wb - esmap final_report_biomass_gasification_action_plan by sme-cambodia

8/7/2019 WB - ESMAP Final_Report_Biomass_Gasification_Action_Plan by SME-Cambodia

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PROMOTION OFBIOMASS GASIFICATION TECHNOLOGY

IN CAMBODIAN SMES

OCTOBER 2008


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PROMOTION OF BIOMASS GASIFICATION TECHNOLOGYIN CAMBODIAN SMES

AN ACTION PLAN FOR PROMOTION OF LARGE SCALE INVESTMENT IN BIOMASSGASIFICATION TECHNOLOGY IN THE CAMBODIAN COMMERCIAL RICE SECTOR ANDOTHER FOSSIL FUEL CONSUMING SMES

SME Cambodia#92K, Russian Federation BoulevardToul Kork, Phnom PenhP.O. Box 614Cambodia

Tel/Fax: +855 (0)23 882 354erik@SMERenewables or [email protected]

eGs Gu wm Gu I exmbUDaSmall and Medium Enterprise Cambodia


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Table of Contents

Abbreviations and Acronyms 4

1. Introduction and Executive Summary 5

2. Summary of Findings of Pilot Projects 7

3. SME Renewable Energy Ltd. Integrated Biomass 15

Gasification Services Program

A. Background 15

B. Integrated Biomass Gasification Services 15

C. Financing Issues and Alternatives 17

D. Integrated Services Program Achievements to Date 20

4. Proposed Action Plan 22

A. Objectives 22

B. Loan Fund/Credit Facility supported by WB/IFC or other Development Bank 22

C. Technical Assistance (TA) Grant to SME-RE Ltd 23

D. Technical Assistance Grant To MIME 23

E. Budget: Total Budget Year 1 through Year 4: $ 5.07 million 24

F. Implementation Schedule 24

a. Loan Fund Facility

b. Technical Assistance to SME-RE Ltd.

c. Technical Assistance to MIME

APPENDICES

1. Biomass Gasification Technology: Cambodia 2003-2008 28

2. Factors Affecting the SME Owners Decision to Invest in Gasification 32

Technology3. Survey of Rice Mills and other SMEs Dependent on Diesel Fuel Energy 34Sources and Analysis of Impact of Biomass Gasification Technologyon Cambodian Rice Mills and SMEs

4. Pilot trials for Financing Biomass Gasification Technology 55in Rice Mills and other SMEs

5. Review of Biomass Gasification Technologies and Suppliers 58


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Abbreviations and Acronyms

Abbreviations/Terms Full Meaning

AIT Asian Institute of Technology

ANKURANKUR Scientific Energy Technologies Pvt. Ltd. biomass gasifiersystem pioneer, developer and manufacturer, Vadadora, India

bagassethe biomass remaining after sugarcane stalks are crushed to extracttheir juice.

biomassOrganic carbon-containing material produced by photosynthesis inplants.

calorific valueheating value or calorific value of a substance is the amount of heatreleased during the combustion of a specified amount of it.

CGPL Combustion, Gasification & Propulsion Laboratory, Bangalore, India

Char Fixed carbon remaining after gasification of organic materials

CelAgrid Center for Agriculture Research and Training, Cambodia

CFB Circulating fluidized bed

E+Co U.S. based non-profit clean energy investment organization.

Ferro cementFerro cement is a composite material which is used in building orsculpture with cement, sand, water and wire or mesh material

gasificationComplete thermal breakdown of biomass into combustible gases,volatiles, char, and ash in a closed reactor

gasifierConverts carbonaceous materials, such as wood biomass, into carbonmonoxide and hydrogen by reacting the raw materials.

IIST Indian Institute of Science and Technology, Bangalore, India

kW Unit of energy = 1,000 Watts

kWe Unit of electrical energy = 1,000 Watts

kWh Kilo Watt Hour: Electrical energy (Watts) generated or consumed in 1hourLCV [MJ/ Nm3] Lower calorific value

MIME Cambodian Ministry of Industry, Mines and Energy

O&M Operation and maintenance

Producer or Syn GasGas that contains CO, H2, CH4, CxHy aliphatic hydrocarbons,benzene, toluene, and tars (besides the combustion products CO2and H2O)

pyrolysisthe chemical decomposition of organic materials by heating in theabsence of oxygen or any other reagents

REE Rural Electricity Enterprise

Rps Indian rupees

SMEs Small and medium sized enterprisesSME Cambodia Cambodian NGO promoting Cambodian private sector development

SME Renewable EnergyLtd. (SME-RE)

Cambodian biomass gasification system financial services andequipment supplier, owned by SME Cambodia and E+Co Inc.

World Bank ESMAP Energy Sector Management Assistance Programme


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Action Plan to Promote Large Scale Investment in BiomassGasification Technology in Cambodian SMEs

1. Introduction and Executive Summary

The development of this action plan is based on field work and analyses undertaken bySME-Cambodia with support from the World Bank ESMAP, Cambodian SMEs inDecentralized Energy Services program. A sample of thirty rice mills, rural electricityenterprises (REEs), brick factories and ice plants currently dependent on diesel fuel to powertheir machinery were studied. The aim of the pilot project was to:

1. Survey and assess the financial savings that could be realized if rice mills and otherrural SMEs invested in and utilized biomass gasification technology to reduce dieselfuel consumption;

2. Develop an investment plan for rice mills to install gasification equipment;

3. Trial a financial mechanism that SME-Cambodia and E+CO Inc. have developed tomake investment in biomass gasification accessible and economically viable for ruralCambodian SMEs;

4. Based on the findings and analyses from the survey and trials, prepare an actionplan for promotion of large scale investment in biomass gasification technology in theCambodian commercial rice sector and other fossil fuel consuming SMEs.

SME Cambodia (NGO) and E+Co, (US non-profit clean energy investment organization),through a jointly owned subsidiary, SME Renewable Energy Ltd.(SME-RE), achieved theirobjective of developing an integrated set of services to promote biomass gasificationtechnology in Cambodia. The objective of this partnership is to assist Cambodian rice mills

and other SMEs to acquire biomass gasification technology, finance these projects and helpenterprises realize substantial energy savings.

The SME-RE approach integrates the following component services:

1. evaluation of enterprise potential to use biomass gasification technology, includingidentifying financial and fossil fuel savings;

2. specification of biomass gasification equipment and systems required to meet theSMEs needs;

3. provision of affordable loan financing schema with terms tailored to allow repaymentfrom fuel oil savings;

4. supply, installation and commissioning of biomass gasification systems at the

enterprise site

5. SME operator and staff training;

6. equipment manufacturer warranty;

7. after-sales maintenance services.

During the course of this pilot project, (June 2007- June 2008), SME-Cambodia collectedand analyzed data from rice mills and other SMEs to determine the potential financialbenefits possible from this technology. Further, SME Cambodia committed to demonstrateits integrated service approach through implementing at least 5 gasification projects andtrialing alternative financing schemes. By June 30, 2008, 11 systems had been installed andprovided financing and 10 additional systems were ordered and financing approved forinstallation by the end of 2008.


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The Action Plan for large scale investment in biomass gasification technology proposesthat SME Cambodia and E+Co, through SME Renewable Energy Ltd., be provided accessto additional financial resources to install biomass gasification systems in up to 100 rice millsand 50 other SMEs. The program will be completed over 4 years. It is projected that as aresult of these investments, each enterprise will save, on average, 4,500 liters of diesel fuel

per month, with a value of more than US$5,000.Once installed the 150 SMEs will realize annual savings of 7.5 million liters of diesel fueleach year valued at more than US$9,000,000 (1 liter= $1.20)

The proposed Action Plan includes:

Establishing a loan fund/credit facility of $4.5 million:

A technical assistance grant to SME-RE Ltd. of $350,000 for staff training, technicalservices and financial management capacity building,

A technical assistance grant to MIME of $220,000 for research and preparation ofbiomass gasification equipment standards for implementation in Cambodia.

Support for this Action Plan will ensure that:

rice mills and other rural Cambodian SMEs realize significant reduction in fossil fuelenergy consumption and expenditures,

a sustainable, effective biomass gasification supply sector develops

Cambodian SMEs will be utilizing equipment and systems of a high standard tailoredto meet their long term needs.

Workshop-seminar in Battambang City, Cambodia with rice millers, REE, brick plantand ice plant operators to explain and discuss biomass gasification technologypotential, cost/benefit and equipment financing alternatives. (February 2008)


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2. Summary of Pilot Projects Findings

Survey and Analysis of Rice Mills and SMEs

1. Potential fuel savings from the use of biomass gasification systems in Cambodia

rice mills and other SMEs.a. Using their existing diesel engines, Cambodian commercial rice mills and

other rural SMEs can reduce diesel fuel consumption and expenditures by70%-75%. This can be accomplished by gasifying rice husks or corn cobs,wood chips, coconut shells, cane sugar residues (bagasse), peanut shellsetc. and substituting 70%-75% of diesel fuel currently consumed withproducer gas.

b. If rice mills and other SMEs use 100% gas engines they can reduce currentdiesel fuel consumption by 100% using rice husks, corn cobs, wood chips,coconut shells, cane sugar bagasse biomass. The 100% alternative requiresinvestment in both a biomass gasifier and replacement of the diesel engine

with a 100% gas engine.c. Gasifying 6 kgs of rice husk will provide producer gas with energy equal to

that supplied by 1 liter of diesel fuel.

