cooperative in India, is a great example of this approach. Amul collects milk from 12 million farmers twice a day from 100,000 villages. It started by selling milk, but has since forward integrated into more value added products such as butter, milk powder, cheese, ice cream, and pizza. More recently it has even entered direct retailing through franchising parlors. Amul is owned by the poor (it is a cooperative), and buys from the poor (the farmers, who are its members); however, its customers are mostly from the middle and upper income groups, and export markets.

Soybean farmers in India
Another example along similar lines is e-Choupal, an initiative of ITC in India (Prahalad, 2004). Based on an innovative business model, e-Choupal has brought efficiency to the system for moving soybeans from the individual farmer to oil processing plants. It has reduced dramatically the role of, and the rents captured by middlemen in this process. ITC views the poor farmers not as consumers, but rather as producers. “Our e-Choupal is fostering inclusive growth and enhancing the wealth creation capability of marginal farmers” (emphasis added) says Y.C. Deveshwar, Chairman of ITC (The Hindu, 2006).

Job Creation
Ventures such as Amul and e-Choupal are commendable because they improve the productivity of poor individual farmers and help create micro-enterprises.

The Role of the State
Governments need to facilitate the creation and growth of private (small, medium and large) enterprises in labor intensive sectors of the economy, through appropriate policies (such as de-regulation), infrastructure (such as transportation), and institutions (such as capital markets). Small and medium sized enterprises need financing options – both debt and equity -- in the range of $10,000 to $1 million that are almost non-existent in developing countries (Shell Foundation, 2005). Lack of good infrastructure results in geographically fragmented markets and firms that are too small to exploit scale economies.

Some see the best antidote to poverty in economic growth. There is much evidence linking poverty reduction to economic growth – the so called ‘trickle down’ or ‘multiplier effect’. But, there are two problems with this argument. First, the trickle down effect may be too little and too slow. We need to target programs specifically at poverty reduction rather than just wait for the general multiplier effect to kick in. The recent political changes disillusionment with market liberalization and a drift to the populist left - in several South American countries (such as Venezuela, Bolivia, and Peru) support such an emphasis on poverty reduction.

Second, poverty cannot be defined only in economic terms; it is about a much broader set of needs that permit well being. Development can be seen as a “process of expanding the real freedoms that people enjoy” (Sen, 2000). "The point is not the irrelevance of economic variables such as personal incomes, but their severe inadequacy in measuring many of the causal influences on the quality of life and survival chances of people". The BOP proposition focuses on companies, marketing and prosperity; it sees the social, cultural and political benefits at best as by-products of economic gains. In contrast, we think that social, cultural and political freedoms are desirable in and of themselves, and also enablers of individual income growth. We should emphasize the role of the government and public policy in cultivating and safeguarding these other (non-economic) freedoms.

Virmani (2006), an economist with the elite Planning Commission of the Government of India, concedes that the improvement in social indicators in India has not kept pace with economic growth and poverty decline. This is the result of government failure to “fulfill the traditional, accepted functions of the government like public safety and security, universal literacy and primary education, public health education, provision of drinkable water, sanitation drains and sewage facilities, public health (infectious and epidemic diseases), building road, and creating and disseminating agricultural technology.” While there has been a distinct shift in political ideology of the world towards an increasing role of the market (as opposed to the government), providing the above functions still needs to be in the public domain, especially in the context of helping the poor.

Downsides of the BOP Proposition in a Nutshell
Even if not intentional, a by-product of the BOP proposition is its de-emphasis of the role of the state in providing basic services and infrastructure. Actually, the BOP proposition goes even further. Prahalad is quoted as saying “if people have no sewage and drinking water, should we also deny them televisions and cell phones? … It is absolutely possible to do well while doing good” (Time, 2005). The poor surely have a right to buy televisions; the issue is whether it is in their self interest to buy televisions. Prahalad (2002) argues that the poor accept that access to running water is not a “realistic option” and therefore spend their income on things that they can get now that improve the quality of their lives.

Why do the poor accept that access to running water is not a realistic option? Even if they do, why should we all accept this bleak view? Instead, we should emphasize the failure of government and attempt to correct it. Giving a ‘voice’ to the poor is a central aspect of the development process.

