Mohammad Suprapto

1
Mohammad Suprapto Bonn, 21 October 2005
Innovative Financing to Promote Bio Coal
Briquette as An Alternative Fuel in Indonesia
YBUL - INDONESIA (Yayasan Bina Usaha Lingkungan)
2
OBJECTIVE

• Promoting bio-coal briquette as cleaner,
  affordable,
  
• and sustainable fuel to Indonesian market through
  
  
• innovative financing to reduce problems related
  to
  
• the energy security (reduce dependency on fuel
  product especially kerosene),
  
• environment (including indoor/local air
  pollution, global emission GHG effects)
  
• jobs creation and income generation through
  promoting the growth of bio-briquette business
  related MSMEs to alleviate poverty

3
EMERGING NEED ON ALTERNATIVE FUEL

• Indonesian is highly dependent on oil products
  for its energy consumption (55), approximately
  66 million kiloliters of subsidized oil products
  is used up every year
• Energy consumption increase by 10.46 yearly in
  the last 5 years
  
• Indonesias crude oil production is decrease
  net importer and worsen by increasing price of
  international oil
  
• Oil consumption subsidized ? create fiscal
  burden
  
• about IDR 126 trillions or over 25 of state
  budget (assumption 1 barrel USD 60)
  
• Under the conventional scheme, subsidy for 10,000
  ton kerosene consumption can reached IDR 45.5
  trillion
  

4
OIL CRISIS IMPLICATION

• Due to Oil Crisis, GOI are forced to
• Increase oil price for industry and
• Reduce quota of supply
• Affecting the productivity, by which many
  industry (including MSMES) are
  
• forced to
• cut down their production capacity, or
• close down their business operation

Resulting to unemployment, decrease
of economic growth, and lower
livelihood quality
5
SOLUTION ALTERNATIVE ENERGY

• Power Plant
• Hydro
• Geothermal
• Wind
• Etc.

• Fuel Source
• Bio-Fuel
• Bio-Briquette
• Etc.

• Equipments
• PV SHS
• Solar Dryer
• Solar Cooker
• Etc.

6
WHY BIO-COAL BRIQUETTE

• Abundant Raw Material Supply
• Biomass sources (bagasse, rice husk/straw, fruit
  bunch of palm oil, and other agriculture waste)
  30 million tons annually
  
• Coal reserve and production 57 billions ton and
  currently has been produced annually 130 million
  ton
  
• Market Opportunity
• For substitution of kerosene alone (10 supply
  reduction) requires 1 million kiloliter of
  kerosene-equivalent
  
• Competitive pricing compare to Coal, Kerosene,
  and Charcoal
  
• Easy to use for users especially for MSMEs and
  household use in rural area

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WHY BIO-COAL BRIQUETTE

• Tehnology
• Known as one of Japans clean coal technology
  that produce relatively cleaner solid fuel
  product
  
• Readily available technology transfer and further
  technical enhancement regarding to improvement of
  combustion effiency and emission
  
• Not a cutting-edge technology and proven
  technology so that implies low technical risk
  
• Investment Requirements
• Low cost technology transfer, low cost fuel
  product
  
• Affordable investment cost, feasible economic
  scale of production mini, small, and medium
  production scale (Total investment range from USD
  10,000 to 500,000)
• Easily to attract local/domestic investment

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Bio-coal Briquette Characteristics

• Bio-coal briquette is composed from the mixture
  of
  
• biomass (25 to 50) such as straw, saw dust, and
  agricultural waste
  
• pulverized coal, either low rank or fine coal
  quality (75 to 50)
  
• sulfur fixation agent as desulfurizer (up to 5)
  such as hydrated limestone
  
• adhesive materials (up to 5) such as starch,
  molasses or clay
  
• Compared to conventional coal briquette, bio-coal
  briquette has the strong points as follows
  
• better ignition property
• higher thermal efficiency (by approximately 5)
• higher breaking strength for easy transport
• produces less CO2, SO2 and fly ashes
• Potential ashes residue utilization (for soil
  improvement)

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CURRENT CHALLENGES

• Low market absorption
• Current installed capacity for whole coal
  briquette 130,000 ton, production capacity only
  32,000 ton.
  