Examples of the Impact of Biomass Gasifier Installation on Rice Mill FuelConsumption, Fuel Expenditures and Milling Costs Per Ton

Gasifier System Capacity > 400 kW 200 kW 100-150 kW 60-80 kW

Capacity of Rice Mills in Tons per hour 2 - 4 2 1.5 1-1.5

Tons Rice Milled per year (sample avg.) 18,480 7,678 4,101 3,672

Number of Days Operating Per Year 308 297 231 255Liters of diesel saved per month 15,758 6,388 4,041 2,827

Reduced liters of fuel per ton of rice milled 10.23 9.93 12.02 9.47

Price of diesel fuel (May 2008) $ 0.90 $ 0.90 $ 0.90 $ 0.90

Reduced fuel cost/ton of rice milled $ 9.21 $ 8.93 $ 10.82 $ 8.52

Reduction in Direct Milling Costs per ton 49.0% 49.0% 49.0% 49.0%

Estimated total investment cost for gasifier $ 145,112 $ 78,882 $ 68,365 $ 48,211

Simple payback period in months 10.9 15.7 21.8 24.3

Potential CO2 saving tons/yr 506.28 205.24 129.82 90.81

Example of the Impact of Biomass Gasifier Installation on Rural ElectricityEnterprise (REE) Fuel Consumption, Fuel Expenditures and Cost / kWh

Gasifier Capacity FBG 60 kW REE 1 REE 2 Avg.

Operating Hours per year 1,440 4,500 2,970

kW hrs generated per year 92,160 251,280 171,720

Liters of diesel fuel saved per month 2,268 3,203 2,735

Reduced liters of fuel per kWh 0.30 0.15 0.22

Reduced cost per kWh $ 0.27 $ 0.14 $ 0.20

Estimated investment cost for gasifier $ 43,753 $ 43,483 $ 43,618

Simple payback period months 25 17 21

Potential CO2 saving ton/year 73 103 88


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2. Availability of biomass

a. 25%-30% of the volume of paddy rice milled in Cambodian rice mills is ricehusk waste.

b. Mechanically driven rice mills using their existing diesel engines need only

25%-30% of the rice husk produced by the mill to replace 70%-75% of thediesel fuel consumed.

c. After satisfying the mills requirement for rice husk, the rice mill will still have70% of the total husk produced to sell to other users.

d. Corn cobs and woody biomass fuel can be grown by farmers and sourcedlocally. Farmers can be encouraged to establish tree farms as a new sourceof income. Cutting of natural forest for gasification fuel is not required andshould not be encouraged nor permitted.

3. Financial capacity of Rice Mills and other SMEs

a. Accounts record keeping, accounting systems and staff capacity of rural

SMEs is weak.b. Management capacity to complete calculation of rates of return and related

financial analysis is limited.

c. Management capacity to compare and evaluate different investment streamsis limited.

d. Management analysis of opportunity costs and identification of potential forincreasing mill and factory efficiency and productivity is limited.

4. Access to financing and credit

a. Most rice mills and other SMEs rely on family and friends as sources of

financing for working capital, equipment purchases and operational expenseson a short term seasonal or annual basis,

b. Limited commercial bank credit is available to SME owners wishing topurchase new capital goods using long term financing.

c. Loan terms tend to be of short term duration with high interest rates.

d. The loan collateral and guarantor requirements of banks are usually 200%-300% of the loan value.

5. Rice Miller and other SME operator awareness and perception

a. Renewable Energy Technologies

Cambodian rice millers and other SMEs owners are generally unaware andunfamiliar with renewable energy technologies and their application tocommercial operations.

b. Efficiency investments

Most rural SME managers have not, until very recently, focused on ways toconfigure, upgrade equipment or introduce new technologies to improveproduction efficiency, energy efficiency or worker productivity.

c. Reducing environmental impacts

Rice millers and other SMEs managers have not been conscious or motivatedto reduce environmental impacts of their operations. Waste disposable and

pollution issues have not been a priority. CO2 and other emissions concernsare very new and unfamiliar concepts.


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6. Summary of Biomass Gasification Technology and Suppliers Review1

a. Power requirement of rice mills and SMEs

The calculation of gasifier capacity required for a rice mill or other SME isbased upon the volume of diesel fuel being substituted by the biomass

producer gas. The most common size gasifier system is 200 kW required for1.5 - 2.0 ton per hour capacity rice mills.

b. Choice of gasifier technology

Down draft gasifiers using dual fuel mode are recommended for Cambodianrice mills and other diesel dependent SMEs. Dual fuel mode means thesystem will use 30% diesel fuel and 70% biomass producer gas.

c. Indian or Chinese systems?

A review of available commercial gasifier found that the Indian developedgasifiers in the 20 kW to 800 kW range are the most suitable size for theCambodian worker environment, energy requirements and operatingenvironment.

d. Local manufacture of Gasification Equipment

Manufacture of gasifiers in Cambodia should not be rushed nor initiatedwithout experienced technical partners and sufficient demand. Some localsourcing and fabrication of components has potential. At this time majoremphasis should be placed upon introducing proven, robust designs thathave demonstrated consistent high performance. Savings gained fromintroducing small scale manufacturing of gasifiers in Cambodia is notparticularly attractive from a business standpoint nor from a technologystandard point of view. Steel prices are higher in Cambodia; labor rates are

higher in Cambodia than India,

1 See APPENDIX 5 for full review


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Loan Financing Conditions, Alternatives and Terms for Gasification systems

1. Project components and loan structure

Experience gained during the pilot testing of financing packages for 5 gasifier projectsindicates:

a. Gasifier system purchasers should be required to pay 20%-30% downpayment of total system cost,

b. Loan term for repaying project loan balance should be for period of 4-5 years,

c. Lowest available competitive rates available should be applied, currently 13%to 15% pa.

d. Loan Amounts: Most rice mills and other Cambodian enterprises will requireloans from ranging from $40,000 to $100,000.

2. Important issues related to financing gasification systems:

a. Client deposits and down payment timingCambodian rice millers and other SME operators generally operate on limitedor minimal working capital. Most of their available cash is used to purchaseinputs (rice paddy) and to pay for daily operating costs (fuel and labor).Therefore, down payment amounts and the timing should be scheduled sothat the time lag between these payments and completion of the gasifiersystem commissioning is minimized.

b. Interest rates, repayment schedule and grace periods

Interest rates should be established in the lowest range of competitive rates.Loans should be formulated using a declining principal payment schedule.Interest and principal repayment grace periods should be set to minimizepayments until system commissioning is complete, fuel consumption isreduced and fuel savings begin.

c. Warranty/ Guaranties

All equipment components and the complete gasification system should beguaranteed by the manufacturer and the service/equipment supplier.Guaranties should include quality of manufacture and achievement ofadvertised fuel substitution performance standards. Warranties andguaranties should cover a period of at least 1 year or 2,000 operating hrs,whichever comes first.

d. Maintenance and after sales services

To instill confidence in the new technology, the gasification system purchaseagreement should include initial training of operator staff and a 1 year after-sales routine maintenance and operations monitoring agreement.

e. Parts availability

System manufacturers and service providers must ensure that replacementparts are readily available and convenient to access in local market places orare available in a timely manner through express transport.


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3. Integration of Gasifier System Supply, Training, Maintenance-Services and theFinancing Package

a. Perspective of the Rice Miller and SME borrowers

Borrowers are hesitant to make large financial commitments to purchase

new technology unless they have assurances that the technology supplieris capable of assisting them to solve operating problems and maintenanceneeds.

Experience of most Cambodian SME/family businesses in borrowing frombanks to purchase production equipment is very limited or non-existent.

Banks and other financial institutions have little or no understanding ofgasification technology nor will they take responsibility for equipmentperformance, repair and maintenance.

For Cambodian rice millers and rural SME operators, the prospect ofdealing simultaneously with: 1) an unknown, probably foreign based

equipment supplier; 2) obtaining financing from banking institutions; and3) negotiating maintenance services and parts supply agreements isformidable. They have very low confidence that they will receive diligentcustomer service and support from these sources.

A purchase agreement that integrates these component services is muchmore attractive to the miller and the SME owner. He/she feels confidentin investing in a system if it is supported by an equipment seller thatprovides staff training, includes installation and commissioning andprovides a conveniently structured financing package. The buyer is moreconfident with this arrangement since he/she sees that the singleequipment-financial service-provider has a continuing interest in thesuccessful operation of the system. This continuing commitment tooperational maintenance of the system is not the concern nor within thecompetency of banks or other lenders. Financial institutions are onlyconcerned with loan repayment schedules, not operational issues.

b. Perspective of the technology supplier/lender

The linking of system design, installation, financing, training and after-sales-service allows the technology provider/lender the opportunity todevelop a close ongoing relationship which permits monitoring clientsbusiness status and anticipate loan repayment problems before theyarise.

