Brazilian Development Bank

BNDES Financial Support for Investments in Brazil:Fuels and Chemicals from biomass

Bio World Congress – 2015 Montreal

Agenda

Introduction to BNDES – The Brazilian Development Bank

Recent Study of Investment Opportunities on Chemical Markets in Brazil

New plan (PADIQ) to finance projects on selected chemical segments, including

Chemicals from Biomass

BNDES Highlights

Founded on June 20th, 1952.

100% state-owned company under private law.

Key instrument for implementation of Federal Government’s industrial and infrastructure

policies.

Main provider of long-term financing in Brazil.

Emphasis on financing investment projects.

Support to micro, small and medium-sized companies.

Support to Export and Internationalization of Brazilian companies.

Innovation Investment Financing Infrastructure

Aquisition of Machinery and

EquipmentExports Capital Markets

Aquisition of Capital

goods for Small and

Medium Companies

BNDES Scope of Action

BNDES vs. Other Development Banks

2013

Indicators BNDES CDB KfW JFCBrazil China Germany Japan

Assets (US$ billions) 363,4 1.331,3 619,7 260,4 Loan Portfolio (US$ billions) 263,5 1.162,3 528,8 222,8 Net Profit (US$ billions) 3,6 13,0 1,7 (2,9)

Non-performing loans ratio (%) 0,01 0,48 0,13 2,98Return on Assets (%) 1,01 1,02 0,27 (1,13)Return on Equity (%) 15,34 15,07 6,21 (6,84)

Foundation 1952 1994 1948 2008Number of Employees 2.859 8.468 5.374 7.361

Annual Disbursements (R$ X US$)

4751

65

91

136

168

139

156

190 188

19.6 23.6

34.0

49.0

71.6

96.3

82.378.7

88.1

69.7

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

R$ billion US$ billion

In R$ billion XUS$ billion

BNDES´ English Version Website

www.bndes.gov.br/english

Brazilian Development Bank

Diversification of the Brazilian Chemical IndustryStudy Summary

Study financed by the Brazilian Development Bank (BNDES)

Prioritization and validation

S4

Design of development policies

The Study took place over 18 months

Business model design

Financial and economic analysis

Initial

prioritization

of segments

Mapping and

Segmentation

Identification of opportunities in selected segments

Benchmarking of industrial policies

S2S1

PE

SSeminars PE Industry Panels

Final prioriti-zation

of opport-unities

S3

Report 2

Report 3 Report 4 Report 5 Report 6

En

d o

f S

tud

y

F

Report 7

Report 1

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

20142013

11

Average

price (US$/kg)

Growth of

imports(CAGR 08-12)

0,75 3%

0,93 6%

2,99 10%

Imports + Exports (US$B)

and # of segments

1

1

32 segments were selected for detailed analysis(19 for primary focus and 13 for secondary focus)

Note: (1) Average of the sum of imports and exports during the period 2008-2012; (2) Biochemicals were also selected for study and were analyzed as a segment.

Because it overlaps with the other segments, it is not considered in the analysis above; Source: AliceWeb, Bain/Gas Energy Analysis

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SegmentBrazilian Market

(US$ B, 2012)

Brazilian Share

(%)

Global Growth

(07-12)

Brazilian Growth

(07-12)

Imports

(US$ M)

Exports

(US$ M)

Unit Price

(US$/kg)

