1. Biofuel – Pricing Scenario 13 th October 2008 New Delhi PetroFed: National Seminar on Biofuels - 2008

2. National Policy on Biofuels Indicative target of 20% of blending – both biodiesel and ethanol by 2017 Responsibility of storage, distribution & marketing of biofuels with OMC’s Minimum Purchase Price (MPP) for Bio-diesel to be linked to the prevailing retail price of diesel besides taking in to account the entire value chain of biodiesel production MPP of bio-ethanol linked to actual cost of production/ import price of bio-ethanol MPP to be determined by the Biofuels Steering Committee In event of diesel/ petrol prices falling below MPP of biofuels, OMC’s would be compensated by GoI Biofuels eligible for fiscal incentives and concessions available to RE Biodiesel exempted from excise duty and bio-ethanol enjoys concessional excise duty of 16% No other central taxes/ duties proposed to be levied on biofuels machinery/ engines State Governments to be advised to provide VAT/ Sales Tax and other taxes / levies for biofuels and associated plants and machinery

3. PricewaterhouseCoopers October 2008 Slide 3 Global Crude Oil Price Scenario This placeholder text is intended to show the correct position and size of the real text used in this location. To ensure that you have the correct size, colour and location of the text, simply select and over-type this placeholder text. 132 Source: Energy Information Administration, Cushing OK Spot Price and NYMEX, May 23, 2008

4. PricewaterhouseCoopers October 2008 Slide 4 Pricing of conventional fuel in India The Indian basket of crude oil has increased by almost 400% during the period 2003 to 2008, the retail prices of petrol and diesel were increased only by 55% and 60% respectively during this period

5. PricewaterhouseCoopers October 2008 Slide 5 India passes on less price to consumers than in developed world. Worst, the oil companies recover much less out of that. Note :The term Gasoline as used here refers to the Regular Unleaded Gasoline. Source: IEA Statistics Energy Prices and Taxes: First Quarter 2008 Ex-tax price Tax component Ex-tax Price & Taxes Gasoline Diesel Comparison of fuel prices across countries Increased crude oil price will impose excess burden on oil companies

6. PricewaterhouseCoopers October 2008 Slide 6 Pricing of conventional fuel in India A large part of the retail prices of petrol and diesel is made up of taxes and duties as shown 44% of the prices of petrol and 24% of the prices of diesel are due to taxes, duties, cess etc The latest price of ethanol quoted by the ethanol manufacturers to oil companies is INR 19.55/litre The range of cost-effective ethanol pricing is Rs 19-20 per litre that is much lesser than the ex-tax price of petrol (~Rs 27/lt) The current range of bio-diesel pricing is 27.46 that is comparable to HSD ex-tax price Source: IEA Statistics Energy Prices and Taxes: First Quarter 2008 Price mentioned is for Delhi

7. PricewaterhouseCoopers October 2008 Slide 7 Life cycle cost estimation of an integrated bio-diesel plant Biofuel production cost is dominated by feedstock cost as well as the capital related cost Feed stock accounts for 30-50% of biodiesel production varying due to plant capacity and choice of feedstock. Feedstock costs correspond to over 50-60% of total ethanol production The levelized cost of biodiesel is Rs 27.46/Lt derived with certain assumptions Cost of Jatropha seeds Rs 6 Per Kg Market price of glycerine is Rs 30 Per litre Market price of oil cake is Rs 3 Per Kg Rs 27.46

8. PricewaterhouseCoopers October 2008 Slide 8 Life cycle cost analysis of an integrated bio-diesel unit Cost of biodiesel is factor of three components Cost of feed stock Market price of Oil Cake, and Market price of Glycerin Future price of oil cake and glycerin is unpredictable that can affect the economics of bio-diesel.

9. PricewaterhouseCoopers October 2008 Slide 9 Life cycle cost analysis of an integrated bio-diesel unit In future, the feedstock price is expected to increase due to increasing trade, resulting in increasing fuel market price At fixed selling price, increase in feedstock price: improves the profitability for farmers shrinks the profitability/IRR for production (Refining) of biodiesel Price of feedstock will largely be affected by global demand of biofuel especially in EU countries.

