The prospects for producing biodiesel could secure Ukraine lucrative export earnings for ethanol fuel additives to Europe in the short-term. In the long-term, it could also reduce the countryвЂ™s dependency on Russian petroleum imports.
Ukraine has near-perfect agricultural conditions for harvesting rapeseed, a crop with a high oil content ideal for producing biodiesel. But local demand for cleaner fuel and confidence in the crop by cash-strapped farmers remains low.
Analysts say widespread usage and production of biodiesel in Ukraine is still years ahead. But the arrival of European investors backing biodiesel refineries, such as AustriaвЂ™s BioDiesel Vienna, could provide a badly needed boost to get the business onto its feet.
BioDiesel Vienna has held negotiations in recent months with Ukrainian officials, expressing interest in pumping 100 million euros into the construction of two biodiesel plants.
Mykhailo Abramyk, director at the Ivano-Frankivsk Region Agro-industrial Institute, and a participant in negotiations with the Austrians, said construction of the new biodiesel plants could begin within months.
If the project works out, new plants capable of churning out 100,000 tons of biodiesel annually will be erected in two Ukrainian regions.
Abramyk said one of the two plants will be constructed in Poltava Region. The other one is envisioned for either Vinnytsya or Zhytomyr regions, both optimal turfs for harvesting rapeseed. Construction of each plant could last one year, he added.
About 50 percent of the biodiesel produced at these plants is expected to be exported. The rest is envisioned for Ukrainian consumption.
This week, officials in Kharkiv Region announced that they were in talks with a European investor eying the opportunity of building a biodiesel plant in their region. Officials at KharkivвЂ™s Regional administration said a German investor planned on investing 70 million euros into a rapeseed-based biodiesel production plant in Kharkiv Region. The officials did not name the investor, but suggested that the plant will be built by 2008 in cooperation with Ukrainian partners.
A handful of other Ukrainian entrepreneurs and investors have been eyeing the market in recent years.
Vynnytsya-based KMT, which refines rapeseed into rapeseed oil for export to Europe, has held talks with biodiesel companies from Europe, for example.
But Abramyk said that interest from European companies in the business has soured in recent years, adding that only вЂњa few private farmers have operated a handful of tiny biodiesel facilitiesвЂќ to date.
European countries have purchased almost all of this biodiesel, but demand is much higher, driving European biodiesel companies to launch larger production facilities of their own in Ukraine.
EU regulations require that petrol sold at the pump consists of more than 5 percent biodiesel additives. This regulation alone drives as much as 5 million tons of biodiesel imports into the EU each year.
Abramyk said lobbying efforts by the influential petroleum industry, namely that of Russia, have curtailed promotion of environment-friendly biodiesel in Ukraine in the past.
The arrival of Western biodiesel businesses to Ukraine could tip the scale in the reverse direction.
Use of biodiesel as an additive to gasoline will not only bring Ukraine clean energy, it will also reduce the countryвЂ™s dependence on Russian petroleum imports and spur sharp growth in the agriculture sector.
вЂњThere is no alternativeвЂќ to increased production and domestic usage of biodiesel in Ukraine, Abramyk predicted.
Andriy Yarmak, a senior market analyst at the USAID-funded Agricultural Marketing Project, stressed that state subsidies are needed to shift the biodiesel business into higher gear.
вЂњBiodisel would not exist, even in the EU, without state subsidies,вЂќ Yarmak said, adding that state support in Ukraine is all the more necessary considering that the market is not yet on its feet.
The high risk nature of the business, which includes traditional agricultural menaces such as poor weather, can be softened through subsidies, he argued.
вЂњWhat if we had a bad winter, drought or some other problem and lost the whole rapeseed harvest?вЂќ Yarmak said. вЂњCompanies would go out of business. Even if the factories have a chance of importing rapeseeds from somewhere else, prices could be too high,вЂќ he added.
Text: Volodymyr Mashchenko
Source: Kyiv Post