Tuesday, August 14, 2007

Thailand's Mitr Phol scales down ethanol plans

Scraps second plant as oversupply fears grow


The Mitr Phol Sugar group has scrapped plans for a second ethanol plant to avoid an oversupply in the domestic market next year, according to president Isara Vongkusolkit.

He said Thailand was facing a production glut of ethanol well beyond the benchmark standard that ethanol supply should be three times actual domestic demand in 2008.

As a result, Mitr Phol has not only shelved indefinitely its plans for a second ethanol plant with a capacity of 200,000 litres per day in Kalasin province, but it has also halved output from its 200,000- litre first plant in Chaiyaphum province, an investment worth 1.6 billion baht.

Sirvuthi Siamphakdee, the chairman of the Thai Ethanol Manufacturers Association, said the eight ethanol plants now active in the country had a production capacity of 950,000 litres a day.

In addition, 12 plants are under construction with a capacity of 1.97 million litres a day. By next year, 20 plants will produce a total three million litres per day next year, far above demand projected at 480,000 litres a day.

Exports of surplus products are still prohibited since the government fears that ethanol could be illegally used in the liquor industry.

Currently, regulators control ethanol transport closely, from when it leaves the plant to when it reaches the end-user.

''The Finance Ministry still has concerns over ethanol makers who may intend to sell their surplus to liquor blending plants without informing regulators, because it would carry a higher excise tax rate, which is a main income source of the government,'' Mr Isara said.

The difficulty they face right now stems from inconsistent government policy, which has affected the 20 billion baht worth of investments made or planned in ethanol production.

''They all have to bear the interest burden without secure sources of income to repay debt,'' he added.

Mitr Phol acquired an ethanol licence in 2004 in response to the Thaksin Shinawatra government's policy to ban octane 95 gasoline by the start of 2007. The former government was also promoting the development of E20 gasohol, a mixture of 20% ethanol and 80% gasoline. Most gasohol sold is E10 or E5.

However, plans to end octane 95 gasohol sales are still on hold, as there are many older vehicles on the country's roads that cannot use gasohol.

Because of the uncertainty over gasohol and ethanol demand, Mr Isara believes other ethanol licensees that have yet to start construction would likely scrap plans.

Nutthapol Asadathorn, the executive director of the Thai Rung Ruang Sugar Group, is facing similar difficulties. Its 800-million-baht ethanol plant is scheduled to begin producing 120,000 litres a day early next year.

''I'm very worried about the market. It's not that easy to just freeze [work] since our bank loans don't stop as well,'' he said.

Khunying Natthika Angubolkul, the chairwoman of the Eastern Sugar Group, said her company's 200,000-litre plant also was due to start commercial production early next year.

Energy Minister Piyasvasti Amranand says he has been negotiating with the Finance Ministry to harmonise export rules on ethanol, but has yet to hear a response.

He also reiterated that premium gasoline would have to remain available for sale as long as there was any demand in the market.

For E20 products, he said, production will be tested early next year. This will coincide with a reduction in the excise tax to 20% from 30% for E20 passenger car engines.

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