Jamaica Broilers exits ethanol market
Jamaica Broilers Group is yet to fully recover the US$42 million poured into its ethanol plant over eight years, but the poultry company has now decided to exit the market as a producer of the biofuel and is seeking a business partner to operate the facility under contract.
Meantime, it is still costing the company around US$100,000 per month ($11.6m) to main the facility.
Jamaica Broilers is said to be fielding expressions of interest from both local and international sources for the complex that it built in 2007 and later expanded at Port Esquivel in St Catherine, and is willing to consider proposals that convert the asset to other energy-related uses as well as options to purchase the fuel terminal in the future.
The dehydration plant operated through subsidiary JB Ethanol Limited has largely been idle for two or more years as the ethanol market softened and feedstock and tolling contracts dried up. Alongside the 120 million-gallon plant, JB Ethanol also manages a 25 million-gallon storage facility at Port Esquivel.
"We have been entertaining a number of players in terms of some kind of business arrangement relating to the terminal," said senior vice-president for operations and finance at Jamaica Broilers, Ian Parsard. He said discussions are under way with players in the "broad petroleum industry", and that the company is hoping to reach a deal soon on the terminal.
Broilers itself would spend no money on the conversion. That would be the responsibility of the company that leases the plant, said Parsard
The group's initial investment in the plant was US$25 million, with an additional US$17 million invested in a second stage of development. JB Ethanol produced fuel-grade ethanol from wet ethanol that it sourced from Brazil.
"The full investment is US$42 million," said Parsard. "Full recovery is not yet achieved. However, with a good lease contract, we should recover the full amount and make a surplus," he said. Wednesday Business estimates that the company would have reaped close to US$22 million of profit from ethanol since the plant was commissioned.
Jamaica Broilers reported at half-year ending November 2014 that it made an operating loss of $144 million off $41 million of revenue on its ethanol division. The operation was then valued at $3.65 billion by assets on Jamaica Broilers' books, with $2.07 billion of liabilities.
"I would say from a cash standpoint, the cost to maintain the operation - which we do continue to maintain at high level, to an A-1 standard - is less than US$100,000 per month," said Parsard. "There is also depreciation, which will still continue to do on a full accounting basis."
The poultry group's latest earnings report for the nine months ending January 2015 eliminated 'ethanol' as an operating segment, and the company began signalling then that it was weighing other uses for the fuel terminal.
"Revenues from the fuel terminal operations at Port Esquivel were booked in this quarter in respect of a short-term contractual arrangement," said Broilers. "A long-term agreement is being negotiated and prospects look good due to the current shortage of storage capacity for petroleum products."
JB Ethanol processed 630,000 gallons in the financial year ending May 2014, and made operating profit of $336 million off revenues of $1.9 billion.
"Shifts in market forces mitigated against the fulfilment of previously established tolling contracts and challenged the processing of ethanol for the overseas market," said Jamaica Broilers' annual report.
Prior to the report, Parsard himself had linked the low production volumes to the pulling of tolling contracts that year.
The ethanol market was initially lucrative for Jamaican producers because, under the Caribbean Basin Initiative (CBI), the country had duty-free access to the United States market, while countries like Brazil were subject to a tariff of about US$0.54 per gallon. It, therefore, suited Brazilian producers to enter into partnership with CBI countries, but that situation changed in 2012 when the US opted not to renew the ethanol tariff on non-CBI countries.
"The whole duty advantage that the region enjoyed for ethanol expired two years-plus ago. As a result, the current conditions are not favourable for the dehydration of ethanol," said Parsard.
Jamaica Broilers hopes to use the plant's location next to a deep-water port and the storage facility - whose 25 million-gallon capacity is the equivalent of 600,000 barrels - as hooks for an investor.
Parsard said the prospective candidates for the JB plant are interested in the export market and would not be rivals to Petrojam.
"These are not people coming to compete with Petrojam - that's not the case. Each individual has a different business model," he said. "What I would just limit my comments to is to say that they are all somewhat related to the petroleum industry."