The Impact of Gasification Technology on Rice Mills, REEs and other SMEs

1. Impact on operating expenditures

a. the amount of fuel savings realized by an enterprise is directly related to: thequantity of fuel consumed per hour by the engine and the number of engineoperating hours per day, per month and per year,

b. the portion of total direct operating expenses expended on diesel fuel,

Rice mills: Fuel and lubrication = 65%-75% of direct milling costs REEs : Fuel and lubrication = 70%-80% of direct generating costs Ice Plants: Fuel and lubricants = 80% -85% of direct freezing costs


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5. Market for Biomass gasification systems

a. There are more than 500 rice mills operating in Cambodia with more than 1.0 tonper hour capacity. About 25 % of these have capacity of > than 2.0 tons/hr. It hasbeen estimated that about 50% or 250 of the total will be interested in purchasinggasification systems.

b. Additionally, there are an estimated 100-200 ice plants, brick factories, REEs, ruralgarment factories, hotels and other SMEs that will benefit from gasifier systems.

6. Environmental benefits (tons of CO2)

a. CO2 Emission reduction

CO2 emissions from burning diesel fuel are calculated as follows:

(liters of diesel)*(0.840336 kg/l)*(3.186 CO2/kg fuel burned) /1000 = tons of CO2.

A 2.0 ton per hour rice mill using a 200 kW biomass gasifier will reduce its carbondioxide emissions by approximately 200 tons of CO2 per year. REEs with smaller

generator sets (60-100 kW) will reduce its CO2 emissions by 75-100 tons per year.


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Itallation of biomass gasifier

Installation of a gasifier system

Rice husk biomass Wood biomass gasifier system

Gasification of biomass Typical Cambodian rice mill


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3. SME Renewable Energy Ltd. Integrated Biomass Gasification ServicesProgram

a. Background:

Since 1998 SME Cambodia has supported small and medium enterprises (SMEs) in rural

Cambodia with analyses of competitiveness issues, enterprise and association capacitybuilding initiatives, production technology information, access to credit and assisting SMEs inmarket identification and linkages. This experience and research has shown that ruralCambodian SMEs have higher operating and production costs than their counterparts inneighboring ASEAN countries.

The main factors limiting international competitiveness are: a lack of advanced processingtechnology; high energy costs; unskilled labor force; deficient transportation infrastructure;limited access to credit; weak management skills; and lack of supporting public services. Ofthese factors, energy expenditures stand out as a major constraint to growth anddevelopment. High energy costs continue to be an important obstacle to private sectorinvestment, especially in rural areas not serviced by reliable, lower cost electricity services.

The cost of both liquid fossil fuels and electrical energy in rural Cambodia is 2-5 times higherthan in neighboring Thailand, Vietnam, Laos and Malaysia. As a result, even local primaryproducts such as Cambodian milled rice, common clay bricks and ceramic tiles havedifficulty competing with products imported from Cambodias neighbors.

While researching solutions to this energy cost problem SME Cambodia identified biomassgasification equipment and systems developed and refined over the last 20 years by Indiantechnical institutions (IIST) and companies such as ANKUR Scientific Energy TechnologiesPvt. Ltd. Hundreds of gasifiers have been installed in Indian SMEs and proven to bereliable, effective and economic in reducing fossil fuel consumption for various thermal,electrical and mechanical applications. Gasification technology has proven to be a goodinvestment especially for smaller applications from 20 kW to 2.0 mgW where no inexpensive

grid electricity source or inexpensive local fossil fuel source is available.

b. Integrated Biomass Gasification Services

To address these issues, SME Cambodia and its partner E+Co. Inc. have developedmechanisms, methods and procedures to promote, introduce and finance investment inbiomass gasification technology in Cambodian SMEs and in village electrification projects.For individual SMEs, the approach involves providing an integrated set of services designedto assist the SME operator to make a smooth transition from diesel dependent operation toutilizing biomass gasification technology that reduces fuel consumption and costs by +70%.Over the last 3 years the approach has been demonstrated in more than 20 Cambodian rice

mills, ice plants and brick factories. Each has achieved significant energy cost savings.Offering information, technical support, financing and maintenance support services througha single turn-key project window enables SME Renewable Energy Ltd. to establish a longterm trust relationship with its clients. Services are offered and delivered using a step-by-step approach that ensures that: clients fully understand the technology, the potentialbenefits/risks; and acquire the technical skills needed to operate biomass gasificationsystems successfully and profitably. Financing schedules are developed to minimize theimpact on the borrowers working capital. The integration of client financing, training andafter sales service allows SME Renewable Energy Ltd. managers the opportunity to monitorclients business status and anticipate loan repayment problems before they arise.

The steps and methodology demonstrated and proven during pilot demonstrations

completed in 2007-2008 are listed below and illustrated in the diagram on page 19.


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1. Market opening promotion and awareness workshops and seminars were heldin several locations throughout Cambodia during 2007 and repeated again in2008. Owners of rice mills, ice plants, brick factories and rural electricityenterprises were invited to attend and learn about biomass gasificationtechnology and its application. Data collected from the first installations operating

in Cambodia were presented and the early adopters (a rice miller and 2 iceplant operators) provided testimonial presentations explaining and confirming theenergy savings they were realizing.

2. Several commercial banks were invited to present their lending policies and loanterms available to finance gasification equipment purchases. None had financedrenewable energy equipment before and were at the time, unsure as to theeligibility and collateral value of gasifier equipment.

3. Follow-up visits by SME Renewable Energy Ltd. staff were made to provideadditional information to SME owners expressing interest in assessing thepotential for using biomass gasification equipment in their mills or factories,

4. An energy audit and evaluation was conducted to determine the SMEspotential to use biomass gasification technology profitably and sustainably,

5. If the results of the energy audit and evaluation were positive a biomassgasification system design and equipment specification was developed,

6. A project plan was formulated and a detailed turn-key project budget quotationwas produced and presented to the SME owner,

Note:Only complete turn-key project installations were offered. SME RenewableEnergy Ltd, and its gasifier manufacturer supplier (ANKUR) and financialinstitution partner (E+Co) do not market or finance gasification equipmentcomponents separately to be installed by purchasers. Experience with more than900 installations, in India and other developing countries, has shown that a

complete system design, commissioning, training and after sales serviceapproach is preferable to ensure that the energy requirements of the clientsdiesel or gasoline engine(s) and the quality of gas supplied is properly matchedso that fuel savings, engine life and operator safety are not compromised.

7. financing options tailored to the individual clients requirements were discussedand terms negotiated,

SME-RE and E+Co. Inc. develop with each client, a set of loan terms, flexiblecollateral arrangements, deposit and repayment schedules designed to minimizethe initial costs to the borrower. Payment schedules were adjusted to provide agrace period that allowed clients to first realize fuel savings from the newgasifier equipment before loan principal payments were required. In some cases,down payments were minimized at the time the order was placed and finaldeposits were collected after the equipment began to operate and started to yieldenergy savings. The gasification system itself was taken by SME-RE and E+Coas collateral. Additional collateral coverage was provided through promissorynotes for rice paddy or other product equivalents.

8. A due diligence process was completed to confirm the borrowers operational andfinancial status and to assess the purchaser/borrowers ability to repay theproposed loan. A joint SME-RE Ltd./E+Co team conducted interviews andinspection of the SME site. A questionnaire was completed with the borrower anddata was collected at the SME site. The field process was usually completed in 1-2 days. Compilation and analyses of the data collected was completed at SME-

RE Ltd. and E+Co offices. Cash flow projections and balance sheet formats werethen produced and analyzed. This information was then submitted with the loanapplication and related agreements to the E+Co loan approval committees.


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9. Equipment procurement, system installation and commissioning,

Gasifier systems were imported to Cambodia and transported to the clients millor factory site. The equipment was assembled, commissioned and tested bySME-RE Ltd staff. Civil works including buildings housing the gasifier, fuelstorage areas, cooling pond etc. were designed and constructed by the client.

10. SME operator and staff training was provided at each stage of installation andcommissioning,

11. After-sales technical and maintenance services is provided for one year afterequipment commissioning. A manufacturers warranty on equipment flaws isissued for 1 year,

12. On-going client advisory and information services (re: enterprise management,CDM options etc.) are provided as required.

c. Financing Issues and Alternatives

Lending institutions confront several issues when considering financing gasificationequipment purchases by rural SMEs. These include:

1. Unfamiliarity of Bank or MFI staff with biomass gasification technology,

2. Uncertainty re: quality, durability and reliability of the gasification equipmentbeing financed,

The gasification equipment should be manufactured by an established companyto good standards and be operationally proven to ensure gas quality, durabilityand performance reliability and operator safety.

System performance in terms of % substitution of diesel fuel is critical for theclient enterprise to achieve a sufficient return from the investment and for the

lending party to have all loans repaid. The quality and purity of the gas producedis important to ensure that no damage occurs in the engine from tar and othergas impurities. The length of gasification equipment life is important as it relatesto calculation of depreciation and replacement costs.

For these reasons lending institutions usually require that equipment financed bytheir loans is manufactured by qualified companies and the equipment hasproven operating lifetimes and safe system designs.

