Lännen Tehtaat plans to launch ethanol production
LÄNNEN TEHTAAT PLC STOCK EXCHANGE RELEASE April 10, 2006 at 12;00
Lännen Tehtaat plans to launch ethanol production Lännen Tehtaat has conducted a feasibility study on the launching of ethanol production in western or south-western Finland. The ethanol would be for use primarily in transportation fuels. The study shows that this part of Finland has the best potential for producing ethanol for fuel purposes. The region has sufficient barley-growing farming capacity to supply raw material for an ethanol plant. The region is also home to one of the two main pig farming areas in Finland, which is important with regard to utilization of the animal-feed by- products of an ethanol plant. The region also has a number of animal feed factories that could use some of the by-products from an ethanol plant as raw material for their animal feeds. The study shows that it would be possible to produce ethanol for fuel in Finland on a profitable basis if integrated with the animal feed industry. The preliminary plan involves the ethanol plant producing 66 million kilos (83.5 million litres) of ethanol per year. This could generate 100 million kilos of animal-feed by-products. The tentative cost estimate of the investment is EUR 45 million. The net turnover that could be generated from the ethanol and animal- feed fractions produced is some EUR 50 million at current prices. The company would employ about 40 people, and production could be started midway through 2008. The feasibility study assumes that the production plant is located at Säkylä, on the Iso-Vimma industrial estate. Such a location would enable use of Lännen Rehu's drying facilities during processing of the by-products. There is also sufficient capacity in the area for treatment of the wastewater from the ethanol plant. The presence of the sugar mill there would also allow any sugar in excess of the quota to be processed for ethanol. Convenient raw material storage facilities are available in the region at Kokemäki, Rauma and Loimaa, and grain traders in the Satakunta region also have significant storage facilities. Important factors for the location of the ethanol plant are the availability of raw material (barley), transport costs, sale of animal-feed components, and transport distances from the plant to livestock farms. Säkylä is a favourable location in view of all these factors. Shipping is important for ethanol deliveries, and Rauma port is sufficiently close to Säkylä to ensure competitive sea transport. Following the preliminary studies, Lännen Tehtaat has decided to conduct an environmental impact assessment (EIA) for the factory investment in Säkylä, which is required in order for the ethanol plant to be built. An environmental permit cannot be obtained without completing the EIA procedure. It is estimated that the procedure would take no more than one year to complete. Lännen Tehtaat has also decided to apply to the Ministry of Trade and Industry for investment subsidy intended for energy investments. So far, no decisions have been taken in Finland concerning the subsidizing of biofuel production through tax relief or concerning the mandatory use of biofuel through the required addition of a biologically produced component in transportation fuels. It is a prerequisite for this investment that sufficient long-term provision is enacted by law for domestic consumption of ethanol in transportation fuels. The profitability of ethanol production is primarily dependent on the price of ethanol, which is determined on the global market. Domestic supply and demand do not play a critical role in determining ethanol prices. Naturally, the value of a product is highest when it can be consumed where it is produced. The price of ethanol has risen sharply over the past year. Ethanol production in Finland can only be profitable if it uses domestic raw materials. The capacity of Finnish agriculture to respond to the demand for barley is limited. We estimate that 250,000 tonnes of barley can be acquired for ethanol production without the increased demand causing significant pressures on raw material prices. If the production of barley-based ethanol were to increase significantly from that which is now planned, the increased demand would raise the price of barley and undermine the profitability of ethanol production. The plan is to set up a new limited company to handle the ethanol production. The project could be implemented by Lännen Tehtaat alone or in cooperation with partners. Locations other than Säkylä can be considered if some other location proves to be more advantageous in the final analysis. Negotiations with eventual partners could be entered into once the plans have been finalized in autumn 2006. LÄNNEN TEHTAAT PLC Matti Karppinen CEO More information: Matti Karppinen, CEO, tel. +358 10 402 00 Distribution: Helsinki Stock Exchange Principal media www.lannen.fi