Project Idea Note

Zamboanga Del Norte Bio-Ethanol Project

Philippines
Project Idea Note (PIN)

Page 1 of 12

Project Idea Note

PROJECT DESCRIPTION, TYPE, LOCATION AND SCHEDULE
OBJECTIVE OF THE PROJECT

Together with funds from a recent private placement,

the Company is
expected to have around Php 2.0 billion in cash to finance the development of
two integrated bioethanol projects and certain geo-thermal & mining assets.

PROJECT DESCRIPTION AND

PROPOSED ACTIVITIES

The first bioethanol project of the Company will be located in the town of
Imelda, municipality of Gutalac, Zamboanga del Norte, where the Company will
lease around 10,000 hectares of land for a period of 15 to 20 years in the town
of Gutalac and the surrounding municipalities of Labason and Kalawit and
where the Company will establish a greenfield sugarcane plantation under a
corporate farm set-up that will provide the dedicated feedstock needed to
produce 200,000 liters of anhydrous bioethanol per day or 41 to 50 million liters
per year.

TECHNOLOGY TO BE
EMPLOYED

The plant, which will also have a 3,000 TCD mill, an 8MW cogeneration plant,
an anaerobic digestion plant and an outsourced CO2 recovery plant, is
scheduled to begin commercial operations mid, 2010. Basic Energys proposed
bioethanol project is the only project which has integrated the most critical
element into its business model, which is, securing and controlling its own
feedstock source. According to studies conducted on existing and emerging
bioethanol industries world-wide, the availability and price of the feedstock used
is the single biggest factor in any bioethanol production program due to price
and supply uncertainty. Basic Energy shall mitigate these risks through the
establishment of its own corporate sugar plantation and the organization of a
farm management subsidiary.

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Project Idea Note

TYPE OF PROJECT
Greenhouse gases targeted
CO2/CH4/N2O/HFCs/PFCs/SF

Ethanol production to be used in petrol and diesel products to reduce CO2

emissions as an alternative to petrol or diesel

Type of activities

Co2 Abatement

LOCATION OF THE PROJECT

Country
City
Brief description of the location of
the project

PROJECT PARTICIPANT
Name of the Project Participant
Role of the Project Participant

Organizational category
Contact person
Address

Telephone/Fax
E-mail and web address, if any
Main activities

Philippines
Zamboanga Del Norte Province
The first bioethanol project of the Company will be located in the town of
Imelda, municipality of Gutalac, Zamboanga del Norte, where the Company will
lease around 10,000 hectares of land for a period of 15 to 20 years in the town
of Gutalac and the surrounding municipalities of Labason and Kalawit and
where the Company will establish a greenfield sugarcane plantation under a
corporate farm

Basi Energy Corporation

a. Project Operator
b. Owner of the emission reductions
c. Seller of the emission reductions
d. Project investor
a. Private company
Philip Britton (Appointed Representative) CDM Consultant
Asianet Services
15th Floor, M. Thai Tower,
All Seasons Place,
87 Wireless Road,
Bangkok 10330
Thailand
+ 662 654 0404
philip@airbservices.com

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Project Idea Note

EXPECTED SCHEDULE
Earliest project start date
Estimate of time required before
becoming operational after
approval of the PIN
Expected first year of
CER/ERU/VERs delivery
Project lifetime
Number of years
For CDM projects:
Expected Crediting Period

July 2008
Time required for construction: 24 months
2010
20 Years
Ten Years Fixed

Current status or phase of the

project

Seeking investment partners

Current status of acceptance of

the Host Country

Under discussion

The position of the Host Country

with regard to the Kyoto Protocol

Has the Host Country ratified/acceded to the Kyoto Protocol?