3. Collateral requirement to cover the loan, and type of collateral accepted,

The amount of collateral required by lending institutions depends upon thelenders particular policies and the regulations under governing banks or MFIs.

Typically, commercial banks in Cambodia require collateral of fixed assets equalto 200%-300% of the loan value. Rice mills with equipment located in rural areasoutside of main provincial towns have not been attractive to commercial Banks forcollateral purposes.

At this time, Cambodian banks have little or no experience with gasificationtechnology thus are hesitant to offer competitive conditions for loans to purchasethe equipment. Until recently there were no laws governing unsecured assets, somoveable equipment such as gasifier systems, could not be designated ascollateral. Commercial banks surveyed during the study period indicated that theywould require fixed asset collateral to back gasifier system loans.


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4. Term of loans,

Commercial loans in Cambodia are typically limited to terms of 1-3 years. A fewbanks have recently offered 3- 5 year loan terms for manufacturing equipment.Actual terms and conditions received by individual SMEs depends upon thelender of collateral value and projected cash flow.

5. Interest rates

During the last 15 years Interest rates for small business loans have beenconsistently high in Cambodia. Uncollateralized micro-credit borrowers areroutinely charged 2%-4% per month. Larger enterprises (SMEs) have beencharged 15%-36% per annum for US $ loans with collateral and guarantorrequirements of 200%-300%. Recently, some commercial banks have advertisedlower interest rates (10-18%) but appear to be mainly targeting large companieslocated mainly in high growth centers of Phnom Penh, Siem Reap andSihanoukville where rising land values have created larger collateral values.Rural based SMEs have not received similar consideration.

6. Grace periods on interest and/or principal paymentsThe period that institutional lenders are willing to wait for interest and/or principalpayments is usually one month. Commercial bank lenders do not offer graceperiods on loan principal and almost never give grace periods on interest due.This means the borrower must have sufficient working capital and cash flowavailable to make payments immediately after placing a system order and loandisbursement. If the equipment manufacture, project construction, shipping,assembly and commissioning process takes several months following the loandisbursement date, then financing payments will begin before the new system isinstalled and begins to yield savings. This is an additional concern for the SMEoperator/borrower and makes the decision to invest in the new technology more

difficult.To address these issues and to make investment in biomass gasification technologyeasier for the SME owner, SME-RE Ltd. and E+Co have developed a flexibleapproach that includes:

1) varying the % of project down payment required;

2) adjusting the initial loan repayment schedule to allow for delayed interest andprincipal payments;

3) flexible collateral arrangements (100% of loan value);

4) long loan term of 5 years; and competitive interest rate of 13% pa.

This approach provides a smooth path for SME owners to acquire and capture thebenefits of this fuel saving technology (see table in APPENDIX 4).


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d. Integrated Services Program Achievements to Date

1) Gasifiers Purchased, Installed and Ordered:

The integrated gasifier services program developed by SME-RE and E&Co has animpressive record. Between August 2006 and November 2007, five (5) SMEs

purchased biomass gasification systems in the 150 kW to 200 kW capacity range.Verified fuel audits, demonstrated that these investments could be recovered within1.5 - 3 years on the basis of energy savings realized.

During Dec 2007-June 30, 2008, 16 more rice mills and 3 other rural SMEspurchased biomass gasification systems. All applied for and received loans tofinance the purchases through the credit mechanism of SME Renewable Energy Ltd.and E+Co. Inc. The 21 installed and ordered systems by end of June 2008 included13 rice mills, 2 brick manufacturing plants, 1 garment factory, 3 rural electricityenterprises and 2 ice making plants. There have been no loan repayment defaultproblems during the first two years of financing operations. As of June 2008, a totalof US$ 850,000 in loans had been approved and disbursed.

SME Renewable Energy Ltd estimates that orders for biomass gasifier systems willcontinue to grow at a rate of 2-3 per month. Currently, requests and applications forSME-RE Ltd. to complete assessments and energy audits are received at a rate of 3per month. Fossil fuel prices remaining above $ 1.20 per liter and the widelydisseminated information re: the f inancial benefits realized by the first SMEs to installgasification systems has stimulated demand. It is estimated that up to 200 rice millsand 150 other SMEs will be interested in investing and installing this technology overthe next 6-10 years.

2) Economic Benefits of Gasifiers

During the period August 2006 - September 2007, fuel prices in Cambodia increased

from $0.55 to $0.70 per liter. From October 2007 to May 2008, diesel fuel pricescontinued to rise steadily from $0.70 to more than $1.40 per liter.

Fuel expenditures of medium sized rice mills 2 similar to the early adopters,increased during this period from $ 4,500 to $ 9,600 per month. The rice miller thatfirst installed a gasifier system in August 2006 saw his monthly diesel fuelexpenditures initially fall 75% from $4,500 to $1,100 per month in October 2006.Subsequently, as oil prices rose over the next 18 months, his fuel expenses rose$1,300 to $ 2,400 per month. The fuel savings during the same period increasedfrom $ 3,300 per month in October 2006 to $ 7,200 per month in June 2008.

During the first 4 months of 2008, 5 more gasification systems were purchased andinstalled in 4 rice mills and 1 REE. To date each dual fuel gasifier 3 installed has

reduced diesel oil consumption by about 5,500 liters per month or approximately66,000 liters per year4. Ice plants that routinely operate up to 22 hours per day saveeven more, approximately 118,000 liters valued at $11,800 per month.

With the money saved, rice millers are investing in other new milling machinery suchas hullers, sorting tables and paddy dryers. One ice plant has reduced the retail priceof his ice as a result of his fuel savings.

2 1.5-2.0 tons of milled rice output per hour using a 300 hp Mitsubishi diesel engine with a 200 kWgasifier.

3 Dual fuel gasifiers burn 30% diesel fuel and substitute 70% of the usual diesel consumption withproducer gas created in the gasifier.

4 Actual enterprise savings depend on the number of hours per day and per year of gasifier and engine(s).


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Large scale investment in this technology will contribute significantly to individualenterprise competitiveness and reduce the countrys overall demand for importedfossil fuels by several millions of liters and millions of dollars spend per year.Reduction in fossil fuel consumption and removal of rice husk waste will also reduce

both CO2 and methane gas emissions.

A 200 kW biomass gasifier operating in a rice mill in Battambang Province, Cambodiasince September 2006. Diesel substitution averages 75%.


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4. Proposed Action Plan

A. Objectives

1. Encourage, over the next 4 years, investment by SMEs in 100-150 biomassgasification systems.

2. Once the systems are installed, save 7.5 million liters of diesel fuel valued at over$ 9,000,000 each year. Each SME installing a gasifier system will save, onaverage, 4,500 liters per month (value of >US$5,000 per month).

3. Create a self supporting integrated biomass gasification supply and supportservice sector by year 4.

4. Support national climate change and environmental protection goals by reducingcarbon dioxide production from burning fossil fuels and facilitating sales of carbonrelated CDM credits,

5. National balance of trade will be strengthened by reducing the amount of fossilfuel imported and consumed in Cambodia,

B. Loan Fund/Credit Facility supported by WB/IFC or other Development Bank

1. Establish a $4.5m loan fund/credit facility with E+Co Inc. and SME RenewableEnergy Ltd. for the purpose of financing 100 -150 turn-key gasifier projects inCambodian rice mills and other SMEs. These funds will be added to the $2.0 malready mobilized and disbursed by E+Co Inc. and SME-RE during 2006-2008.

2. E+Co Inc. and SME-RE Ltd. will access over a 4 year period the loan fund/creditfacility at soft (SIBOR or LIBOR interest rates). Loan fund requirement isprojected to be: Yr 1 - $ 1.5M, Yr 2 - $1.5M, Yr 3 - $1.5M.

3. Interest calculation and payments will begin upon loan disbursement. Principal

payments for each fund trenche should begin after a 3 year grace period, i.e. atthe end of Year 3, Year 4 and Year 5. Loan repayment for each trenche will becompleted at the end of Year 8, Year 9 and Year 10 respectively.

4. These funds will be on-lent by SME-RE Ltd. to eligible SMEs to financepurchases of gasification systems. Loan mechanisms currently used by E+CoInc. and IFC or similar arrangements should be considered.

5. A two tier system to manage loan funds will be established with E+Co. Inc. actingas financial intermediary institution and SME Renewable Energy Ltd. providing itsintegrated turn-key project financing services to eligible and qualified rice millsand other SMEs.

6. SME Renewable Energy Ltd. will provide design/build services, finance and

install turn-key biomass gasification systems and provide operator training for ~100 Cambodian rice mills and up to 50 other SMEs (ice plants, brick, REEs, brick& tile factories, garment factories etc.) over a period of 4 years, 2009-2012. Thetotal value of the resulting loans will exceed $6,000,000.

7. After 4 years, the dependence of Cambodian rice mills and other SMEs on dieselfuel will be reduced by ~ 7,500,000 liters each year.


