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Biofuels investors attracted to Eastern Europe

Biofuels investors are increasingly attracted to Eastern Europe as they seek cheaper supplies of raw materials, their biggest expense in making the alternative fuel, a corporate financier who specializes in the industry said.

Production in countries such as Romania offers cheaper agricultural land and the possibility of both biofuel and agricultural subsidies, said Tim Peara, managing director of London-based Alternative Energy Finance Ltd. Feedstock represents 75% of costs, he told the Terrapinn Biofuels Finance and Investment World conference in London yesterday. “You can benefit from subsidies for equipment, for feedstock, for farmers, so you can produce the product pretty darn cheaply,” Peara said. “There is a window of opportunity in the new member states” of the European Union, he added. Demand for biofuels made from plants such as corn, oilseeds and sugar is growing amid efforts by nations including the US to reduce reliance on oil, gas and coal. Some governments are also trying to limit carbon emissions and assist farms.

Romania has nine biodiesel projects under consideration, Peara said Global biodiesel production is forecast to rise threefold by 2010 to about 16 million metric tons annually, based on planned output increases in Europe, the US and Brazil, according to US food company Bunge Ltd. The growth has put pressure on prices of feedstock such as rapeseed. Rapeseed futures in Paris have gained 30% this year, closing at €280.50 euros ($371.90) a ton today on Euronext.liffe. “The market has grown over the past five years such that failing to secure feedstock exposes a project to substantial commercial risk,” said Peara in an interview today. “Countries such as Bulgaria and Romania are receiving increasing interest from investors,” he said. “The most common investment plan for Western investors is in rapeseed production.” Other ways to secure feedstock supply include locating a biofuel plant either next to a trade center such as a port or a railway junction, or amid crop production, such as next to a sugar-crushing plant in Brazil, said Peara. A partnership with a company such as Bunge for grain or McDonald's Corp. for frying fat is another option, he said. (Bloomberg)