Successfully funding a biofuels project biodiesel example III/1_Chris de... · Successfully funding a biofuels project – biodiesel example ... • Financial and macro-economic assumptions

Successfully funding a

biofuels project –

biodiesel example

Petrofed Conference

11th May 2016

1 © 2014 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Overview of Biodiesel Market

Biodiesel has grown exponentially over the years

Biodiesel has grown rapidly on a global basis in spite of having been targeted by various groups (NGO’s, Auto lobbies), as well as a

volatile crude markets, and often unclear or shifting mandates

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pro

du

cti

on

, (

MT

)

Biodiesel Production - 2006 to 2015F, Metric Tonnes

Others

Colombia

Brazil

Singapore

Australia

Philippines

China

Thailand

Argentina

Indonesia

Malaysia

EU

USA

Sources: OECD, F&S estimates, KPMG analysis

19.3% CAGR



Overview of Biodiesel Market

Spurred by mandates across the world

At 6%. Target is 10%

by 2020

Mandates have been a key driver of biofuels growth over the years

At 7%. Target is 10%

by 2016.

At ~7.5%. Target is

20% in 2016, 25% by

2020.

Seeking 10%

mandate by 2020.

Only uses UCO.

2% mandate in

NSW.

Very little to date.

Player by 2020?

RFS requires 2 bn

gallons (7.56 Mn MT)

by 2017.

10% mandate but at

5% in reality

7% pushing for 10%

Brazil

Argentina

US

Canada

EU

Africa

China

Columbia

Currently at 8-10%

(depending on

region)

Australia

Indonesia

Malaysia

Thailand

Currently at 7%

pushing for 10%

2% mandate



Renewable Energy Funding Market

Biofuels have been a key component of funding in renewables

326

244

284

324 330

357

213

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012 2013 2014 YTD

Number and Aggregate Value of Renewable Energy Infrastructure Deals, 2008 - 2014 YTD (As at 6 October 2014)

No. of Deals

Reported Aggregate Deal Value ($bn)

Estimated Aggregate Deal Value ($bn)

2% 2% 3% 2%

46% 49% 53%

46%

37% 31% 27%

38%

10% 13% 10% 10%

0% 2% 1%

1% 5% 3% 6% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014YTD

Pro

po

rtio

n o

f D

eals

Breakdown of Renewable Energy Infrastructure Deals by Industry, 2011 - 2014 YTD (As at 6

October 2014)

Diversified Renewable Energy Wind Power

Solar Power Hydro Power

Geothermal Power Biomass/Biofuel Facility

Source: Preqin

Source: Preqin



Funding biofuels projects

But what makes for a good project?

Fundable

project

Technically Sound – Any USP’s, offtake?

Economic Feasibility – Feedstock, contracts?

Financial Feasibility – Scenarios

Risk – Country, project, legal etc.

Sound management team – track record




Cost competitive drivers are of paramount importance

Critical Area Key Parameters

• Location

• Feedstock, power, water, labour, geological conditions

• Tax & other concessions

• Robust – production cost versus product price

• Exports in high value/low volume commodity

• Aim for 1st or 2nd quartile of production costs

Cost competitiveness




Risk management should be a long list with mitigation strategies

Critical Area Key Parameters (probability vs. impact?)

• Completion and Development cost overrun reserve

• Project implementation strategy/ team experience

• Raw materials/inputs security – lowest cost feedstock

• Production and operating predictability – proven technology

• Flexibility in production and product output

• Logistics predictability

• Marketing and sales plans/ contractual arrangements

• Political and legislative agreements/concessions

• Environmental management plans

• Financial and macro-economic assumptions

Risk Management




What are the potential pitfalls?


• Infrastructure availability & security

• Contracts providing market protection and counterparty strengths

• Completion risks (time and money availability)

• Operational management capabilities

• Environmental conformance capability

• Commodity pricing, marketing & competitive marketing position

• Political support

• Legal & financial structures

• Foreign exchange variability

• Funding and overall financial strength of participants

• And not being aligned to how bankers see projects….!

