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

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  • 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 (NGOs, 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

  • 2 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

    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

  • 3 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.

    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

  • 4 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.

    Funding biofuels projects

    But what makes for a good project?

    Fundable

    project

    Technically Sound Any USPs, offtake?

    Economic Feasibility Feedstock, contracts?

    Financial Feasibility Scenarios

    Risk Country, project, legal etc.

    Sound management team track record

  • 5 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.

    Funding biofuels projects

    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

  • 6 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.

    Funding biofuels projects

    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

  • 7 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.

    Funding biofuels projects

    What are the potential pitfalls?

    Critical Area Key Parameters

    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

  • 8 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.

    Funding biofuels projects

    Banks may also provide restrictions in financing

    Critical Area Key Parameters

    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

  • 9 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.

    Funding biofuels projects

    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

  • 11 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.

    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

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