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C. Technical Assistance (TA) Grant to SME-RE Ltd

1. TA funding grant of $350,000 to SME Renewable Energy Ltd. to upgrade anddevelop loan portfolio management systems and staff capacity including:

a. Loan/lease processing, loan portfolio management and credit management

specialist(s),

b. Biomass gasification system operation/maintenance and after sale servicesspecialist(s) to upgrade and develop technical staff capacity.

2. TA Grant Outputs

a. The technical systems operations and financial services capacity of SMERenewable Energy Ltd. will be expanded and strengthened to provide andmanage gasification system design, financing and to provide technical after-sales support to 100-150 new clients

a. expand SME-RE capacity to provide integrated services, (design, installation,

training, finance and after sales service), to 100-150 new biomass gasifiersystems customers,

b. promote awareness of rural SME owners of biomass gasification technologyand the potential financial benefits available to rice milling and other SMEs,

c. provide and administer loan financing for 100-150 turnkey projects applyingthe services and financing mechanisms demonstrated in the pilot program.

d. complete installation, commissioning, client training and after sales servicesfor 100-150 new biomass gasification systems.

D. Technical Assistance Grant To MIME

TA grants are required to assist MIME, in consultation with gasification systemmanufacturers and system suppliers, to establish Cambodian biomass gasificationequipment standards and certification procedures. Standards are required to ensurereliability, safety, high levels of fossil fuel substitution, and high returns on investmentto Cambodian SMEs.

1. Provide a TA grant of $220,000 to MIME to develop quality, safety andperformance standards for biomass gasification equipment manufactured and/orimported into Cambodia. The grant(s) should be used to:

a. hire consultant expert(s) to draft a set of Standards ($100,000) forimplementation by the RGC and

b. provide technical training to an MIME specialist team ($120,000) to preparefor and to implement the regulations related to biomass gasificationequipment standards.

2. Technical Assistance Grant Outputs

Biomass gasification equipment and system standards and certificationprocedures will be developed and implemented by MIME, in cooperation withequipment manufacturers and Cambodian technology service providers.

MIME will:

a) Develop and publish technical specifications and standards for gasificationequipment manufacture, performance and gas quality,

b) Create an Equipment Standards Advisory Committee to develop andrecommend equipment testing, certification and registration procedures.


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c) Implement and enforce the new Technical Standards, Inspection andCertification Procedures.

d) Advise industry and government re: protection of proprietary industrialdesigns and information and manufacturing standards.

E. Budget: Total Budget Year 1 through Year 4: $ 5.07 million

1. Loan Fund ($4.5 million)

(1) Loan Fund Credit Facility of $4.5 million will be made available to E+CoInc. a qualified financial intermediary organization and SME-RE Ltd. anestablished Cambodian gasification equipment supply and financingcompany.

2. Technical Assistance to SME-Re Ltd. 20 - 32 person months - ($350,000)

(1) Biomass gasification system technical engineering specialist: 6 - 8 personmonths (over 1 year),

(2) Biomass gasification system operations training and after sales servicesspecialist : 6 - 12 person months (over years 1 and 2),

(3) Technical Information, Media Publications Specialist,

(4) Loan/lease processing, loan portfolio/ financial management specialist:12 -24 person months (over years 1-4).

3. Technical Assistance to MIME - ($ 220,000)

(1) Gasification system specialist to research, facilitate and assist MIME todraft equipment operating and performance and manufacturing standards

and design certification procedures: 10-18 person months (over 2-3 years)

F. Implementation Schedule

The proposed Plan envisions an implementation timetable of 4 years from 2009-2012.The following chart illustrates the component activities and implementation schedule.


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Implementation Schedule Program Month 25-28 29-

Program Components Gasifier Systems Installed 72 9

a) Promote Awareness of Gasification Technology and Application to SMEs

(1) Conduct technology awareness workshops for SMEs Owners

(2) Produce and distribute media re: benefits of biomass gasification

(3) Facilitate visits of SME owners to observe existing installations

(4) Create CDM Information exchange network of biomass gasifier system owners

(5) Complete site visits and present follow-up information to interested SMEs

b) Establish $4.5 m. Loan Fund Facility for E+Co-SME Renewable Energy Ltd

(1) Establish fund access agreements between WB and E+Co. Inc.

(2) Establish agreements and terms for on-lending funds to SME Renewable Energy Ltd.

(3) E+Co. Inc to disburse loan fund trenches to SME Renewable Energy Ltd.

(4) SME Renewable Energy Ltd processes loan applications from Rice Mills and SMEs

(5) SME Renewable Energy Ltd to disburse loans to approved applicants

(6) E &C0 to monitor-audit and evaluate loan fund performance

c) Technical Assistance grant(s) to strengthen SME-RE Ltd. capacity

(1) Loan / Lease Processing and Loan Portfolio Management Specialist

(2) Biomass Gasification Technology After Sales Specialist

(3) Technical Information, Media Publications Specialist

d) MIME and Industry Develop Gasification Performance & Safety Standards

(1) Create Standards Committee (Manufacturers/Experts/MIME)

(2) Develop equipment manufacturing standards(3) Develop equipment performance, reliability, gas quality and safety standards

(4) Implement Technical Standards, Inspection and Certification Procedures.

e) TA grants to MIME to Develop Gasification Equip. Performance Standards

(1) Performance Standards and Biomass Gasification Technology Specialist


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APPENDICES


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APPENDIX 1

Biomass Gasification Technology: Cambodia 2003-2008

Background

Throughout the twentieth century biomass gasification systems and equipment have beenused widely in European cities (coal gasification) and in vehicles (wood gasification). DuringWorld War II over 3 million wood burning vehicles, tractors, trucks, buses etc. were operatedin Europe. Since then the technology has evolved and been modified by various researchand engineering institutions around the world.

Since the 1980s Indian research institutions and Indian companies have revisited thetechnology and converted laboratory experiments into practical, reliable and economic smallscale5 gasification systems suitable for use in enterprise and village level applications in

developing economies. These systems have demonstrated significant results. In India,gasifiers have been installed in hundreds of SMEs including rice mills, ceramic tile factories,activated charcoal plants and isolated community electricity grid systems6.

Village Electricity Pilot Project

In 2003, SME Cambodia initiated a village electrification demonstration and pilot project inAnglong Tha Mey, Banan District, Battambang province. The system produces electricityfrom wood and corn cob biomass fuel grown locally. Improved seed for rapid growing topicallegume trees (species: Leuceana Leucocephala), was imported from Australia. Treenurseries were established in 2004 and farmers began growing and harvesting bycoppicing method 7 the branches to burn in a 100% biomass gasifier- electricity generatorset. A village electrification grid was designed, equipment imported from ANKUR

Technologies Pvt. Ltd. (India) and installed to demonstrate the potential for ruralcommunities to utilize biomass technology and reduce the high cost of diesel generatedelectricity.

This pilot project has operated over 3 years and has successfully demonstrated the potentialfor farmer-villagers to grow biomass fuel and generate electrical energy for localconsumption at about 30% of the cost of the producing electricity with diesel fueledgenerators. The small (7kW) pilot project was expanded in 2007 from 70 households to 250households. This demonstration of the feasibility of the technology served to propel biomassgasification technology from obscurity in the Cambodian renewable energy sector to a placenear the top of the list of potential technologies. A JICA (Japan) sponsored RenewableEnergy Master Plan Study completed for MIME in 2006 reviewed the pilot project results

and confirmed that biomass gasification technology represented a leading energyopportunity for rural communities not connected or within reach of larger grid systems.

6Many Indian factories, rice mills villages and several Sri Lanka demonstration and commercial sites were visited bySME Cambodia staff during 2002-2006, to confirmed positive results with the owners and operators of thesesystems.

7 Rapid growing topical trees such as leuceana can be repeatedly cut or coppiced approximately 1 meter

above ground after which the branches will grow back every 4-6 month. This practice can be continuedfor up to 20 years.


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As a result of this success, SME Cambodia committed itself to promoting awareness of theCambodian private sector re: gasification technology and to expand the adoption of thetechnology by rural SMEs. The goal was to have significant impact on rural economic growthand on the competitiveness of rural based enterprises, through reducing consumption ofexpensive imported fossil fuel.

20 kW 100% wood biomass gasifier and electricity generator set at Anglong Tha Mey 250member Community Energy Cooperative, Battambang, Cambodia

Establishment of SME Renewable Energy Ltd.

In October 2005, SME Cambodia and E+Co Inc. created SME Renewable Energy Ltd., aCambodian registered company, to promote gasification technology, import and install

commercial sized units and offer financing to rural based SMEs. The newly formed companyconducted market opening seminars throughout Cambodia in 2006 and 2007 to explain torural entrepreneurs, the potential to improve their competitiveness through reducingconsumption and expenditures on fossil fuels. Rice mills, ice plants and REEs were aparticular focus of the market opening seminars since many of these firms were totallydependent on diesel fuel and thus affected greatly by increases in diesel fuel prices.

Over the next 2 years, the promotional efforts of SME Renewable Energy Ltd. graduallyyielded results. Initially, there was hesitation to invest in the new technology by most SMEsowners. To instill confidence in the technology and its application in rural enterprises SMECambodia facilitated exposure visits to see rice mills, factories and villages in West Bengal,Gujarat and Karnataka that have used biomass gasification technology for many years.