Cosmetics 41,8 9,7% 4,1% 12,4% 830 580 5,4

Crop protection 9,7 20,5% 7,6% 16,1% 5.400 500 11,3

Food additives (animals)1 1,10 10,0% 3,7% 10,1% 458 310 2,5

Butadiene and isoprene deriv.2 1,95 5,7% 1,1% 3,2% 860 740 2,5

Aromas, flavors and fragrances 1,20 5,1% 3,3% 6,5% 295 317 5,2

Chemicals for E&P 0,71 3,6% 11,2% 24,6% 85 9 1,7

Surfactants 1,54 5,7% 3,0% 6,9% 315 185 3,0

Aromatics and deriv.3 2,52 1,6% 3,8% 5,2% 1.154 0 1,2

Polyurethanes 1,50 3,5% 1,6% 5,8% 944 83 2,7

Cellulose deriv. 0,33 1,3% 6,3% 1,1% 190 37 3,5

Lubricants 4,5 3,5% 1,0% 2,6% 1.127 209 2,4

Food additives (humans)1 0,65 3,0% 3,8% 4,1% 367 625 2,8

Oleochemicals 0,66 2,8% 8,1% 23,2% 230 179 1,7

Carbon Fiber 0,10 9,4% 7,9% 107,4% 97 0 24,4

Chemicals for mineral processing 0,19 4,1% 2,3% 7,6% 93 8 2,2

Chemicals for leather 0,38 8,1% 2,8% 3,7% 111 83 1,7

Silicon Deriv. 0,42 3,0% 3,7% 5,2% 190 536 2,5

Chemicals for concrete 0,17 1,7% 3,7% 5,0% 30 4 1,1

Specialty polyamides 1,28 1,7% 1,9% -5,2% 509 14 3,4

High-tenacity polyesters 0,13 2,1% 4,5% -3,0% 70 10 2,0

The 19 segments with a “primary” focus were studied in more depth, as were chemicals from renewables

Co

mp

eti

tive

ne

ss

+

-

(1) The segment food additives was divided to facilitate analysis; (2) Accept butadiene and isoprene; (3) Accept BTX

Note: “Chemicals from renewables”, which overlaps with the other segments, was also analyzed to identify opportunities

+ Chemicals from renewables

13

The Study was documented in Reports which are available to the public on the BNDES website

Report 1 • Proposal for the segmentation of the chemical industry (+ annexes)Report 2 • Proposal for the prioritization of the segments of the chemical industry (+ annexes)

Report 3

• Development policies – Mapping of Best Practices

• Segments of secondary focus (Acrylic Acids; Catalysts; Chlorine; Glues, Adhesives and Sealants; Pigments, Titanium dioxide and dyes; Industrial intermediates; Methane deriv.; Propylene deriv.; Elastomers; Cleaning products; Laboratory reagents)

Analysis of the primary focus segments according to the methodology of Porter’s Diamond• Crop protection • Oleochemicals • Chemicals for E&P• Lubricants • Chemicals for concrete • Mining chemicals

Report 4

Analysis of the primary focus segments according to the methodology of Porter’s Diamond• Food additives • Cellulose derivatives • Polyurethanes• Aromas, flavors and fragrances • Silicon derivatives • Renewable chemicals• Aromatics • Carbon fiber • Leather chemicals• Butadiene and derivatives • Specialty polyamides • Surfactants• Cosmetics and personal hygiene • High tenacity polyester

Report 5• Research about the local competitiveness of the segments• Public policies for development

Report 6• Financial - economic models (Carbon fiber, Methionine, Siloxane, Polyalphaolefins)• Petrochemical raw materials • Regulation • Innovation and technology• Sugarcane raw materials • Infrastructure • Taxation

Report 7 • Final Report (Summary) 14

Existing infrastructure

Recommendations to strengthen chemicals projects

based on sugarcane

• Tax exemption for

investments

• Competitive financing

conditions

• Tax exemption for

renewable products

• Incentives for greenfield projects in

renewable chemicals bio refineries

- Ex. semiarid: make available minimum

logistic infrastructure (for production and

inputs) and water collection system2

- PPP: risk sharing with private investor

Greenfield1 project

Investment

2

1

AGRICULTURAL

INPUTS

Sugarcane juice

Cane straw

Bagasse

PRETREATMENT

FERMENTATION

Sugar and ethanol

(1G and 2G)

(1) Use of sugarcane varieties more adapted to the soil type (ex. “cana-energia”) could improve project’s

profitability and sustainability

(2) Examples: PPP for irrigation (PPP Salitre) and Agrovale (sugar and ethanol mill) in Juazeiros, Bahia

TEXTILES

CHEMICALS E&P COSMETICS

AUTOMOTIVE MACHINES & EQUIP

HOME APPLICANCES SPECIALTY PAINTS

FERTILIZERS

CIVIL CONSTRUCT.

SHOES

APPAREL

FURNITURE

CROP PROTECTION

RUBBER

PLAST. & PACKAGE.