Potential Pitfalls




Banks may also provide restrictions in financing


• All revenues flow into single project account

• Agreements govern allocation of cash flows according to priorities / waterfall

• Debt service reserve account, maintenance reserve account up to 3-6

months P&L

• Negative covenants for shareholders dividends or repayments

• Cash sweep / mandatory prepayment.

• DSCR Covenants set at levels based upon stress testing of the Base Case

Model. Can be forward or backward looking.

Bank Financing




In summary, must have a well structured, de-risked value chain

Feedstock Oil production Refining Transport/

Distribution

Retail

Operations

Availability

Security

Quality

Type of CPO/

derivative and balance

Storage/ Location

Sustainability

Biofuels Value Chain and Key Variables

Location choice

Technology Choice

Delivery

Pre-treatment

Plant Design

Manufacturing

Products and By

Products

Waste

Capex and Opex

Integration

Tankage

Distribution

Volume

Price

Distribution

Etc.

Upstream Processing & Downstream

Ke

y V

ari

ab

les

Key Area Key Area Hidden Pitfalls/ Gains

Our Proposition



Our Proposition

KPMG Advisory services

ADVISORY

SERVICES

Deal Advisory

Strategy &

Management

Consulting

Risk & Compliance

TAX

AUDIT

Our Service Offerings

Strategy

Corporate Restructuring

Corporate Finance

Transaction Services

Business Transformation

Information Protection &

Business Resilience

IT Enabled Transformation

IT Assurance

Strategy

Valuation & Capital Markets

Merger & Acquisition

Valuation & Capital Markets

Joint Venture

Forensics

Strategy & Operations

Procurement

Shared Services & Outsourcing

People & Change

Internal Audit Risk & Compliance

Enterprise Risk Management

Financial Services & Regulatory

Compliance

Contract Compliance Services

Financial Risk Management Business – IT Transformation

Financial Management

Operations Tranformation

Internal Audits &Compliance

Risk Management



Our Proposition

KPMG Advisory services

STRATEGY &

OPERATIONS

PEOPLE, ORG. &

ADMIN

COST &

PERFORMANCE

MGMT

CONTROLS,

QUALITY & RISK

MGMT

CORPORATE

FINANCE &

RESTRUCTURING

TAX AUDIT

Market Entry

Strategy

Organization

Strategy

Operations

Strategy

Post Merger

Integration

Change or

Stakeholder

Management

Human

Resources &

Labour

Project Estimating

Cost

Financial

Management

Asset

Management

Supply Chain

Management

Procurement

Management

Information

Management

Project Scope

Management

Risk Management

Environment

Health & Safety

Quality

Management

Project

Management

Mergers &

Acquisitions

Valuation

Corporate

Structures and

Planning

Due Diligence

Resource Tax

International

Expat Services

International Tax

Coroorate Tax

Indirect Tax

External Audit

Governance, Risk

and Compliance

Regulatory

Advisory

Shared Services

& Outsourcing

Functional Breakdown

ADVISORY

Financial

Modeling

Forensics

© 2014 KPMG Services Pte. Ltd. (Registration No: 200003956G), a

Singapore incorporated company and a member firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative

("KPMG International"), a Swiss entity. All rights reserved.

The KPMG name, logo and ‘cutting through complexity’ are registered

trademarks or trademarks of KPMG International Cooperative (KPMG

International).

Chris de Lavigne

Principal, Global Strategy Group

KPMG Services Pte Ltd

16 Raffles Quay #22-00

Hong Leong Building

Singapore 048581

Mainline: +65 6213 3388

Fax: +65+65 6225 2230

DID: +65 6213 3419

Mobile: +65 9615 8293

Email: [email protected]

mailto:[email protected]

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Successfully funding a biofuels project biodiesel example III/1_Chris de... · Successfully funding a biofuels project – biodiesel example ... • Financial and macro-economic assumptions