• While for bio-coal briquette installed capacity
  (Bio-coal briquette Pilot Plant funded by
  NEDO-Japan) is 30,000 ton, production capacity is
  only 3,000 ton per year
• Market barriers (lesson learned from coal
  briquette)
  
• Inadequate product quality/specification to meet
  market requirement
  
• Inefficient production system
• Low market penetration (distribution, promotion,
  etc)
  
• Potential environmental impact
• Pricing competitive

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BIO BRIQUETTE ALLIANCE

• Existing business-as-usual is difficult to
  achieve significant impact in substituting
  kerosene/oil consumption
  
• Efforts to mass-scale the utilization of
  bio-briquette requires join collaboration
  between
  
• policy makers/regulators ? enabling environment
• raw materials suppliers,
• technology/EPC providers,
• bio-briquette producers or BDS/business
  incubators
  
• marketing and distribution agents,
• financing institutions,
• development agencies
• The challenges on the overall value chain makes
  it impossible for existing players to develop the
  industry on individual attempts.

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ALLIANCES APPROACH

• Fostering the growth of all players in the value
  chain for
  
• the purpose of aligning and create synergism to
• Increase market acceptance towards bio-briquette,
  thus increase utilization
  
• Balancing the growth of the supply side as well
  as the demand side to ensure sustainability of
  the bio-briquette business
  
• Establishing market ecosystem required for the
  growth of bio-briquette business
  
• Mitigate possible impact of emission and air
  pollution through continous improvement of
  product and user equipment

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INTERVENTION IN VALUE CHAIN
Value Chain
Raw Material (Biomass Coal)
Production (Bio Briquette Stove/Boiler)
Distribution
Sales
Productive Uses
Intervention
Bio Briquette Process
Efficient Low Emission Stove/Boiler
Transfer Development of Technology
Standard Specification Composition
Fuel Packaging
Business Creation
Biomass Fine Coal Suppliers
Bio Briquette Stove/Boiler Manufacturers
Distributors/ Wholesalers
Retailers/ Store
Micro Small and Medium Enterprises
Investment, Credit Guarantee
Trade Financing
Micro Credit, Consumer Credit
Micro Credit, Trade Financing
Supplier Credit, Bank Guarantee
Financing Facility
Enabling Policy Regulation
Supply, Standard, Pricing
Permit License, Incentives
Fair Trade Competition
Standard of burning efficiency emission
control, Pricing
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TECHNOLOGY ROADMAP
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COLLABORATIVE BUSINESS MODEL
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INNOVATIVE FINANCING MODEL
Non commercial Financing
1
6
Alliance
Market Guarantee
EPC Company
3
7
Licensee fee
Business Technical Risk Assessment
Licensing Technical Assistance
21
EPC Full Payment
5
10
Turn-key Project
8
Producer
9
Investment Working Capital
3
Equity Financing
Business Investment Opportunity
Goods Supply
14
13
Payment
2
Working Capital Trade Financing
Working Capital Trade Financing
Equity Financing
19
Distributor
4
20
15
OrderPayment
Stove/Boiler Manufacturer
16
Payment (equipment credit repayment)
18
Fuel Supply
Consumer
11
Equipment Supply
Consumer Education
17
Licensing Technical Assistance
12
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RISK MITIGATION INSTRUMENT

• Market Risk
• Public Champaign Education
• Joint Advertising Market Development
• Utilize existing/similar distribution channel
• Long term purchasing agreement
• Business Risk
• business development service
• technical assistance and quality assurance
• Technical Risk
• providing least-cost and proven technology,
  innovative approach to market, and
  
• Linkage to RD Institution/ Technology Providers
• Financial Risk
• Capital sufficiency and role of champion
  businesses/ investors.
  
