Biodiesel for economic growth and social impact

DRI has identified several locations along the main highway (Hwy 1, Autopista Duarte) and in close proximity to the farms that can serve as processing sites for the feedstock. Though the sites are identified and costs budgeted, DRI will not need to develop them until the second or even third year of Phase 2 production, as there will be insufficient supply to justify such operation.

It is cheaper and more efficient to maintain the transport of fruit / seed to a minimum. Hence, DRI plans to have sites closer to the farms than to the biodiesel facility. For purposes of oil quality, the sooner the oil is expelled from the seed, the better. DRI’s cargo trucks will be kept near the farms and tanker trucks will transport the oils the further distance to the biodiesel facility. The volume of oil versus seed is significantly less.

DRI has the most advanced biodiesel project of its kind in the country, having already secured 20,000ha of farmland. DRI is currently in negotiations for an additional 10,000ha. Also, the company has identified another 100,000ha of suitable land. Per 10 million gallon/year bio-refinery, DRI requires 15,000ha of Jatropha plantations.

Furthermore, DRI has all sites for processing selected (from seed to fuel). The vertically integrated model that DRI is pursuing, keeps the company in control and, hence, also stronger when dealing with potential competitors.

DRI benefits from an early mover position, enjoying strong local relationships with business, social and political communities. It has an 18- to 24-month head start on potential competitors. Several companies have announced intentions to pursue this line of business. However, to date, none of these companies have made progress on the ground to secure access to large tracts of land or large volumes of feedstock. There is only one private venture that has launched an initiative, but it is smaller in scale and the initiative is for its own personal use of the fuel derived. Without access to land or long-term feedstock supply contracts, no investor can risk the investments that are required for plant and equipment. Land has been offered by the government to some, but no work has begun. Others have attempted to acquire land on a lease contract basis, but they have been unable to overcome legal complications - no work has begun.

Working with IDDI, the largest, and most experienced nongovernmental organization in the Dominican Republic, DRI has a solid partner, providing strong social, political and economic viability and credibility. IDDI is the local implementation partner of some of the largest and best known international charities in the world, such as CARE, WorldVision, and Save the Children. It is a professionally run organization with a reputation for honesty and effectiveness, and very strong relationships with the government and multilateral organizations.

While the import of vegetable oils costs about $1.50 – 1.75 per gallon for used vegetable oils and $2.50 – 3.00 per gallon for higher quality oils (such as palm or corn oils), it costs DRI about $1.60/gallon in direct costs to produce Jatropha oil, an oil whose quality is comparable to that of palm or corn oils, but which is not a food source. [Note: Indirect costs for managing and partially financing farmers still to be determined.] Locally, at limited quantities, there is castor oil available at about the same price DRI will manufacture its oil. By producing its own oil, DRI stays in control of its feedstock at consistent quality and price.

If competition were to establish itself in the Dominican, there is enough demand to support multiple competitors. To note, with its 10 million gallon/year plant, DRI will produce only 50 percent of the government’s requirement for biodiesel, obligating the industry to mix fossil diesel with 5% of biodiesel (moving to 10% by a yet to be determined date). With the industry currently using 400 million gallons of fossil diesel annually, the 5%-mandate translates into 19 million gallons of biodiesel. Over and above this, there is ample opportunity to displace fossil diesel, also considering the economy’s steady growth at over 4% per annum.

To protect its position, DRI is in the process of concluding long-term offtake agreements with creditworthy parties, such as Metro Tours (the country’s largest bus company) or Generadora San Felipe (the country’s 3rd largest power plant). Letters of Intent have been put in place with these two potential offtakers.

DRI’s biodiesel will be certified to meet the local standard or, in absence of a local standard, the US or European ASTM standard. While biodiesel may eventually become available on the international market, biodiesel of certified quality has not been available in significant quantities in the Dominican Republic and any quantities of biodiesel imported into the Dominican Republic are likely to be produced on a cost structure similar to or more expensive than a local producer. Also, it is probably fair to assume that local demand in other countries will be increasing, and that it will be more attractive to large producers to satisfy that demand locally than to export and compete on price in a distant market. This is to say that DRI’s biodiesel appears very attractive to local offtakers.

DRI also enjoys tax incentives and benefits, provided by the different laws that apply to the enterprise. DRI will not have to pay tax or duty on vegetable oil imports or on any equipment it imports for capital expenditure. Also, to promote the sale of biodiesel, there are no taxes added to biodiesel fuel at the pump. Any broker of imported fuel would have to add taxes and fees on product and shipping, raising its final price materially.

The Dominican Republic has a high demand for fuel, very limited supply and an expensive and inconsistent, unreliable supply network of import and delivery. DRI answers all these issues for its clients: DRI controls its supply; the company is consistent in its production and delivery; due to DRI being local, it can deliver directly, reliably and consistently.