__________NO / YES, YEAR_______
Has the Host Country established a CDM Designated National Authority / JI
Designated Focal Point?
__________NO / YES, YEAR_______

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Project Idea Note

METHODOLOGY AND ADDITIONALITY
ESTIMATE OF GREENHOUSE
GASES ABATED/
CO2 SEQUESTERED

Annual (if varies annually, provide schedule): 18,000 tCO2-equivalent

Up to and including 2012: 36,000 tCO2-equivalent
Up to a period of 10 years: 1,800,000 tCO2-equivalent

BASELINE SCENARIO

ADDITIONALITY

SECTOR BACKGROUND

There is no preferential treatment for the project.

A. FINANCE
TOTAL CAPITAL COST ESTIMATE (PRE-OPERATIONAL)
Development costs
___ US$ million (Feasibility studies, resource studies, etc.)
Installed costs
___ US$ million (Property plant, equipment, etc.)
Land
___ US$ million
Other costs (please specify)
___ US$ million (Legal, consulting, etc.)
Total project costs
___ US$ million
SOURCES OF FINANCE TO BE SOUGHT OR ALREADY IDENTIFIED
Equity
Name of the organizations, status
of financing agreements and
finance (in US$ million)
Debt Long-term
Name of the organizations, status
of financing agreements and
finance (in US$ million)
Debt Short term
Name of the organizations, status
of financing agreements and
finance (in US$ million)
Financial Analysis
As Attached
B. EXPECTED ENVIRONMENTAL AND SOCIAL BENEFITS

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Project Idea Note

Attachments

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Project Idea Note

INVESTMENT EXECUTIVE SUMMARY

BASIC ENERGY CORPORATION (BSC)
FOLLOW-ON OFFERING (FOO)
BDO Capital & Investment Corporation (BDO) is acting as lead underwriter for a syndicate of
local investment houses that will underwrite the sale (the Follow-On Offering) of 5.5 billion
common shares of publicly-listed BSC sometime mid-March, 2008, at a price not to exceed
Php 0.38 per share. The Company expects to raise around Php 1.65 billion from the FOO.
Together with funds from a recent private placement, the Company is expected to have around Php
2.0 billion in cash to finance the development of two integrated bioethanol projects and certain geothermal & mining assets.
Blocks of the subject shares are available on a pre-sale or pre-placement basis to qualified
institutional local and foreign investors. A block of 1.0 billion shares, or 10% of the Company,
priced at say, Php 0.30 per share, will amount to Php 300.0 million, or US$ 7.5 million.
BRIEF BACKGROUND
Basic Energy Corporation (BSC) is a company that has been listed in the Philippine Stock Exchange, Inc. for
the last 35 years. Originally, the Company was organized as a stock corporation in 1968 under the corporate
name Basic Consolidated, Inc.
In 2006, the SEC approved the change in its business name to Basic
Petroleum Corporation. In line with the Companys strategy of expanding its business into the development
and production of alternative and renewable energy sources, the Company filed an application with the SEC
for a further change of its corporate name to Basic Energy Corporation. This change in corporate name was
approved by the SEC and took effect on August 10, 2007.
The Company is presently transforming itself into a holding company
with business investments expanding from oil and gas exploration,
which will comprise its black oil business sector, to the development
and production of biofuels and other alternative and renewable energy
which will comprise its green oil business sector. This new
corporate strategy will enable the Company to be one of the major
players in the biofuels industry, an emerging growth sector in the
Philippine economy. The biofuels industry has been accorded full
support and encouragement by the government, with the enactment of
Republic Act No. 9367, otherwise known as the Biofuels Act of 2006. The Company also plans to pursue its
other diversified services related to or in support of its core businesses, such as technology, real estate, mining
exploration and development, logistics, insurance and finance.
On April 4, 2007, the Company acquired Zambo Norte Bioenergy Corporation
(ZNBC), now Basic BioFuels Corporation, a domestic corporation established
and organized to embark in the
development and production of biofuels
and other alternative and renewable energy.
This acquisition was approved by the
Companys stockholders during its
stockholders meeting held last July 12, 2007.

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Project Idea Note

BOARD OF DIRECTORS
1.
2.
3.
4.