• Utilize financial instrument like turnkey, credit
  guarantee, joint liability, credit insurance, etc

17
BIO BRIQUETTE ALLIANCE TARGET
18
CURRENT PROGRESS

• Commercial Funding Commitment from BRI to Finance
  17 Bio-coal Briquette Plant Facility
  
• Construction start in Year 2006

19
ESTIMATED ECONOMIC IMPACT

• Sustained energy supply due to reduced dependency
  on imported crude oil finished fuel products
  
• Reduce kerosene consumption at least 750,000 kilo
  liter per annum by 2010
  
• Reduced fiscal burden USD 260 millions annually
• Attract at least USD 50 million of domestic
  capital investment on bio briquette productions
  
• Create 7,500 new business units from producers,
  distributors to retailers,
  
• Generate 32,000 employment on production plants,
  average potential annual earning/employee is more
  than USD 1,200 per annum
  
• Generate USD 315 billion annual turnover for
  producers, distributors retail agents.

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ENVIRONMENTAL BENEFIT (1)

• Emission Reduction of CO2 and SO2
• CO2 emission of bio-coal briquette is less by
  48-50 and 20-25 respectively compared to
  kerosene and coal briquette
  
• SO2 emission of bio-coal briquette is reduced
  significantly by 82-88 compared to raw coal
  
• Methane Avoidance
• The utilization of agricultural waste as biomass
  material helps to avoid methane gas potentially
  and thus helps to reduce green gas house
  emission.

In term of mass weight Source Co-operative
Study on The Local Production and Spread of
Bio-Briquetting Technique by Shiro Hatakeyama,
National Institute for Environmental Studies
Environment Agency of Japan
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ENVIRONMENTAL BENEFIT (2)

• Ash and HCl Reduction
• Reduction efficiency of HCl, SO2, and dust by
  26-61, 82-88, and 55-83 respectively
  
• Possibility utilization residual ash of bio-coal
  briquette as the neutralizers of acidic soil and
  the fertilizers of nourishment supply (contains
  much of Ca, Mg, and K)
• Prevent Deforestation
• Increasing price of domestic oil induces end
  users use firewood for their energy source as the
  alternative for kerosene
  
• If one liter if kerosene produces caloric value
  equal to 2.58 kg of firewood, the shortage of
  kerosene supply by 10 would lead to the
  potential uses of 2.45 million tons of firewood

Source Co-operative Study on The Local
Production and Spread of Bio-Briquetting
Technique by Shiro Hatakeyama, National
Institute for Environmental Studies Environment
Agency of Japan
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RELEVANCY TO INDONESIAS TNA

• Promoting Bio-coal briquette meet the criteria
  for choosing additional technology to fulfill the
  CO2 emission reduction, i.e
  
• Give precedence to the sectors with low
  efficiency or using traditional technology
  
• National development of an environmentally
  friendly technology should be related to the
  local and area needs
  
• Easy to operate and manage
• Have high CO2 emissions reduction potential but
  with low additional system cost
  
• Lowest CO2 released technology and have no
  negative impact socially, economically and
  culturally
  
• Abides Indonesias regulation and laws,
  nationally and regionally
  
• The installation of the technology system should
  be low in budget and easily provided and
  
• Able to absorb employment.

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KEY MEMBERS OF BIO-BRIQUETTE ALLIANCE
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HOW FOREIGN AID CAN ASSIST?

• Removing Market Barriers?
• Policy Advocacy
• Public Awareness/Education
• Product/Technology Development to Adjust with
  Local Need
  
• Developing Success Show Case
• Fostering the creation of Business Ecosystem
• Equity Participation Allowing to leverage
  further partnership and resources
  
• Challenge? Timeliness, Compliance to Requirements
  of Different Institutions
  
• Handheld Assistance from idea development to
  implementation, has proven to be very useful