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Installation of Gasifier Systems in Cambodian Rice Mills and Other SMEs during 2006-2007

Following the promotional efforts of 2005/2006, a leading Battambang rice miller8 decided toinvest in the new technology. SME Renewable Energy Ltd. specified a rice husk burningbiomass gasification system developed by ANKUR Technologies and provided a turn-key

project financing package9 to facilitate the equipment purchase. The system was installedand commissioned in August 2006. This 200 kW gasifier fueled with waste rice husksreduced diesel oil consumption of the mills diesel engine10 by 75% or about 5,500 litersmonth.

The Song Heng Mill installation provided a demonstration of the benefits that could berealized by Cambodian SMEs. During 2007, four more NW Cambodian rice mills (2), a brickfactory (1) and ice making plants (2) purchased and installed gasifier equipment. SMERenewable Energy Ltd. and E+Co. provided project financing loans to these SMEs withterms tailored to meet the specific needs and capacity of each enterprise.11 The energysavings realized by the first 5 SMEs to install gasification equipment was and continues tobe impressive, with (70%-75%) substitution rates..

In response to the success of these 5 early adopters of gasification technology and alsodue to the steady rise of diesel fuel prices during 2007-2008, more rice millers and otherSME operators began to indicate interest in investing in gasification systems. The earlyadopters provided the credible demonstration that hesitant Cambodian SME operators

8 Mr. Song Hong owner of the Song Heng Rice Mill., Battambang

9 A turn-key project includes design, manufacturing, importation, installation and commissioning. Theproject price was ~ $70,000 client down-payment = 30% or $ 21,000 Loan terms: Principal $49,000 over5 years with interest rate of 12% p.a..

10 Mitsubishi 300 hp truck engine running at 1,800 rpm. Normal diesel fuel consumption was 26 liters/hr.

11 See discussion re: turn-key project financing, Appendix 3

Cambodian NGO(1999)

US Based Not-For ProfitEnergy Investment Company (1994)

CambodianRE Company (2005)

67% 33%


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needed to convince them that the equipment would operate successfully and provide bothimmediate and long term energy savings.

By the end of June 2008, 10 Cambodian SMEs had installed gasification systems and 11more have ordered systems that will be installed by the end of the year.


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APPENDIX 2

Factors Affecting Cambodian SME Owners Decision to Invest in

Gasification Technology

Cambodian rural entrepreneurs are very conservative and cautious in terms of embracingtechnological change. This is a result of past social trauma, war, economic hardship andpolitical uncertainty. The average SME operator/owner has a deep distrust of changes tofamiliar practices and methods. This characteristic is exacerbated by the fact that fewbusiness owners have skills to apply advanced business analyses to their operations nor dothey have a broad understanding of the competitive factors that affect the markets for theirproducts. Awareness of advanced production technologies is low and access to funds forboth working capital and long term investment capital is limited.

This situation impedes the rate at which Cambodian rural business owners recognize andtake advantage of new technologies. The approach of most family business operators is towait and watch others take risks with new technologies. If the neighbors investment issuccessful they simply copy rather than analyze market opportunities themselves and makeseparate, independent business investment decisions.

In addition to a general tendency to hesitate in purchasing new equipment and riskingmoney on new technologies, rice millers and other SMEs also express other reservations.These include:

the high price of equipment,

questions concerning the proven operational reliability of equipment,

availability and cost of replacement parts,

availability of operator training,

assurance that after-sales-technical support will be provided when technicalproblems or issues arise.

availability and access to long term loan credit, and

high Interest rates charged by financial institutions and lack of credit for long termequipment investment.

Cambodian business owners are generally very price sensitive. They almost alwayschoose the cheaper priced equipment to save money. Buying the lowest priced equipment

usually means it is not as durable, reliable nor long lasting as higher quality more expensiveequipment, but it suits the short term business planning and operating mentality that hasbeen the norm in rural Cambodia.

The uncertainties caused by decades of social and political upheaval has created a mentalityof opting for immediate cash returns, season to season, year to year and investing only theminimum required. Their business models have not been based on calculation of long termreturn on investment.

Despite the very high fuel savings demonstrated by initial gasifier installations there remainsresistance to invest in new, reliable, proven gasification equipment. Many SMEs instinctivelylook for a bargain approach to achieving the benefits demonstrated by the importedequipment.

Over the last 2-3 years several Cambodia individuals have produced copies of importedgasifiers and sold them at cut rate prices to SME owners. These individuals have limited or


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no previous gasifier technology training or manufacturing experience. The price andstandard of fabrication is very low.

The result has been problematic for the SME equipment buyers since minimum engineeringdesign and testing has been completed and no performance guarantees are provided. The

result is limited substitution of diesel fuel, damage to engines and loss of revenues throughhigher energy operating costs.

The poor performance of this back yard equipment and damage caused to engines willultimately give biomass gasification technology a black eye and fuel skepticism andmisinformation amongst some of the business and public sector. Further, it wastes time thatCambodian enterprises dont have to improve their operational efficiency andcompetitiveness.

The cheap copy phenomenon must be addressed by the industry and government ifCambodian SMEs are to be adequately served in terms of maximum fuel savings, engineperformance, safety and return on their investments. None of the imported equipment

installed by SME-Re Ltd. has encountered operational failures. Operating problems areroutinely corrected through adjustment by trained SME Renewable Energy Ltd. techniciansand engineers. The imported equipment includes performance warranties, manufacturingguarantees for three years and one year of after-sales-maintenance service.

In future, manufacturing, performance and engineering design standards should be adoptedand implemented by the Royal Government of Cambodia to protect purchasers investment,worker safety, and banks loan security and confidence.


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APPENDIX 3

Survey of Rice Mills and other SMEs Dependent on Diesel Fuel

Energy Sources and Analysis of Impact of Biomass GasificationTechnology on Cambodian Rice Mills and SMEs

Data Collection Methodology

The survey/data collection component of Task 1 consisted of interviews with 30 enterpriseowners located in rural Cambodian provinces of Battambang, Banteay Meanchey, SiemReap, Svay Rieng, Prey Veng, Kampong Cham, and Kampong Chhnang (See Table 1, Listof Interviewees). Types of enterprises included: rice mills (23), rural electricity enterprises(3), brick factories (1), ice plants (3) and a stone crushing plant (1). These SMEs were notselected at random. The enterprise owners had expressed interest in biomass gasificationtechnology or were considered by the SME Renewable Energy Ltd. team as enterprises thatcould potentially utilize this technology. Many of those selected had some previous exposureor knowledge of biomass gasification technology through: information received at renewableenergy information workshops conducted by SME Cambodia and E & C0. Inc during 2006-2007, word-of-mouth contact with SME operators already using biomass gasificationequipment, and for a few, exposure visits to India to visit gasifier installations, (15entrepreneurs in 2005-2006); and finally Cambodia print and TV media coverage of earlyvillage or enterprise gasification projects.

Twenty six of the thirty (30) SMEs are members of Provincial business sector Associations(Rice Millers, Brick and Tile Manufacturers or Rural Electricity Enterprises). Four (4) of the

enterprises interviewed are from unorganized sectors i.e. stone crushing plant and icemaking plants.

Discussions were conducted by the SME Cambodia team with enterprise owners at theirmills and factories. Background information was collected, observations made andoperational data requested concerning:

1. energy consumption and energy expenditures,2. production technology used,3. raw material costs,4. labor expenses,5. other production costs,6. enterprise marketing strategies,7. ownership and management structure,8. legal status,9. existence of business plans and planning process,10. land values,11. credit access,12. taxes,13. sources of borrowed funds,14. current debt situation and15. the value of company fixed and movable assets.

Specific focus of the interview included an energy audit concerning actual diesel fuel and

lubricant consumption (liters/hr), fuel costs, recent price trends, and strategies used forcombating rising energy prices.


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The potential impact of biomass gasification technology on enterprise operating costs wascalculated using this information. Through these interviews and informal discussion, the leveland depth of entrepreneurs awareness re: biomass gasification technologies was observedand noted.

Quality of Data Collected:SME Cambodia interviewers found that the selected business owners were generally willingto verbally discuss most aspects of their enterprise operations. Specific recorded informationconcerning business operations and accounts was, however, more difficult to obtain. Theclosed and somewhat suspicious mentality of Cambodian rural family business owners is anobstacle to getting complete and accurate operating data information. The longstandingrelationship between SME Cambodia staff and many of the entrepreneurs (throughAssociation formation processes and other BDS activities since 1998), has established adegree of trust and confidence that makes it somewhat easier to collect but much of theinformation is undocumented and unrecorded data. The data is considered by the SMECambodia team as reasonably accurate but was not provided in standardized format nor is it

complete for each enterprise.

Even with an owners full cooperation, the amount of hard, documented and verifiable datawith respect to product sales, input purchases, taxes paid, profits etc. for each enterprise islimited due to generally poor record keeping practices. This lack of records is a commonfeature of Cambodian small business at this time. Historically, there has not been anyincentive for enterprise owners to keep records in modern accounting formats.

