|Frost & Sullivan Market Insight||Published: 9 Oct 2007|
By Tomas Piccinini
Peru's Natural Advantages
Peru presents one of the best places for the growth of sugarcane due to its geographical situation. Its climate and soil have created one of the best regions for sugarcane growth.
Sugarcane is the main product (and the most efficient) from which ethanol is extracted. As a result of the aforementioned advantages, Peru has a great incentive for the production of ethanol, and the process is easier and is therefore less expensive. Moreover, the country has developed a policy of replacing land used for the production of drugs, and is promoting this areas for the growth of crops instead. This initiative, together with the incentives given for the development of the Amazon area, create an attractive market for the production of sugarcane in Peru.
Till today, the production of ethanol is being mostly exported in a form that has lower distilled level and it is used for alcoholic beverages. However, this production could be easily, and willingly (as stated by some companies), transformed for the full production of ethanol.
Peru's Biofuels industry
Similar to most Latin American countries, Peru is taking efforts to help the development of biofuels. Its government has made some small advances, but production is mainly being driven by Peru's natural advantages in the growth of ethanol's raw materials.
Law No. 28054 governs biofuel issues in Peru. It was introduced in August 2003 and has helped in the development of biofuels. It stipulated the creation of an organism (PROBIOCOM), which has helped promote investment in the production and commercialization of biofuels.
Law No. 28054 also created a commission to analyze the implementation of a number of regulations and blends to be fixed and accepted by the Ministry of Energy and Mines. The reglamentation, issued and accepted, established an optional blend at 7.8 percent of ethanol with gasoline and 5 percent of biodiesel in diesel.
These figures are not mandatory; the commission stated that fixing percentages and stages was useless as long as there was no organism to enforce the law. However, it is important to mention that there have been recent declarations from the government regarding the creation of obligatory blends. At present, the government has only established the production and commercialization of biofuels in six Peruvian regions, by 2010, every region in the country is expected to produce and commerce biofuels.
There are no other laws and fiscal policies affecting specifically the production and selling of biofuels. However, the feedstock needed for the production of biodiesel and ethanol, such as sugar cane, are affected by tax exemptions applicable for every type of agricultural product. For instance, most sugarcane production falls under a law created to promote the industrialization and development of the Amazon forest area. This law exempts sugarcane from paying taxes.
The same occurs to the production, commercialization and export of biofuels. Each product that is created or takes part in the production process is taxed, or exempted, according to laws that were not created specifically for the biofuel industry.
Peru lacks a global tax program for biofuels, making it hard to calculate costs and revenues of possible investments.
Nevertheless, Peru has witnessed rising investments in biofuels. By the end of 2007, investments in Peru are expected to reach $250 million.
Grupo Romero plans to invest $40 million in the production of bioethanol, and the Casa Grande group has 15,000 hectares available for the production of bioethanol. Maple Ethanol has 10 thousand hectares for the growing of sugarcane, and plans to invest $32 million in the production of ethanol, projecting an investment of $100 million for the same product
Regarding Biodiesel, Pure Fuel has started the construction of a plant for the production of 180,000 tons of biodiesel the first year, and expects to produce 360,000 tons the next year. The initial investment is of $32 million, but is expected to reach $75 million in the next four years.
This significant amount of investments is certainly surprising, given the lack of clear rules and regulations in the biofuels space.
Peru has favorable conditions for the commercial production of biofuels, and is expected to grow in the short term. As a result of the aforementioned advantages, investors are attracted to Peru, despite the uncertainties caused by the unclear rules and regulations regarding biofuels in the country.