This is a stark reality in the Philippine transport sector: Majority of in-use gasoline vehicles (including those using carburators and some high-end cars as well as most 2T and 4T motorcycles) are not ready to use ethanol-blended gasoline.
It is a basic yet protracted predicament that government and industry stakeholders must address relative to the scheduled E10 rollout next year.
And if the oil companies would prefer selling gasoline with higher ethanol blends (i.e., E20 or the gasoline with 20% ethanol blend) as a strategy to comply with the prescribed 10% gross sales by volume, the burden will be tossed on the car companies to bring to market flex fuel vehicles (FFVs) suitable for higher ethanol mixture.
Yet even that is confronted with chicken-and-egg dilemma since some car markers prefer to wait for developments on the investment and policy implementation fronts before pumping in capital into manufacturing ethanol-fed vehicles.
From the end-user side, complaints have reportedly been lodged by multicab drivers to the Department of Energy (DoE) about “unexplained noises from their vehicle engines” and for the instances that their engines “die instead of remaining idle” during short stops in traffic.
Additionally, there are concerns as to ethanol’s adverse effect on car performance, such as “hard starting, poor fuel economy, rough running and poor acceleration.” The consequent ‘knockout’ impacts are only expected worsening once the full-fledged E10 rollout comes to fore around February next year.
The DoE emphasized that ‘housekeeping guidelines’ and protocols must be established “to inform and assist motorists in coping with negative effects that E10 gasoline may have on non-compliant vehicles.” The department’s oil industry management bureau is reportedly crafting the guidelines addressing these concerns.
Problem on the supply side
Rarely a pessimist, but this time DoE assistant secretary Mario Marasigan is admitting that there would certainly be a shortage in domestic ethanol supply at the strike of E10 mandate next year.
“On bioethanol, production capacity will increase in 2010 with at least one plant to be completed but total [capacity] will not be sufficient to meet requirement,” he said. The expected addition to the existing production of the San Carlos Bioenergy and Leyte Agri plants would be the 30 million liters production of Roxol Bioenergy, which is due to come on line this year.
Resolving ethanol production shut-ins would matter a great deal if the government wants to give the biofuels mandate a viable follow-through. Otherwise, the policy’s future will be perpetually threatened if not bound for an unwanted collapse altogether.
The Ethanol Producers Association of the Philippines (EPAP) is sure on prognosis that investors are willing to fork out capital for ethanol investments. But they are batting for a reasonable tariff protection, a 20% duty rate for imports, to make them competitive or be on equal footing with overseas ethanol suppliers.
Investors argued the tariff schedule being sought is well aligned with the most favored nation (MFN) rates set forth under trade bloc agreements that the country has been a party to and also with the Asean Harmonized Tariff Nomenclature (AHTN) under the Tariff and Customs Code. The proposed duty rate, it was noted, will put the domestic ethanol industry at par with the tariff regimes being enjoyed by other ethanol producing countries -- particularly Brazil, India, the United States, Japan and neighboring Thailand and Indonesia.
“At 20% tariff on importation, locally produced bioethanol can compete with imported [ethanol] and be commercially viable,” EPAP executive director Tetchi Cruz-Capellan said. The current duty rate on ethanol imports is 1.0% as prescribed under Executive Order 449. Hence, it is a more attractive proposition for the oil companies to import their ethanol supply.
The proposed tariff shield already went through deliberations and public hearings at the Tariff Commission and has been recommended for President Arroyo’s approval. Section 11.F of Republic Act 9367 or the Biofuels Law explicitly directs the Tariff Commission to “create and classify a tariff line for biofuels and biofuel-blends in consideration of the WTO (World Trade Organization) and AFTA (Asean Free Trade Area) agreements.”
Once underpinned by an attractive duty rate, Capellan opined that even distillers in the so-called “sin industry (liquor)” might opt to shift to ethanol production. That will then help resolve supply problems prior to the critical 2011 implementation timeframe.
Without increasing ethanol tariff rates, Capellan stressed that “the arithmetic of ethanol in the Philippines is discouraging,” consequently undermining investment flows. No doubt that the country’s production volume has been swiftly surpassed by Thailand’s, which is expected to register hefty growth volumes of 187% to 1.172 billion liters next year, as compared to the country’s 60% growth to reach a volume of just 80 million liters by 2011.
Since energy independence was the other argument peddled in the country’s biofuels policy, Capellan reminded policymakers that “we cannot attain energy security by replacing Middle East oil imports with Brazilian ethanol imports.”
She added if the country would heed the lessons of Brazil’s ethanol program, then it has to be prudently assessed from the viewpoint that its policy path treaded much on optimizing domestic production by incentivizing feedstock farmers and drumming up incentive support for investment growths on infrastructure.
“The key to energy independence is harnessing our renewable resource and create a strong ethanol industry in the Philippines,” the ethanol producers’ group has noted further.
From test tube to gallons
With an acceptable duty rate, Bronzeoak Director Don Mario Dia indicated that it is easier for investors to plan for ethanol producing facilities. The country’s first ethanol plant, San Carlos Bioenergy, is expected joining the expansion bandwagon once the tax regime for the industry improves.
Eastern Renewable Fuels Corporation president Fernando L. Martinez shared the prognosis, noting that while his company casts this year as a “decision point” for its planned infrastructure investments on ethanol, they are still frantically looking for signs that their proposed venture will turn out to be viable.
The oil executive sees a lot of potential on cassava as alternative feedstock, noting that their initial experiments manifest encouraging yields. But Martinez said the more fundamental problems such as land allocation for plantation or aggregating for corporate farming must first be addressed.
Referencing once more on Brazil’s experience, it is essentially notable that this model-country’s R&D initiatives focused much on discovering sugarcane DNAs that has not confined experiments at the test tubes but has proven efficiency on commercial-scale gallons of production.
As the Philippine ethanol industry is still struggling at identifying arable lands for plantation, its concern has not even reached that point yet. Nevertheless, it is worth examining this early how else can the country be able to move forward in sustaining supply – or if it can whet industry players’ appetite to eventually expand ventures into second or third and fourth generation feedstock (such as cellulosic ethanol or algae (oilgae) for biodiesel) to keep the industry away from competing with the food chain.
The light dims at the end of the tunnel
For the oil companies, much of the concern is on the “poor public reception” of ethanol fuel, since motorists are still risk-averse when it comes to patronizing E10. As a result, the sale of E10 at the pumps was reported to be withering. And given ethanol’s dismal sales performance, it adds cost to the oil companies.
“The concern is not about the public not knowing that E10 is available but on the suitability of the fuel to their vehicles, whether old or new,” it was noted.
The fallacy of hush-hush legislation has also been manifesting through other tolls: underwriting of ethanol supply contracts is emerging as a difficult proposition for oil companies, mainly due to flip-flopping on the policy’s implementation; while banks are reluctant to lend to projects which cannot guarantee them predictable and stable revenue streams.
The widely perceived inconsequential impacts of ethanol use are now being tagged as the “misgivings” of the Biofuels Law’s implementation. What has been worrying the oil companies most is that, since they are in the front-line of business, they will automatically be first in the line of defense on complaints from end-user motorists.
At present, the prospects are dim and the challenges for policymakers are mounting to have that cycle reversed – but better to do it sooner than later.
Copyright 2010. Manila Bulletin