BOARD OF ADVISERS

Josue A. Camba, Jr. Chairman & CEO

Ramon L. Mapa Vice-Chairman
Francis L. Chua Vice-Chairman
Oscar L. De Venecia, Jr. President & COO

1.
Oscar C. De Venecia
2.
Jose P. De Venecia, III
3.
Seichii Wada
4.
Rufino
Antonio
Mijares
5.
Jose R. Reyes, Jr. Executive Vice President & 5.
Sergio M. Locsin
Treasurer
6.
Jesus N. Alcordo
6.
Gabriel R. Singson, Jr.
7.
Dakila B. Fonacier
8.
Oscar S. Reyes
9.
Prudencio C. Somera, Jr.
10. Isidoro O. Tan
11. Jaime J. Martirez
THE INTEGRATED FARM AND BIOETHANOL PLANT PROJECT
The first bioethanol project of the Company will be located in the town of Imelda, municipality of
Gutalac, Zamboanga del Norte, where the Company will
lease around 10,000 hectares of land for a period of 15 to 20
years
in the town of Gutalac and the surrounding
municipalities of Labason and Kalawit and where the
Company will establish a greenfield sugarcane plantation
under a corporate farm set-up that will provide the dedicated
feedstock needed to produce 200,000 liters of anhydrous
bioethanol per day or 41 to 50 million liters per year.
is scheduled to begin commercial operations mid, 2010.
Basic Energys proposed bioethanol project is the only
project which has integrated the most critical element into its business model, which is, securing
and controlling its own feedstock source. According to studies conducted on existing and emerging
bioethanol industries world-wide, the availability and price of the feedstock used is the single biggest
factor in any bioethanol production program due to price and supply uncertainty. Basic Energy shall
mitigate these risks through the establishment of its own corporate sugar plantation and the
organization of a farm management subsidiary.
The Company is expected to enter into off-take agreements for the supply of bioethanol, with
Shell Philippines and Petron Corporation.

Page 8 of 12

Project Idea Note

PROJECT COSTS AND RETURNS

The project shall cost PhP 2.8 billion, which shall be financed 65% by bank debt and 36% by equity.
The detailed break-down of the total project cost is shown in the table below.
Total Project Cost (at P43/1US $)
Capital Expenditure
Land
Building and improvements
Plant machinery & equipment (inclusive of 1% tariff and 12%
VAT)
Farm equipment
Farm development
Other equipment
Subtotal
Other Expenditures
Pre-development expenses
Pre-operating lease expense
Developers' fee
Financial arrangers' fee
Contingencies
Interest during construction
Subtotal
Grand Total

PhP

US $
Equivalent

11,000,000
334,180,000
1,336,720,000

255,814
7,771,628
31,086,512

392,000,000
297,500,000
100,000,000
2,471,400,000

9,116,279
6,918,605
2,325,581
57,474,419

20,000,000
58,650,000
20,000,000
62,000,000
10,000,000
176,000,000
346,650,000
2,818,050,000

465,116
1,363,953
465,116
1,441,860
232,558
4,093,023
8,061,628
65,536,047

The projects revenues shall come from the sale of bioethanol, electricity, CO2, and CERs, as shown
below. The cost of sales include cane procurement, molasses procurement, transport costs for
feedstock, direct operating costs, corporate costs, related taxes, and costs of fees and permits. Year 1
Revenues and Expenses are presented in the table below:

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Project Idea Note

Ethanol
Volume (liters)
Price (PhP/liter)
Revenue from Ethanol

44,200,000
27.00
1,193,400,000

Carbon Dioxide
Volume
Price (PhP/liter)
Revenue from Carbon Dioxide

18,000,000
5.00
90,000,000

Electricity
Volume (kWh)
Price (PhP/kWh)
Revenue from Electricity

8,640,000
2.70
23,328,000

Carbon Emission Receipts

Volume
Revenue from CER
Total Revenue
Cost of Sales
Feedstock
Processing
Depreciation and Amortization
Operating Expenses
Farm operating costs
Corporate costs
Other operating expenses