Prahalad (2002) describes the impressive extent of business activity in the slums of
Dharavi (in Mumbai). “The seeds of vibrant commercial sector have been sown.” But, we should be cautious about celebrating this entrepreneurship too much. Sharma (2000) in her emotive book about Dharavi states that while enterprise in the midst of deprivation is to be admired, there is absolutely “nothing to celebrate about living in a cramped 150 sq. ft. house with no natural light or ventilation, without running water or sanitation.” The UN-Habitat estimates that in Dharavi there is one public toilet for every 800 people. This poses a bigger problem for women because of obvious reasons of anatomy, modesty and susceptibility to attack. Televisions are not an adequate substitute for lack of sanitation. Even if we concede that televisions help the poor to escape the burden of their bleak lives and thus provide some value, how do they help eradicate poverty?

To truly solve the problem of poverty, we need to go beyond increasing the income of the poor; we need to improve their capabilities and freedoms along social, cultural, and political dimensions as well. The role of the government is critical in some of these dimensions. By emphatically focusing on the private sector, the BOP proposition
detracts from the imperative to correct the failure of government to fulfill its traditional and accepted functions such as public safety, basic education, public health, and infrastructure, all of which increase the productivity and employability of the poor, and thus their income and well-being. Reform of capital markets will also enable many more local entrepreneurs to create jobs that employ as well as serve the poor.

Beyond the Hype
The BOP proposition is characterized by much hyperbole and very weak research methodology. The fortune and glory at the bottom of the pyramid are a mirage. The fallacy of the BOP proposition is exacerbated by its hubris. Prahalad (2004, page 45) states that all the examples used in his book challenge the current paradigm. Selling appliances on credit – as does Casas Bahia – is not even a novel idea, let alone a new paradigm.
The Millennium Development Goals adopted by the United Nations member states target the halving of extreme poverty in 25 years. Finding this pace too slow, Prahalad (2004, page 112) states “I have no doubt that the elimination of poverty and deprivation is possible by 2020.” But why be satisfied with only poverty eradication when so many other problems plague the world? Prahalad and Hammond (2002) argue that the BOP initiative will not only eradicate poverty, but also cure economic stagnation, deflation, governmental collapse, civil wars, and terrorism. And all this in 15 years!

Walsh et al (2005) are awed by Prahalad’s (2004) ambition: “he is trying to eradicate worldwide poverty in 15 years for goodness sake!” They argue for cutting Prahalad some slack; “we cannot let people suffer and die while we pause to clarify the logic”. We think exactly the opposite. It is precisely because poverty is such a serious issue that we should be careful to validate the logic and demand much rigor.

Solving the crisis of poverty requires recommendations supported by logical analysis rooted in data, not exhortations based on unsupported assertions and hyperbole. The poor deserve no less.

More information:

Aneel Karnani, Fortune at the Bottom of the Pyramid: A Mirage, [*.pdf] Stephen M. Ross School of Business at the University of Michigan, Ross School of Business Working Paper Series Working Paper No. 1035 September 2006. [Other download options].

New Economics Foundation, Growth isn’t working: the uneven distribution of benefits and costs from economic growth [*pdf] January, 23, 2006. [Abstract here.]

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60MW biomass power plant for Kokstad, South Africa

News of the establishment of a 1.2 billion rand (€122/US$154 million) plywood production plant that simultaneously works as a biomass power plant fed by wood residues, has been greeted with jubilation by the mayor of Kokstad, Mbulelo Sithole. The integrated plant is being built by a partnership between Hans Merensky and the Spanish-based Finsa group.

Sithole said that there was great excitement about the creation of direct and indirect jobs that the project would bring. "We are overwhelmed, so honoured and very happy." He said the plant would not only improve the economy of Kokstad but that of surrounding areas too.

Sithole said getting the plant approved and negotiations between the municipality and the investors had gone smoothly. His only concern was a lack of accommodation in the area.

"We need more accommodation, but hopefully this will now trigger the building of more houses," he said. Work on the hi-tech plywood plant begins with a sod-turning ceremony at the construction site on Wednesday, when the civil and bulk earthworks contractors start work. Known as HM Kokstad, the plant will boast state-of-the-art plywood processing technology previously unknown in the country. Piet van Zyl, Executive Manager at Hans Merensky, said that locals were hailing this as the "best investment to happen in Kokstad in the last 20 years".