CHEMICAL

PROCESS

Alcohols and

Polyols

Acids

Other

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Actual

Infrastructure

Greenfield

Project

Investment in the projectR$ 1,4B

Direct impact GDP: R$670M

R$ 3,9B

Direct impact GDP: R$1,8B

Trade BalanceR$ 240M/year

As of 2020

R$ 800M/year

As of 2020

GDPR$ 180M/year

As of 2020

R$ 600M/year

As of 2020

Tax LeviesR$ 40M/year

As of 2020

R$ 100M/year

As of 2020

Jobs 100 direct 2 k1 direct

Go

ve

rnm

en

tIn

ce

nti

ve

s Fiscal Allowances (REPEQUIM)

R$ 8M/year R$ 8M/year

Subsidies/Fin. R$ 13M/year R$ 37M/year

Incentives PPP - R$ 18M/year

TOTAL R$ 21M/year R$ 63M/year

Fiscal Allow. (REIQ)3 R$ 15M/year R$ 15M/year

A Biorefinery creates additional tax levies of R$40-

100M/year, in addition to creating up to 2k jobs

Configuration

of the biorefineries

considered

• Assumptions

- 71th ha planted; 60th

ha harvested

- 5Mt/year of sugar

- n-butanol: 100 kt/year

• Actual Infra

- n-butanol (bagasse

and cane straw)

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(1) Mechanized planting and harvesting; (2) From a government perspective it is necessary to evaluate different alternatives for the use of water

(ex: generation of energy and fruit production) and their respective socioeconomic impacts; (3) considers additional R&D investment of 4% of the gross annual revenues for the producer of bio n-butanol.

• Greenfield1

- Sugarcane

plantation

- Irrigation2 and

logistics

- Sugar and ethanol

plant

- n-butanol (Bagasse

and straw)

SIMULATION

16

Brazilian Development Bank

PADIQ – Plan for the Diversification of the Chemical Industry

To be launched on 2nd semester 2015

Based on the successfull PAISS program

Public call to support business plans on selected chemical segments: PADIQ;

Chemicals from Renewable Sources selected to be supported by PADIQ;

PAISS program: innovation program to finance innovation projects in the sugar-based ethanol

and chemical sectors

1st stage

• 57 companies registered• Potential investiment: US$ 5 billion

2nd stage

• 39 pre-selected companies• Potential investment: US$ 3 billion

Final selection

• 25 selected companies• Potential investment: US$ 1.7 billion

0 500 1,000 1,500 2,000 2,500

After PAISS

Before PAISS*

Estimates of celulosic ethanol production for 2015(million liters)*

2.115

168

0

0 500 1,000 1,500 2,000 2,500

After PAISS

Before PAISS*

Estimates of celulosic ethanol production for 2015(million liters)*

834

114

168

PAISS Results: New scenario on advanced biofuels

Source: FO Licht, Nyko et al (2010) and BNDES.*Because of the lack of data at that time, estimates Pre-PAISS refer to 2014.

Due to the investments generated by PAISS andalso to the delay or standtill of several projects in US and EU, Brazil achieved a completely different

scenario in the segment of 2 G ethanol.

Ethanol 2G Commercial Projects supported by BNDES

Estimated Production Capacity

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Granbio• Aprox. 80 M de liters

• São Miguel dos Campos, Alagoas

Abengoa• Aprox. 65 M de liters• Pirassununga, São Paulo

Raízen• Aprox. 40 M de litros• Piracicaba, São Paulo

185 millionliters of E2G

Chemicals from Sugars:

Examples of Projects Supported by BNDES

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AmyrisSolazyme Bunge

What will be the focus of PADIQ?

Focus Biorrefineries:

New chemical projects based on biomass - sugar, wood, bagasse...

In summary…

Opportunities toInvest in Chemicals from

Renewable Sources in Brazil

Many Market Opportunities in Brazil could be supplied from

renewable sources

• Brazil’s Comparative Advantages – land, sun, consolidated sugar industry and innovation system;

• BNDES Diversification Study can provide detailed information on renewable chemicals markets in Brazil;

• BNDES Financing and the new PADIQ plan, starting on the 2nd

semestre of 2015, can support new Biorrefinery projects.

Biorefinery products (chemicals, materials, biofuels) for the:• Energy sector;• Cosmetics and personal care;• Food and feed additives;• Aromas, flavors and fragrancies;• Exploration and Production of oil;• …

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Gabriel Gomes – ggomes@bndes.gov.br