For example, a rice mill may not have complete receipts of fuel purchases since the fuelseller from whom fuel was purchased also did not issue receipts. This lack of records makesit difficult to analyze specific operational expenditures and to identify and disaggregate salesand expense data (e.g. purchases of different rice types and breakdown of different

consumables used in the milling, manufacturing and packaging processes).

In this survey two separate categories of data were compiled:

1. Group 1 (Energy Audit) :Data was collected for 24 enterprises based upon site visits where verbal interviewsre: operational expenditures, production data, credit status and energy consumption.This data was used to complete energy audits of the enterprises. See example ofEnergy Audit Tables attached).

2. Group 2: (Due Diligence Financial Model)More detailed data became available for 9 enterprises whose owners made thedecision to purchase new biomass gasification equipment during the survey period(June 2007 Dec 2008). The data became available since the purchase of abiomass gasification equipment and the loan application process involves agreeing toparticipate in a due diligence process in order to qualify for and gain approval of aloan to finance up to 80% of the purchase. The Group 2 rice mill and other plantowners were consequently willing to reveal deeper and more extensive informationconcerning their operations than the Group 1 owners who agreed to be interviewedbut had not yet committed to investing in the equipment.

Data for the Group 2 enterprises was compiled into an Enterprise Financial Model thatincludes balance sheet, financing calculations, cash flow projections and net profitprojections for the next five years. (See Enterprise Financial Model Tables attached).

For the reasons state above, the data collected re: production expenses and sales revenuesfor Group 1 individual enterprises is not comprehensive nor uniformly disaggregated. The


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individual enterprise production cost data should therefore not be used to make sector wideextrapolations re: net profitability.

Information provided re: fuel and lubricant consumption, expenditures and calculation of theimpact of biomass gasification technology on the energy portion of production costs is

considered reliable and complete since the engine types, capacities, fuel consumptioncharacteristics and maintenance costs etc. are verifiable and consistent amongst differentmills and factories.

Energy audit information can therefore, be used to reliably estimate diesel fuelconsumption, potential impact of fuel substitution, and the effect of substitution on fuel costsper month and on fuel cost per tonne of production.


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Biomass Gasification Technology Impact Study

No. Name of Enterprise Name of OwnerType of

BusinessAddress

1 LEAP Man Ice Factory Mr. LEAP Man Ice Factory Mongkul Borei, Banteay Mea

2 EAP Sophat Ice Factory Mr. EAP Sophat Ice Factory Kralanh district town, Siem

3 Electricity Prey Totoeng Mr. KHUN Sambo REEPrey Totoeng, Prey Chhor, KCham

4 Lor Gnor Pheng Rice Mill Mr. LOR Eak Kim Rice Mill Skun town, Choeung Prey, Ka

5 Lor Eak You Rice Mill Mr. LOR Eak You Rice Mill Pa Av, Choeung Prey, Kampo

6HENG Chhat StoneCrushing

Mr. HENG ChhatStoneCrushing

Takream, Banan, Battambang

7 SOK Kung Rice Mill Mr. SOK Kung Rice Mill Chum Teav, Mongkul Borei, BChey

8 TAN Va Rice Mill Mr. TAN Va Rice MillKork Tumlap, Mongkul Borei, Chey

9 LAY Ser Rice Mill Mr. LAY Ser Rice Mill Thmar Korl Town, Battambang

10 CHAO Mei Rice Mill Mr. CHAO Mei Rice MillChamnorm, Mongkul Borei, Chey

11 YIN Pou Rice Mill Mr. YIN Pou Rice MillKork Tumlap, Mongkul BoreMean Chey

12 NGOV Meng Rice Mill Mr. NGOV Meng Rice Mill Thmar Korl Town, Battamba

13 HUO Rice Mill Mr. Huo Rice Mill Thmar Korl Town, Battambang

14 Electricity Kanh Chreach Mr. KEO Chamroeun REE Pra Srer Muk, Kanhchreach T

15 UNG Simon Rice Mill Mr. UNG Simon Rice Mill Svay Antor Town, Prey Veng


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No. Name of Enterprise Name of OwnerType of

BusinessAddress

16 ROS Neng Rice Mill Mr. ROS Neng Rice Mill Svay Antor Town, Prey Veng

17 CHHUN Thom Rice Mill Mr. CHHUN Thom Rice Mill Svay Antor Town, Prey Veng

18 Electricity Svay Antor Mr. Heng Huo REE Svay Antor Town, Prey Veng

19CHHITH Bun Than RiceMill

Mr. CHHITH Bun Than Rice Mill Prey Veng Town, Prey Veng

20 NGOV Huong Rice Mill Mr. NGOV Huong Rice Mill Prey Veng Town, Prey Veng

21 PHEACH Sophat Rice Mill Mr. PHEACH Sophat Rice Mill Takeo Town, Takeo

22 CHAY Kimting Rice Mill Mr. CHAY Kimting Rice MillKork Tumlap, Mongkul BoreMean Chey

23 TOEM Prech Rice Mill Ms. TOEM Prech Rice Mill Takeo Town, Takeo

24 KHUTH Thanh Rice Mill Mr. KHUTH Thanh Rice Mill Kralanh district town, Siem Re

25 THOUNG Vay Ice Factory Mr. THOUNG Vay Ice Factory Kralanh district town, Siem Re

26 LOEM Lom Rice Mill Mr. LOEM Lom Rice Mill Siem Reap District Town, Siem

27 HOEU Chy Rice Mill Mr. HOEU Chy Rice Mill Kralanh district town, Siem

28 Heng Lay Rice Mill Mr. SENG Chhun Lay Rice Mill Boeng Pring, Thmar Korl, Ba

29 HENG Sokha Rice Mill Mr. HENG Sokha Rice Mill O'Porng Morn, Takream, Bana

30 TAING Cheng Rice Mill Mr. TAING Cheng Rice Mill O'Taky, Battambang

31 Electricity of Bovel Mr. Kun Sarun REE Bavel District, Battambang

Note: Mills shown in bold type installed gasifiers in rice mills in 2007 or are currently waiting delivery agasification equipment.


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Improvement in Operating Costs with Introduction of Biomass Gasification Systems

in Different sized Rice Mills with Different Size Power Plants (based on energy audits of 21

FBG- 400 Mill 1 > 400 kW

Tons Rice Milled per year 18,480 18,480

Number Days Operating Per Year 308 308

liters of diesel saved per month 15,758 15,758

Reduced ltr Fuel per ton of rice milled 10.2 10.2

Reduced Fuel cost/ton of rice milled $ 9.21 $ 9.21

Reduction in Direct Milling Cost/Ton 49% 49% ** Fuel expenses represent abou

Estimated cost of gasifier $ 145,112 $145,112'Direct milling costs include Fu

Labour,

Suggested capacity of gasifier FBG-400Utilities, Bags. Not including ri

depreciation

Simple payback period months 10.9 11

Potential CO2 saving 506 506

FBG 200 Mill 2 Mill 3 Mill 4 200 kW

Tons Rice Milled per year 8,250 7,392 7,392 7,678

Number Days Operating Per Year 275 308 308 297

liters of diesel saved per month 7,875 5,645 5,645 6,388

Reduced liter of fuel per ton of rice milled 11.5 9.2 9.2 10

Reduced Fuel cost/ton of rice milled $ 10.31 $ 8.25 $ 8.25 $ 8.93

Reduction in Direct Milling Cost/Ton 49% 49% 49% 49%

Estimated cost of gasifier $ 79,546 $ 78,550 $ 78,550 $ 78,882

Suggested capacity for gasifier FBG-200 FBG-200 FBG-200 FBG-200

Simple payback period months 12.0 17.4 17.6 16

Potential CO2 saving 253 181 181 205


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The Impact of Biomass Gasifier Installation on Rural Electricity Enterprise Fuel ConsumptioExpenditures and Cost / kWh

FBG 60 REE 1 REE 2

Operating Hours per year 1,440 4,500 2

kW hrs generated per year 92,160 251,280 17

liters of diesel saved per month 2,268 3,203 2

Reduced liters of fuel per kWh 0.30 0.15

Reduced cost per kWh $ 0.27 $ 0.14 $

Estimated investment cost for gasifier $ 43,753 $ 43,483 $

Capacity for gasifier FBG 60 FBG 60 F

Simple payback period months 25 17

Potential CO2 saving ton/year 73 103


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Detailed Analysis of Operational Costs of Rice Mills: (Group 2)

Analysis of operating costs was completed on the 9 enterprises for which due diligenceprocesses were completed. Individual financial models were developed for a 7 year periodbeginning in 2005. Projections of operating information supplied by the enterprise owner

were input to a financial model (Excel software file appended to this report), to evaluate thecapacity of operators to generate cash flow and profits sufficient to repay loans required tofinance the purchase of new biomass gasifier equipment. Projecting future costs ofproduction inputs such as rice paddy and diesel fuel is very difficult at this time. The marketis extremely volatile due to a combination of international conditions. During the 10 monthperiod of this study the price of diesel fuel has risen from $.75-$.80 per liter during 2007 toover $1.30 per liter in April 2008. The price of rice paddy rose 200%-300% over sameperiod. Other production costs are bound to change as well in future. For this reason longterm projections cannot be considered reliable.