1,306,728,000

458,783,431
142,570,089
288,396,000
51,724,340
35,201,080
88,665

Other expenses
Interest expense
Interest income
Management fees
Taxes

(192,000,000)
19,822,523
(37,416,624)

Income from Operations

120,370,294

On a ten (10) years project period, each project will yield an average net income after tax of
around
Php 250 to 300 million, or a ROI of 25%. Using a discount rate of 10.91%, the
projects computed Internal Rate of Return (IRR) is 25.33%.

Page 10 of 12

Project Idea Note

MULTIPLE BIOETHANOL PROJECTS

BSC is one of the few companies in the Philippines that will aim at developing, financing,
constructing & operating multiple bioethanol projects, using sugar cane /or cassava &/or sweet
sorgum. It plans to capitalize on its existing control of around 200,000 hectares of plantable land in
Zamboanga Del Norte, Palawan, Oriental Mindoro & Davao, and with support of additional strategic
partners, undertake the development of a total of five integrated bioethanol projects, with a
combined production capacity of around 250 to 300 million liters of bioethanol per year.
CAPITAL STRUCTURE OF BASIC ENERGY CORPORATION:
No. Of Shares Par Value Amount (PhP)
10,000,000,000
PhP 0.25 2,500,000,000
Authorized Capital Stock
(ACS)
Subscribed Capital Stock
(As of December 31, 2007)
Original Shareholders
Private Placement Investors
Total Subscribed Capital Stock
Allocation of Unsubscribed Portion
Reserved for Strategic Investors and Stock
Options
Available for Follow On Offering
Total Unsubscribed
Grand Total

No. Of
% to Total
Shares
ACS
1,752,321,964
18%
2,000,000,000
20%
3,752,321,964
38%
No. Of
% to Total
Shares
ACS
747,678,036
7%
5,500,000,000
6,247,678,036
10,000,000,000

55%
62%
100%

TIMETABLE
The first integrated bioethanol project of the Company is expected to be operational by mid, 2010
when the mandated blend of 10% bioethanol in all gasoline sold in the Philippines takes into effect.
By then, the Philippines will be needing at least 600 million liters per year, or the capacity of around
15 to 20 plants.
INVESTMENT MERITS
Investing in Basic and the ethanol project is investing in the high growth renewable energy, bio fuels,
bio ethanol sunrise industry. ROI or IRRs expected at 25%.
BSC shall have the superior comparative advantage of owning and operating dedicated &
mechanized corporate farms to supply the feedstock (that is, sugar cane &/or cassava) for fully
integrated ethanol plants and, as a result, is expected to be the most efficient producer of
ethanol in the country.
With lower production costs, BSC is expected to be able to match the prices of landed Brazilproduced ethanol.
Page 11 of 12

Project Idea Note

Basic aims to have multiple ethanol projects and to become the leading bioethanol producer in the
Philippines.
Finally, Basic shall be the first Philippine Stock Exchange-listed company to be engaged in the
production of bio ethanol and shall have the first mover advantage.

Page 12 of 12

ZAMBO NORTE BIOENERGY CORPORATION

Financial Highlights

All currency in 000s Philippine Pesos, unless otherwise stated

Total Project Cost

Farm:
Plantation area (in hectares)
Yield per hectare (in tons cane)
Milling cap (tons cane per day)

Financial Analysis
In Pesos

8,500
65
2,210

Plant:
Annual ethanol production (liters)
Conversion rate (liters ethanol/ton cane)
Annual cane requirement (ton)

Exchange rate (Php/US$)

Hard Costs
Land
Building and improvements
Plant machinery and equipment
Farm equipment
Farm development
Other equipment
Subtotal

44,200,000
80
552,500

Annual distilling days

Annual crushing days
No. of milling weeks

263
248
37

Soft Costs
Pre-development expenses
Pre-operating lease expense
Developers' fee
Financial arrangers' fee
Contingencies
Interest during construction
Subtotal

