Biodiesel Industry

Indian biodiesel companies always wanted to be players in the global green fuel market. Most are 100% export units. But a near-death experience over the last one year has now made the sector start singing a different tune. The new theme song is “Country roads, take me home.” A lethal combination of non-tariff barriers in Europe, crashing crude oil prices, global recession and misplaced faith in political will have pushed Indian biofuels out of the world market and left bottomlines comatose. Now older and much wiser, their latest business plan is all about looking inwards. The perfect example of this makeover is Naturol BioEnergy, India’s first fully integrated bio-diesel plant that can make 300 tonnes fuel daily using a wide range of feedstocks, from crude palm (CPO) and rapeseed oil, to jatropha oil and fatty acids. As CPO is the world’s cheapest fat, Naturol believed it had an edge. Located in Kakinada SEZ, the company was all set to export to US and Europe-based MNCs. Last June, when the first 10,000-t cargo head to Europe, things looked upbeat. Then its world came crashing down.

To protect local rapeseed oil-based biodiesel plants, Germany said cheaper biodiesel from CPO and soya was ecologically unsustainable. USA too decided that imported biodiesel which gets re-exported won’t be eligible for a subsidy. It also installed quality checks that made it virtually impossible for palm-based biodiesel to pass. “It was the end of business as we knew it,’’ says Bhaskar Chalasani, CEO and managing director. By October 2008, the company was on its knees. To some extent this turn of events was inevitable. It was rather naive to expect foreign governments to allow cheaper imports when local industry is struggling even with large dollops of subsidy. More importantly, the business model itself was flawed. Anyone planning to import CPO from Malaysia/Indonesia and export biodiesel to Europe and US is asking for trouble because India has no natural advantage in either raw material cost, processing cost, or logistics. Pitted against Malaysia, Brazil, EU and US biodiesel players, India was a goner.

At this point in their life cycle, most companies expect the government to kiss and make it better, or head for BIFR. Naturol did something smarter. It decided to turn to the local market. As first step, it is getting rid of the EOU status. Other players are following suit. “It was a good opportunity in adversity,’’ says Chalasani. Three things make local markets “the best”. One, demand is at your doorstep with no threat from non-tariff barriers. Kakinada alone uses 30,000 t diesel a month. Two, it needs less cash. “We could only export in cargoes of 5,000-10,000 t, which tied up almost Rs 80 cr in working capital. Now we manage with just Rs 15 cr,’’ says Chalasani. Three, there is wider choice of feedstock. Europe doesn’t import biodiesel made from stearin — a fatty acid — as it freezes quickly. But for India the company can use both CPO or stearin, depending on which is cheaper.These advantages are now attracting biodiesel companies like moths to light. Naturol has begun selling neat biodiesel (E100) to truck fleets, priced 50 paise cheaper than Indian Oil.

Their engines can use any fuel meeting BIS standards. “At current MRP of Rs 35/l, we make net margin of Rs 4/l. The delta is very good,’’ says Chalasani. His production is slowly limping back to normal. His rivals are also scouting for local bulk buyers such as gensets users, and telecom companies for their towers. No one wants to sell to oil companies due to sales tax. Andhra has no sales tax on biodiesel but levies 14% on diesel. When you sell to an oil company for blending, it is taxed as diesel, says a market watcher. So far the pickings look good. The biodiesel industry is convinced it will be shortly out of the woods. But can this bubbly feeling last? The top concern will be competition from diesel. If the government cuts diesel prices sharply, costing could go for a toss as neither CPO nor stearin prices will decline simultaneously.