Japanese Firms Itochu and JGC to Build Ethanol Plant in Philippines

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Researched by Industrial Info Resources (Sugar Land, Texas)--Japan's diversified trading company Itochu Corporation (OTC:ITOCY) (Tokyo, Japan) and engineering company JGC Corporation (TYO:1963) (Yokohama, Japan) have collaborated to make a foray into bio-ethanol production and power generation businesses in the Philippines.

The proposed joint venture firm, Green Future Innovations, Incorporated (GFII), will be headquartered in Isabela, the country's second-largest province, which is about 400 kilometers north of the capital city of Manila. GFII will construct an ethanol processing facility and a biomass power plant at an investment of about $100 million. The company will be responsible for the production and sale of 54,000 kiloliters per year of ethanol produced from sugarcane feedstock, which will be sourced from plantations that are spread over an area of 11,000 hectares.

The bagasse, a fibrous residue produced after crushing sugarcane, will be used as feedstock to fuel a 19-megawatt (MW) co-generation power plant at San Mariano, in Isabela. About 13 MW of electricity generated from the plant will be supplied to the Luzon grid.

Ethanol production and electricity generation from the plant is likely to begin by February 2012. The plant will become the country's largest ethanol manufacturing facility.

In May 2007, the Philippines government passed the Biofuels Act of 2006 to reduce the country's dependence on imported fossil fuels. According to the law, all the automobile gasoline produced by domestic oil companies must contain at least 5% of bio-ethanol by volume from February 2009, and by 2011, the blend should rise to 10%. The objective was to produce oil from renewable, sustainable, and clean energy sources to minimize the impact on environment due to global warming. The ethanol industry also will boost economic development by creating local jobs. According to the Department of Agriculture, the sugarcane industry currently employs more than 55,000 workers, while the GFII plant is expected to add 3,000 jobs.

The Department of Energy estimates that the law resulted in a demand for about 230 million liters of bio-ethanol in 2009. This demand has been projected to grow two-fold to 482 million liters by next year, when the 10% mandate comes into effect. However, the demand far exceeds the current supply of 39 million liters per year from the country's two ethanol production facilities. In order to meet the compliance, the Philippines has been importing bio-ethanol.

JGC and Itochu see a growing demand for ethanol in the coming years and consider GFII a strategic investment. A few years ago, JGC and Itochu conducted preliminary studies on the ethanol business, including procuring about 11,000 hectares of agricultural fields suitable for growing sugarcane; harvesting; building an ethanol plant; securing investment for the project; and finding buyers.

The Philippines is determined to strengthen its renewable energy initiatives and plans to enhance its current generation capacity of 4,500 MW to 9,000 MW in the next 10 years. Renewable energy sources such as hydropower and geothermal contribute to nearly 43% of the energy mix. It is estimated that this figure can go up to 57% by 2030. The government proposes to enact a renewable energy law in 2010 that will offer tax incentives for electricity produced from renewable energy sources such as ocean power, hydropower, biomass and solar power.

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