Project Financing
Debt
Equity

In US$

59%
41%

Total

Ethanol revenues per hectare

Other revenues per hectare
Feedstock cost per hectare
Processing cost per hectare
Operating cost per hectare
Interest expense per hectare

43
11,000,000
334,180,000
1,336,720,000
392,000,000
297,500,000
100,000,000
2,471,400,000

255,814
7,771,628
31,086,512
9,116,279
6,918,605
2,325,581
57,474,419

20,000,000
58,650,000
20,000,000
62,000,000
10,000,000
176,000,000
346,650,000

465,116
1,363,953
465,116
1,441,860
232,558
4,093,023
8,061,628

2,818,050,000

65,536,047

Cashflow Summary (PhP m)

140,400
15,896
56,863
16,773
11,781
18,824

3,500

Ethanol revenues per liter

Other revenues per liter
Cost per liter
Feedstock cost per liter
Processing cost per liter
Operating cost per liter
Subtotal
Depreciation cost per liter
Interest expense per liter

27.00
3.06

1,000

IRR
Average Earnings per Share
Ave. Return on Equity
NPV (in millions)
NAV as of Pre-Op Year 1 (in millio

25.3%
0.38
11.8%
3,295
61

3,000
2,500
2,000
1,500

500
-

10.94
3.23
2.27
16.43
5.74
3.62

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year
10
Revenues

Feedstock Cost

Processing Cost

Management Fees

Interest Expense

Net Income

Operating Expenses

Revenue Summary (PhP m)

2,000
1,800
1,600
1,400

In million Php

Production Statistics

1,200
1,000
800
600
400

Year 1
1,307
483
143
100
(6)
(160)
183

Year 2
1,376
404
150
109
(7)
(158)
337

Year 3
1,416
405
157
112
(7)
(138)
408

Year 4
1,459
417
165
121
(8)
(118)
466

Year 5
1,504
419
173
125
(8)
(98)
544

Year 6
1,551
421
182
135
(8)
(78)
659

Year 7
1,601
430
191
140
(8)
(58)
549

Year 8
1,653
434
201
144
(9)
(38)
612

Year 9
1,707
436
211
149
(9)
(18)
679

Year 10
1,765
445
221
154
(9)
746

Year 1
1,600
263

Year 2
1,580
20
249

Year 3
1,380
200
225

Year 4
1,180
200
130

Year 5

Year 6

Year 7
580
200
58

Year 8
380
200
34

Pre-Op Yr. 1 Pre-Op Yr. 2

160
1,600

980
200
106

780
200
82

200
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Ethanol Sales

CO2 Sales

CER Sales

Year
10

Electricity Sales

Debt Service (PhP m)

2,000

Year 9
180
200
10

Year 10
180
-

11,800
11,600
11,400
11,200
11,000
1 800
0 600
0 400
0 200
0 0
Pre-

Pre- Year Year Year Year Year Year Year Year Year Year
Op
Op
1
2
3
4
5
6
7
8
9
10
Yr. 1 Yr. 2
Total Debt
Princpal

Principal
Interest

Interest

2017

Year 10
1,559
140
36
30

2016

Year 9
1,510
133
34
30

2015

Year 8
1,463
127
33
30

2014

Year 7
1,419
121
31
30

2013

Year 6
1,377
115
30
30

2012

Year 5
1,336
109
28
30

2011

Year 4
1,298
104
27
30

2010

Year 3
1,261
99
26
30

2009

Debt Service
Total Debt
Principal
Interest

Year 2
1,227
95
24
30

2008

Financial Highlights
Revenues
Feedstock Cost
Processing Cost
Operating Expenses
Management Fees
Interest Expense
Net Income

Year 1
1,193
90
23
-

PhP
m Php
In
million

Revenues (in Php MM)

Ethanol Sales
CO2 Sales
Electricity Sales
CER Sales