Principle Capital raises $70 million for sugarcane ethanol plant in 'biofuel superpower' Mozambique

UK-based Fund manager Principle Capital Holdings SA announces it has raised $70 million towards a $290 million Mozambique bioethanol plant expected to come onstream in 2011. The project, aimed at producing the lowest-cost biofuel, is undertaken by its newly launched group company Principle Energy Ltd (PEL). A subsequent equity fundraising of about $90 million is expected to be combined with an IPO, with the remaining $130 million to be raised as loans from banks who have shown interest. Investment in biofuels in Mozambique - a typical African 'biofuel superpower' in the making - now stands at more than $1 billion this year.

Principle, listed on London's AIM, raised the money from a group of hedge funds to start a sugar cane plantation of more than 20,000 hectares in the central region of Mozambique that will provide feedstock for the plant. According to the company, the facility will rank in the top five bioethanol plants in the world in terms of production. The plant will have a capacity 100 million liters of bioethanol a year. PEL is rolling out the programme over the next 4-5 years.

Yields 50% higher than Brazilian cane
Sugar cane is the best feedstock to produce first generation ethanol because of the very efficient way in which it can be turned into both liquid fuels as well as in bioenergy. Besides ethanol, bagasse is produced as an abunndant byproduct, which is utilized to generate renewable and carbon-neutral power. This makes sugarcane based biofuels highly efficient in terms of reducing carbon dioxide (80% less CO2 than gasoline), as well as giving it a very strong energy balance (between 8 and 10 to 1 - more here).

Interestingly, cane yields in Mozambique are expected to be over 50 percent higher than the Brazilian average, due to a better quality of soils, a more suitable climate and full irrigation. Brazil is the world leader in ethanol production from sugarcane making the most efficient and environmentally friendly biofuel currently available.

The new plant, to be built near Dombe town, about 200 km (125 miles) west of Beira port in the Sofala Province, will serve biofuels markets in Europe and North America and will be exempt from tariffs under European and U.S. trade agreements. It will truck bioethanol to Beira and ship the fuel to its markets in bulk tankers - a highly efficient operation. The investment would create 2,500-4,000 jobs:
energy :: sustainability :: biomass :: bioenergy :: biofuels :: ethanol :: sugarcane :: bagasse :: efficiency :: energy balance :: Mozambique ::

The project has already received approval at provincial level, and an application for the final go-ahead from the central government is expected to receive the green light before the end of January. Feasibility modelling was completed and independently verified by industry experts in July 2007.

Principle Capital has assembled a team of experts to manage the project, including Paul Zorner, Chief Technology Officer, who was the former Chief Scientist for Dow Chemical's Global Biotechnology platform and Richard Hurly, Chief Operating Officer, an agronomist with extensive experience on large scale Southern African agricultural projects, particularly working with South Africa's Industrial Development Corporation (IDC). In addition it has engaged three major project partners, to manage the engineering, agricultural and chemical aspects of the project.

Principle Capital has also established a subsidiary company called Principle Energy Management Services Limited ("PEMS"), which has entered into a five year management contract with PEL, pursuant to which it is entitled to management and performance fees from PEL. Principle Capital Partners Limited, a subsidiary of the Company, has been granted warrants to subscribe for new shares in PEL, which will be utilised to incentivise those involved in PEL's projects as well as to benefit the Principle Capital group. Principle Capital is investing $5m in PEL.

Mozambique has recently agreed other major biofuels investments and is seen as a typical African 'biofuel superpower' in the making. The country has an abundance of land - it only utilizes 5% of its potential arable land - and an excellent climate for a range of high yielding energy crops. Its short term sustainable potential bioenergy production capacity (that is production after meeting all food, fuel, fiber, fodder and forest product needs of local populations, without deforestation) is estimated at around 7 Exajoules, roughly the equivalent of 1.14 billion barrels of oil (3.14 million barrels per day).

Mozambique, a nation of 21 million mainly rural citizens, currently only consumes around 11,500 barrels of oil equivalent per day (2004 estimate), which means it can easily reach full oil independence and begin to supply world markets.

A case study on Mozambique's sustainable exportable bioenergy potential, written by scientists working for the International Energy Agency's Bioenergy Task 40 can be found here and in the article "Biomass and bioenergy supply from Mozambique" [*abstract / *.pdf]. This summer, Mozambique's Minister of Energy sketched his country's resources during a the EU's landmark international conference on biofuels; his presentation can be found here [*.pdf] and also see our own reporting on the conference.

Earlier this month (December 6-8) the country's Ministry of Agriculture organised a high level meeting to discuss Mozambique's biofuel policies and strategies. During the gathering, special attention was given to biofuel trade as it relates to the opportunities offered by the EU's biofuels targets, and on desiging robust policy frameworks to ensure that Mozambique's resources are exploited in the most sustainable and efficient way. (Biopact was invited to attend the meeting, but sadly couldn't do so. For those interested in the program, please contact us).

In October, Mozambique signed a $510 million deal with London-listed Central African Mining & Exploration Company Plc (CAMEC) to build a plant to produce 120 million litres of ethanol a year by 2010 (previous post).

In August, state-owned Mozambican Petroleum Co. (PETROMOC) unveiled a $408 million biofuels project aimed at easing an energy crunch in the fast-growing southern African nation (more here).

References:
London Stock Exchange: Principle Cap Hldngs - Launch of Principle Energy - December 11, 2007.

Reuters Africa: Fund raises $70 mln for Mozambique biofuel plant - December 11, 2007.

Biopact: Mozambique signs ethanol mega-deal: $510 million, 30,000 hectares of sugarcane - October 22, 2007

Biopact: Mozambique's Petromoc seeks to invest $408 million in biofuels - August 30, 2007

Biopact: Brazilian ethanol is sustainable and has a very positive energy balance - IEA report - October 08, 2006

Biopact: Journal "Energy for Sustainable Development" focuses on international bioenergy trade - November 05, 2006

Salvador Namburete: Mozambique's Experience on Bio-fuels [*.pdf], Minister of Energy of the Republic of Mozambique, presentation at the International Conference on Biofuels, Brussels, July 5-6, 2007.

Batidzirai, B., A.P.C. Faaij, E.M.W. Smeets (2006), "Biomass and bioenergy supply from Mozambique" [*abstract / *.pdf], Energy for Sustainable Development, X(1), Pp. 54-81