Monday, March 5, 2007

PH: Getting bio-fuels right


Getting bio-fuels right

Friday, March 2, 2007

Within the next few months, you will be putting a different fuel in your
gas and diesel tanks. Like everything else, this practice has its
advantages and disadvantages. In this case, however, the disadvantages
are quite small. The main one is cost. It costs more to produce
bio-fuels than pure petrofuels.

The Philippines is one of the few countries to use bio-fuels and is a
leader in the introduction of coco-diesel. It is, in fact, the only
country in Southeast Asia so far that mandates the use of bio-diesel.
The idea of using bio-fuels as an alternative to petrofuel makes good
sense. Especially in light of the amount of money the country spends on
oil importation. Nearly all of the country's oil requirements are
imported. In 2005, the country imported some 77 million barrels of crude
and refined petroleum products. This translates to about $4 billion
spent on oil. That is a lot of dollars going out that might be better
spent on other things. Mind you, the savings won't be much—about $22
million per year with the initial use of 1 percent coco methyl ester in
diesel and $170 million for 5 percent ethanol in gasoline.

But that will rise to $44 million when the 2-percent requirement kicks
in by 2009. And this doesn't take into account the growth in overall
demand. The figures for bio-ethanol are significantly better—about $450
million with a 10-percent blend. So about half-a-billion dollars can be
saved. That is significant.

There is, though, a flaw in the law (Why is it there is almost always a
flaw in almost every law that is ever passed? Maybe we should ask our
politicians this question as they campaign to be re-elected). The flaw
is the timing. For some reason, the oil companies weren't asked how long
it would take to comply with the law. Here's a key point: Comply with
the law. Multinational companies, believe it or not, must comply with
the law—their head offices insist on it. In this case, a slight
"bending" might be acceptable, even sensible.

The law says that ALL diesel MUST have at least 1 percent CME in it.
That means it can't be 0.9 percent or anything else less than 1 percent.
It can't certainly be zero percent. To achieve at least 1 percent
requires new, specialized equipment that takes time to order and
install. That's longer than the three months the law has given. Now it
can probably be done in Metro Manila, if the oil companies can rush
import and installation, but what about outside Metro Manila? What about
the island provinces in the Visayas? If the oil companies cannot get the
CME blend to say, Cebu, Iloilo or Bacolod, then these provinces get no
diesel at all.

Even in Manila, it is not easy. Where do you store the CME? There is
only one possible tank at Pandacan (the only place where all the
necessary facilities exist) and it is not yet certain if the tank can be

In Pandacan, for instance, there is just one pipeline from the pier to
the refinery. That pipeline currently transports diesel and aviation jet
fuel alternately. It can do so safely. No one knows if it will be safe
if there's even traces of CME there. If a motor car engine stops, the
car stops. If an aeroplane engine stops, the plane crashes and all the
people die. Now I know this would seem highly unlikely, but "highly
unlikely" is not enough. It must be 100-percent assurance. That needs
testing. That takes time.

There are plans to blend the CME in designated places near Metro Manila
and ship the blended CME to the different parts of the Philippines. But
this poses some problems. There are safety and environmental concerns.
What will happen if there is spillage during transport? This is a real
possibility. How do we clean this up? From what I understand, CME mixes
with water.

And, although there's been test and actual use of CME in motor vehicles
(the government has used 1 percent blend in 1,430 government vehicles
from July 2004 to July 2006), this is not sufficient for the public to
be fully assured that there would be no adverse effects in the long
term. There has been almost no testing done on stationary engines like
power plants, etc. It is probably ok, but it needs further testing. And
what if that testing fails? The law has no provisions on this one. If
some particular engine can't run safely on coco-diesel then, by law,
that engine can't be run. That will not go down well with the owner and
those dependent on the output of the engine.

Perhaps there won't be a problem with a 1-percent CME blend. But the
entire objective of this exercise is not to stop at just 1-percent CME.
The numbers already tell us that the savings are miniscule at 1- percent
even at a 2-percent blend. The best is to push for a higher CME blend in
the future. But to do that we have to be practical today and build the
necessary infrastructure to support a higher blend in the future.
Otherwise, we have missed the entire point of the Bio-fuels Act. Let us
think long-term, not short-term.

As to sufficient supply of coconuts, what happens if overall demand
exceeds supply? Do we give up cooking with coconut oil and eating
bibingka just to make sure the oil companies can comply with the law?
Sure, we can use other sources of vegetable oil like rapeseed, palm, and
soybean but these are not abundantly available in the country. The oil
companies cannot revert to selling pure diesel because the law forbids
them to. What do we do then? Import coconut oil and other vegetable
oils? But that would just defeat one of the primary purposes of using
bio-fuels in the first place.

We need 70 million liters of coconut oil per year to supply the required
1- percent blend or just 5 percent of the country's total coconut oil
production. But the demand on the food side is growing rapidly and China
is becoming a major vacuum cleaner for coconut products. While the
increasing frequency and intensity of typhoons is now a regular threat,
the weather bureau expects at least eight to 10 typhoons to hit the
country this year. Last year, typhoon Reming destroyed some P700 million
worth of coconut tress (most of these were mature trees that are about
60 years old). The coconut industry is now trying to raise some P1
billion to rehabilitate the farmlands ravaged by the super typhoons in
2006. But they are having difficulties.

We must do this right from the very start, lest we allow this good piece
of legislation to go to waste like too many of the government's other
brilliant ideas. This is not the first time that the government has
promoted a project on alternative fuels. Remember compressed natural
gas? The use of CNG for buses was heavily backed by the government. The
project, however, was stalled early on because of supply problems and
safety considerations in the refilling stations and other facilities
(there were reports of car engines exploding). This effectively set back
the entire project by two years. This year we were supposed to see 2,000
commercial buses running on CNG. There are none. We do not want the same
fate to befall bio-fuels.

Why didn't Congress give more time to test and adapt? More time to put
in place all the needed facilities. And allow some flexibility, this
"all or nothing" approach never works, yet too many Philippine laws
adopt that policy.

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