10. PricewaterhouseCoopers October 2008 Slide 10 Price premium rapeseed Continues to grow since 2000. Good opportunity for Jatropha based Biodiesel to introduce globally Increasing price of edible oils will entail feed security issue globally and so the trend will be to use more inedible oils such as Jatropha/Karanja in the global market affecting their price. EU feedstock pricing scenario

11. PricewaterhouseCoopers October 2008 Slide 11 EU - biodiesel pricing scenario EU consumes edible oil for bio-fuel production Soya, Rapeseed, sunflower and palm oil are key constituent for biodiesel Wheat and corn are key constituents for Bioethanol Feedstock price comprises of >60% of the total Biodiesel cost in EU countries Price for rape seed increased from € 600/tn in 2002 to € 1050/tn in 2007 For bioethanol production, wheat price increased from $ 106/ tn in 2002 to $ 209/tn Price in €cents per litreCost Break up rapeseed oil price at the mill71 Refining7 Taxes - glycerin cost12 cost of mixing- Logistic9 Additional Technical Expenses8 Total cost of Biodiesel107 Average Diesel Price 117

12. PricewaterhouseCoopers October 2008 Slide 1212 EU Level Subsidy on bio-fuel promotion as a part of agricultural policy Unilaterally €45/ha supported by Common Agricultural Policy from 2003 Fuel Tax exemption as well as Environmental tax exemption also applied Policy Goal - 2% by 2005 and 5.75% by 2010 as mandated by EU France In 1992 provided partial excise duty exemption for bio-diesel In 2004 made bio-ethanol blended into petrol tax exempt – basic aim to bridge gap between bio-fuels and traditional fuels Finance Law 2005 – introduced Ecotax – which is liable to petrol distributers – they do not pay this if they meet the blending requirements as laid down by the government – target 5.75% by 2010 Use a tender system for importing bio-fuels – foreign producers get a excise duty exemption if they meet conditions for supplying to the French market. Excise tax exemption on Bio-diesel: €0.25/litre (62% of exemption rate) - however, value- added tax is applied both of diesel and BD consumption Learning’s from the EU

13. PricewaterhouseCoopers October 2008 Slide 1313 Germany In 1999 introduced ecotax for fossil diesel in addition to mineral oil tax while bio-diesel was provided full exemption from both of these taxes Germany exempted bio-diesel from all taxes for blends with fossil fuels till 2005 €0.63/litre exempted, but began to convert into partial exemption policy From 2006, €0.15/liter is levied on Bio-diesel consumption Spain One of the biggest bio-ethanol producers in EU – feedstock barley and wheat Provided tax exemptions to bio-ethanol plants which in in 2002 allowed all plants to be tax exempt till 2012 Provides 10 year guaranteed fiscal support to commercial biofuel plants. Learning’s from the EU

14. PricewaterhouseCoopers October 2008 Slide 14 Lessons from Renewable Energy Promotion Various Support Mechanisms for Renewable Energy Direct Mechanism Investment Based Mechanism Quota System Fixed Price System Investment Subsidy Tax Credits Low Interest Loan Tradable Green Certificates Tendering Feed - In Tariff Indirect Mechanism Taxation of fossil fuels Reduce Subsidies for fossil fuels

15. PricewaterhouseCoopers October 2008 Slide 15 Renewable Energy Promotion Mechanisms in Europe

16. PricewaterhouseCoopers October 2008 Slide 16 Impact of Feed in Tariff – Phenomenal Growth in Solar Capacity in Germany 33334 7 121012 40 78 80 150 600 850 1991199219931994199519961997199819992000200120022003200420052006 Annually Installed Power Capacity ( in MWp) 1000 Roof Top Programme 100,000 Roof Top Programme Feed-in Law New Feed-in Law

17. PricewaterhouseCoopers October 2008 Slide 17 Conclusion Credit Assistance for Cultivation To make the IRR more lucrative, nationalized banks and cooperatives should be encouraged to provide adequate finances to farmers/ entrepreneurs to go for large scale plantations of TBOs. Tax Exemption To make the biodiesel more price competitive, Tax exemption is the most important cost cutting measure Latest Policy states that production, distribution etc are fully exempted from tax A tax holiday for 5-10 years for all newly set up units of production and processing of biofuels from non-edible oils. Technology Transfer Mechanism to encourage tech transfer in the country from European companies MPP Cost plus approach to fix the price As stated in the policy, price should be reviewed on regular basis keeping in mind interest of all stakeholders