A few components of the rice milling operation account for the bulk of all operationalexpenses. The two most significant are the price of paddy rice and the price of diesel fuel

necessary to operate the mill. Labor, rents, lubricant, supplies and taxes comprise arelatively small portion of the total. Analysis of the fuel cost component of the operationalcost reveals that fuel represents about 70% of the total direct operating cost of milling rice.Savings made in this component therefore a have significant impact on total operating costsand on net income.

Substituting an alternative fuel such as producer gas made from mill waste products (husk)for 70% of current diesel fuel consumed will reduce overall energy costs by 52%-59%. Thisdramatic impact on fuel expenses is a result of the mill utilizing free rice husk biomass thatthe mill already owns and produces daily as part of the paddy milling process. The over50% reduction in diesel fuel expenditure results in a 26% to 39% lowering of total milloperating expenditures Detailed examples are included in the following section.

Financial Analysis and Projected impact of Biomass Gasification Technology on RiceMills (Example data collected during loan due diligence process of 3 rice mills)

Example Mill # 112

Rice mill #1 was established in early 2006 and is owned by Mr. XXXXX and his brother inlaw Mr. XXXX, who invested equally in the mill. Construction for the mill started in January2006 and the mill started operations in late 2006. The mill has a milling capacity of about 2.5ton per hour, and produced around 3,500 tons of milled rice during the first full year ofoperation. This is projected to increase in the coming years.

Mr. XXXX is the managing director of the rice mill. Before establishing the new mill, he was afounding partner in another rice mill in Battambang town from 1991 to 2005. Because oflimited growth potential in the previous mill due to its location in the town, he decided to sellhis stake in the business and establish his own mill at the current location. SME-REmanagement has known Mr. XXXX for several years from SME Cambodias work on theformation of provincial rice mill associations. He is a member of the Battambang provincialrice mill association.

Most rice mills in Cambodia sell rice under their own brand name. Contrary to the other mills,Mill #1 is a newly established rice mill and is still building up its brand among rice milltraders. Nevertheless, while the mill is not yet working at full capacity, the rice mill has beenprofitable since its the first year of operation. Even at the current lower levels of production

12 Names of Mills and mill owners have been deleted to protect confidentiality of commercial data.


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the installation of the gasifier would lead to fuel savings twice the value of monthly loaninstallments. In addition, Mr. XXXX has extensive experience in rice milling and tradingbusiness.

The installation of the gasifier at rice mill #1 will result in the savings of about 36,000 liters of

diesel per year, equivalent to nearly US$ 26,000 at current production and projected dieselprice levels ($0.90 to $1.20 per liter). CO2 emissions will be reduced by 97 tons per year.Actual savings and offsets may be higher because of the expected future mill productionincreases.

Rice mill #2 was established in 1991, and is owned by Mr. XXXX and his wife Mrs. XXXX.Originally, the mill had a milling capacity of 0.5 ton per hour. This was upgraded to 1.3 tonper hour in 2000. From December to August paddy is purchased directly from farmers whodeliver it to the mill. Milling occurs throughout the year. The milled rice is sold to wholesaletraders who come to buy it at the mill. This means the mill incurs minimal transport costs inboth buying paddy and selling transactions. The mill produces around 3,865 tons of milledrice per year.

Mill #2 owners operate the mill as a family business without a formal management system.Several family members are involved. SME-RE management has known this family forseveral years from SME Cambodias work with the formation of provincial rice millersassociations. They are members of the Banteay Meanchey Rice Millers Association.

The installation of the gasifier at Mill #2 this year will result in savings of nearly 33,000 litersof diesel per year, equivalent to more than US$ 27,000 at current and projected dieselprices, and will have reduced emissions of 89 tons of CO2 per year.

Rice mill #3 was established in 1996, and is owned by Mr. XXXX and his wife Mrs. XXXXX.Originally, the mill had a milling capacity of 0.6 ton per hour. It was upgraded to 1.2 ton per

hour capacity in 2004. Currently, the mill has a paddy storage capacity of 5,000 tons andproduces around 3,900 tons of milled rice per year. Paddy is mainly bought during theharvest season from January to April. The mill operates 9 months from December to August.

Mr. XXXXX and his wife Mrs. XXXXX operate Mill #3 as a family business without a formalmanagement structure. SME-RE management has known them for several years from SMECambodias work on the formation of provincial rice mill associations. They are members ofthe Battambang rice mill association.

The installation of the gasifier at Mill #3 will result in annual the savings of more than 32,000liters of diesel per year, equivalent to US$ 26,500 at current and projected diesel prices.Emission reductions will be an estimated 88 tons of CO

2per year.


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Financial Analysis of Rice Mill Operations before and after Installation of Biomass Gasifier:ExamInput actuals before gasifier installed Projected inputs af

Sales forecast: 2005 2006 2007 2008 2009

Total Sales ($) $ - $ 152,790 $ 1,132,560 $1,229,342 $1,287,97

Cost of SalesPaddy 129,000 957,000 $ 1,041,975 $1,093,18Bags 6,000 30,000 26,400 $ 26,40Total Cost of sales - 135,000 987,000 1,068,375 1,119,58

Gross profit $ - $ 17,790 $ 145,560 $ 160,967 $168,38Gross profit % 11.6% 12.9% 13.1% 13.1%Variable Operating Exp.

Diesel Oil 5,040 40,410 27,253 16,65Food for Labor 450 3,600 3,600 3,60Total Var. Oper. Exp. $ - $ 5,490 $ 44,010 $ 30,853 $ 20,25

% of Sales 3.6% 3.9% 1.6%

Reduction in Fuel Costs With Gasifier Equipment 33% 59%Fixed Operating Exp.

Salaries & related 2,040 8,160 9,280 9,84Equip maintenance 3,000 3,450 3,45

Legal & Accounting 250 250 250 25Total Fixed Op. Exp - 2,290 11,410 12,980 13,54

Total Operating Exp $ $ 7,780 $ 55,420 $ 43,833 $ 33,79

Impact on Total Operating Expenses with Gasifier Equipment 21% 38%EBITDA - 10,010 90,140 117,134 134,58Depreciation 27,000 41,400 41,40

EBT - 10,010 63,140 69,453 86,63Tax 1,080 1,080 1,080 1,08

Net profit after tax $ - $ 8,930 62,060 $ 68,373 $ 85,55

See Notes on next page:


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- 2006 was a partial operating year- The gasifier is projected to be ordered in January 2008 and commissioned in April 2008. The projections

2008.- Diesel expenses are included in the Operating Expenses and currently account for nearly 70% of the ope

commissioning of the gasifier the operating expenses are reduced.- The mill started its operation late 2006 and ran only for a short period that year. Otherwise the mill operat

November/December the mill ceases operation for 1 month for annual maintenance.- Liabilities refers to the loan for the gasifier.

The mill owners invested about US$ 300,000 in the establishment of the mill.

Rice Mill # 1 Breakeven Analysis

2008 2009 2010

Total Units sold (tons) 4,841 5,080 5,181 5

Average Unit Sales Price $ 254 254 254

Average Unit Cost $ 221 220 220

Variable Cost per Unit $ 6.37 3.99 3.97

Per unit Contribution to Fixedcost, taxes and debt service

26.9 29.2 29.3

Fixed Cost $ 12,980 13,540 13,540 13

Tax $ 1,080 1,080 1,080 1

Interest and Principal $ 9,543 17,229 17,229 17

Total fixed costs and debt service $ 23,603 31,849 31,849 31

Breakeven units (tons) 878 1,092 1,088 1

Breakeven $ $223,007 $276,925 $275,959 $274


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The Impact of the Introduction of Gasification Technology

The three examples provided above are typical for rice mills in the 1.0 to 1.5 tonnes per hourproduction range. Assuming that future diesel fuel prices continue to rise from $0.90/liter inMarch 2008 to $1.20/liter by mid 2008 and beyond, producer gas substitution will reducedirect milling costs, (fuel + labor), by 52%-59% of current levels. This will reduce total

operational costs by 26%-39%.

The recent dramatic rise in wholesale and retail milled rice prices has been accompanied bya similar or greater rise in the price of paddy rice. The margins realized from milling have,however, not changed substantially even though diesel fuel prices continue to increase. Theresult is that rice millers will require more working capital to maintain the same levels ofpaddy purchases and also must absorb increased costs in the largest single operating costitem (diesel oil).

Review and Impact on Profitability

The savings available from utilization of rice husks to reduce fuel costs is both dramatic and

significant. Cambodia rice millers are struggling to attain a level of competitiveness with theirlarger and more efficient neighbors Viet Nam and Thailand, the top two rice exporters in theworld. Gasification technology offers an important contribution to reducing milling productioncosts and increase competitiveness of their operations.

The Availability of Biomass Sources for Gasifier Fuel

Rice HuskRice husks are an ideal biomass fuel source. Husks are a by product of milling ricepaddy that produces a ready to burn, dry fuel that is available to use in biomassgasification systems in rice mi

wb - esmap final_report_biomass_gasification_action_plan by sme-cambodia

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