"Development on HM Kokstad will span four phases, which reach completion in 2010 and will create approximately 600 permanent jobs," Van Zyl said. "Approximately 23 000m3 of plywood is expected to be produced a year.

"The plant will be in operation by March 2007. Phase two of the project involves the establishment of a bio-energy plant, which will consume bio-waste including forest waste, pine bark and sawdust, and convert it to electrical power. The bioenergy plant will have the capacity to generate approximately 60 megawatts of heat energy.

"HM Kokstad will use 20 megawatts of the electrical energy, the surplus being made available for the national grid." The biomass plant is expected to be operational in 2008:
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"Also planned for start-up in 2008 is a sawmill and timber yard designed to process 600 000m3 of timber per annum.

"This phase of the development includes construction of a treatment plant to provide treated timber to the market. The final phase of the project, planned for completion in 2010, is the construction of a medium-density fibre board plant, which will cover an area of approximately 7ha.

"As part of phase four, the plywood plant is to be extended to include a veneer plant, which will produce high quality veneer wood products for the market," he said.

Van Zyl said HM Kokstad was committed to serving the best interests of the Kokstad community and had agreed to the necessity of traffic management, pedestrian protection and control measures at the site during a tribunal approval hearing held in the area recently.

The company had also pledged to employ as many local residents as possible and hoped to make use of local business to supply construction and other development needs.

HM Kokstad Project Manager Kobus Visser said where local companies were able to meet the demand and required specifications they would "certainly be given preference".

"An investment of this nature can only benefit the Greater Kokstad Municipality, contributing to poverty alleviation, uplifting the area and stimulating housing and other sectors of the local economy. Training and development of staff will also be a focal point as state-of-the-art technology is being utilised across all phases of the development," said Van Zyl.

The Mercury, via IOL: R1.2bn hi-tech plant for Kokstad, - Sept. 29, 2007

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Europeans offer aid for renewables in Philippines

Quicknote bioenergy cooperation
During her recent visit to Europe, Philippines President Gloria Macapagal Arroyo has secured a commitment from Finland to explore the use of biomass as an alternative energy source and from Denmark to expand the Bangui wind power plant in Ilocos Norte province. Belgium announced it would end its bilateral aid and instead channel its assistance, which is aimed at small (energy) farmers, to nongovernment organizations and multilateral agencies.

Speaking about the trip to Europe, Energy Secretary Raphael Lotilla said Mrs. Arroyo’s bilateral talks with European leaders had resulted in firm commitments to boost the Philippines’ green energy sector.

Lotilla said the Philippines would work out deals with Finland and Hawaii (which is studying importing car maker Ford Philippines’ flex-fuel vehicle that runs on ethanol) to develop renewable energy sources in keeping with Mrs. Arroyo’s vision of making the Philippines 60 percent energy self-sufficient by 2010. The President had earlier given Congress a November deadline to pass the Biofuels Act to cushion the impact of the continuing surge in oil prices. “We will ask our legislators to pass the Biofuels Act by November to encourage more investments in alternative fuel sources,” she said.

“Energy self-sufficiency is the imperative of our time and we must exhaust all avenues and all means of institutional solidarity toward the long term achievement of this goal.” [Entry ends here.]
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Fish fat as a biodiesel feedstock in the Mekong Delta

Vietnam’s leading catfish co-op Agifish has teamed up with SaigonPetro and two local refrigeration firms to produce a biofuel efficient enough to run diesel engines from the fat of 'tra' and 'basa' fish (catfish).

The product, a biofuel produced from tra and basa fat, is believed to be non-toxic, environmentally friendly, and more efficient than diesel. Yet it’s greatest selling point is that it generates far less exhaust, although nothing has been said of any associated stench. According to Agifish director Hau, production of fuel from fish fat was studied for more than a year and has been applauded by the national scientific council and local tra and basa fish farmers and processors.

A 30,000 tonne/year biodiesel plant will be set up in the southern province of An Giang, where Agifish is located. All equipment needed to run it would have to be imported. As Mekong Delta provinces consume 400,000 tonnes of basa and tra every year, fish fat supply for the bio-fuel plant is more than assured, with 50,000 tonnes of fish fat to be provided by fish processors in the area.

