Paraguay: Biofuels Situation
26 February 2008 Paraguay has the potential to become a major player in the growing global biofuel market, according to an article from the US Department of Agriculture’s Foreign Agriculture Service (USDA-FAS).
Paraguay’s weather, rich soils, and broad agricultural base are assets, and there is currently “significant interest in developing this business,” according to USDA-FAS. So far, investment in the sector has been limited to small plants, but there are some medium-scale plants expected to be developed in the next few years.
Since 1999, gasoline in the country has been mixed with ethanol at different blending levels. However, 80% of fuel consumption is diesel. In October 2005, Paraguay passed a law promoting biofuels meant to diversify the supply of renewable energy, substitute fossil fuels with renewable fuels, develop the farm sector (focused primarily on small producers), and to export ethanol and biodiesel.
Biofuel Policy
In 2005, the Paraguayan Congress passed Biofuels Promotion Law 2748. The main points of this Law and its following decrees are:
- Production of biofuels is of “national interest.”
- Biodiesel, anhydrous ethanol, and hydrated ethanol are recognized as fuels.
- Minimum mix mandates for biodiesel are set at 1% in diesel for 2007, 3% in 2008, and 5% for 2009. The maximum blending mix at gas stations can reach 20%.
- Mix mandates for ethanol are set at a minimum of 18% and a maximum of 24% in gasoline of 95 octane or lower. From 2008 onward, all gasoline will have to be blended with 25% ethanol.
- Biofuel use is mandatory as long as there is sufficient local supply.
- Production of different feedstock will be promoted for biofuel production, which has to be of local origin.
- Some tax benefits are provided, especially concerning investment.
- The Ministry of Industry will control investment and will determine production levels. The Ministry of Agriculture and Livestock will certify feedstock.
Both the official and private sectors are proposing some changes to the law, which are currently under study in the country’s Congress. The two most important proposals are the elimination of the VAT on biodiesel and the reduction of import duties on fuel flex vehicles to encourage a larger consumption of ethanol.
Ethanol Production And Feedstock
Ethanol in Paraguay is practically all done from sugarcane and molasses, with small volumes using grains as feedstock. Production for 2008 is forecast at 70 million liters, while production capacity is significantly higher (some 100 million liters could be produced from sugarcane and 10 million liters from cereals). Official projections for 2010 set ethanol production at approximately 160 million liters, domestic consumption at almost 90 million liters, and exports at 70 million liters.
Paraguay is the world’s largest exporter of organic sugar. It has over 82,000 hectares (Ha) planted with sugarcane, and official studies indicate that the country has the potential to expand to 450,000 Ha. Sugarcane is produced in 14 of the 17 departamentos (states), but the largest concentration is in the central part of the eastern region.
Based on 2006 data, almost two-thirds of the sugar cane was used to produce conventional and organic sugar, and one-third to produce ethanol. A few sugar mills produce ethanol from molasses. Private sources indicate that one hectare of sugarcane processed exclusively for ethanol yields about 4,000 liters.
There is one sugar mill that has recently invested in an ethanol plant which can use grains, primarily sorghum and corn. Paraguay’s historic corn production is about one million tons, used domestically for animal feed and human consumption. Another alternative feedstock for ethanol production is manioc or cassava, which is widely produced on about 300,000 Ha in the country.
Official projections indicate that by 2015, Paraguay could export US $400 million worth of ethanol, saving $40 million from smaller oil imports; attract $1 billion in investment; and plant 140,000 Ha of new crops.
Biodiesel Situation
Today, biodiesel in Paraguay is produced from animal fat. In 2007, the local fat supply was inadequate because a strong drought negatively affected cattle production, and high international fat prices encouraged tallow exports to Brazil and Bolivia.
Contacts indicate that Paraguay will have the processing capacity to supply 30 million liters of biodiesel, but given market conditions, and with government promotion, output could reach about 20 million liters. Over 50 million liters of biodiesel will be needed to comply with the official mandate set by the government for 2009.
Private sources indicate that by that time, at least one of the several investment projects in medium-scale biodiesel plants will be operating.
USDA-FAS contacts indicate that a group of investors from the US and Paraguay will build a vegetable oil crushing plant and a plant to produce 225 million liters of biodiesel per year. This would be the largest plant in Paraguay, with production commencing in 2009. This new plant is projected to begin production with soybeans and switch to other feedstock such as canola and sunflower.
Paraguay’s soybean crop in 2006-07 totaled 6.5 million tons, of which a quarter was processed domestically. Crushing capacity is expected to grow in the future, as a few companies have announced the intention of expanding production.
Apart from animal fats and soybean oil, Paraguay has potential for producing biodiesel from Cocoa or Mbokaya (Acrocomia totai) which is widely grown in a vast area of the country. There are also studies to incorporate canola as a winter rotation in the soybean area, which could expand productivity per hectare significantly. Sesame seed, sunflower, castor oil, Tung, and peanuts are some other alternatives which could expand in the future depending on productivity and market conditions.
Official sector estimates indicate that by 2015, Paraguay could export $250 million in biodiesel, while saving $60 million in diesel imports. To reach these levels, investment could reach a total of $400 million.
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