Agifish has recently set up a cooperative of 'clean' farming members to produce catfish that meets international food safety standards. The co-op, comprised of 19 catfish farms, is expected to supply Agifish about 50,000 tonnes of environmentally friendly produced tra and basa catfish a year:
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Hau said this and another such co-op to be formed in future would be important sources for the plant to produce bio-fuel. Although he did not elaborate as to why food grade fish fat was important to the production of an engine fuel.

Catfish is a major export item for Vietnam, and recently large importers have been asking exporters in Vietnam, including Agifish, to manage fish purchasing and shipping instead of sourcing individual suppliers themselves.

In associated fishy news, the Ministry of Fisheries has embarked on a programme to establish a catfish quality control system with the ultimate goal of developing “Basa Vietnam” into an established brand.

The ministry’s brand development programme for basa and tra is in association with its effort to ensure sustainable development, competitiveness and product quality in the catfish farming sector. When the brand was in place, the sector would become an industrial spearhead with annual output of one million tonnes.

Vietnam Investment Review: Breakthrough: energy efficient fuel from tra and basa fish fat -

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Planemaker Boeing says biofuels show promise

Sugarcane and switchgrass are unlikely to fuel the next plane you ride, but Boeing says development of biofuels is gaining momentum as airlines and armed forces seek alternatives to expensive jet fuel. British billionaire Richard Branson, who earlier announced he wants to see his entire airline fleet to use green fuels by 2020, last week committed US$3 billion to help develop alternatives to fossil fuels, whose rising prices have been squeezing airlines. Nasa and Boeing are working together with Brazilian company Tecbio to develop biokerosene in a project that promises to bring vast job opportunities to small farmers (earlier post), and Argentina's air-force has carried out successful tests of biofuels in a large aircraft (earlier post).

"Fuel is the biggest four-letter word in the industry," Billy Glover, director of environmental performance strategy at Boeing Commercial Airplanes, says. "Fuel efficiency is an economic issue, but it's also an environmental one," adds Glover, whose job involves looking at how Boeing can build planes that fly cleaner and quieter. That means using less kerosene-based JP-8 fuel and looking at alternatives.

"There are a number of feedstocks out there," Glover said, citing sugarcane, switchgrass, soybeans and algae. "Those are being looked at, and there appears to be some promise":
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The U.S. Air Force flew a B-52 bomber recently with two of its eight engines using a 50/50 blend of jet fuel and a synthetic alternative. The test flight reflected growing calls for fuel alternatives for military use, a process likely to feed civil applications as well.

The U.S. Department of Defense's technology development arm, the Defense Advanced Research Projects Agency (DARPA), in July asked for proposals on biofuel development. It hopes to find a way to convert crop oil into a synthetic jet fuel that will achieve at least a 60 percent conversion efficiency by energy content and eventually a rate of 90 percent.

Glover said challenges posed by biofuels include the fact they are less stable when stored for long periods and freeze at a much higher temperature than jet fuel. There's also infrastructure to be considered, with more than 10,000 airliners in operation all using engines designed for jet fuel.

"Jet fuel has sulphur in it, and this causes seals to swell, which is good. With biofuels without sulphur, you risk leaks. South Africa already uses a 50/50 blend of jet fuel and coal-derived synthetic fuel, but Glover said this had its limits.

"It's not environmentally friendly at this stage," he said, citing the fuel's higher output of carbon dioxide emissions in production. "What we're flushing out right now is 'What is viable?'," Glover said. "For now biofuels make more sense for land transport than air, but our job is to go find out."

Boeing's next airliner, the 787 due in 2008, is expected to use 20 percent less fuel and be 60 percent quieter than the 767 model it replaces. Its higher use of composites is expected to make the planes last longer as well.

More info:

Dagget, Dave, Alternate Fuelled Aircraft, presented to Boeing’s Transportation Research Board, 23 january 2006 [*.pdf].

The Potential for Renewable Energy Sources in Aviation [*.pdf]. Looks at the feasibility of nuclear aircraft (not safe), methanol and ethanol (too low energy density), bio-methane (low volumes and limited available quantity). Retained options: liquefied H2, synthetic kerosene (including Biomass-to-Liquids) and biokerosene (from oil crops).

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