Argentina seeks to relaunch its biofuel industry

A senator has presented a plan to jump-start Argentina’s biofuel industry after demand collapsed due to the pandemic-related economic crisis and the government’s 10-month price freeze.

Senator Roberto Mirabella presented a bill to congress promoting a national biofuel plan. With the plan, the sector could be revitalized and generate employment in provinces such as Santa Fe, Córdoba, Entre Ríos and Tucumán, which produce biofuel raw materials like soybean, corn and sugar cane.

"The development of biofuels is of strategic importance for Santa Fe and for all of Argentina," Mirabella said in a statement.

The country exported biofuel for around US$14bn between 2007 and 2019. Almost 80% of the total came from Santa Fe’s 18 plants. According to Mirabella, the amount is equivalent to a production of 58,000b/d of oil, which would make Santa Fe the fourth biggest oil producer, behind the provinces of Chubut, Neuquén and Mendoza.

With the bill, Mirabella seeks to improve aspects of the current law, which established in 2016 the regulatory and promotional regime for the sustainable production and use of biofuels, through state incentives.

The bill establishes that diesel must be mixed with 12% biodiesel, which could increase by 1% annually in line with the evolution of the internal market, reaching 27% in 15 years. These percentages would also apply when this fuel is used for electricity generation.

And the bill includes a provision that gasoline marketed in Argentina must contain at least 15% bioethanol, which could also increase by at least 1% annually until reaching 30% in 2026, when the regulation would expire.

Mirabella’s bill also mandates minimum and maximum biofuel prices that will be established by the state, contemplating minimum production costs, the value of conventional fuels and the environmental value this industry provides by reducing carbon dioxide emissions.

As with the current law, the new regulation would remain valid for 15 years. But the law could only be enacted next year since congress has only 25 days of ordinary sessions left.

The bill also includes boosting the development of biogas generated with agricultural, agro-industrial and food manufacturing waste, solid urban and sewage waste and from sanitary landfills. The biogas could be used for electricity or heat generation, in industry and transport.

“We are proposing a broad vision of biofuels and raw materials and not only those of agricultural origin but also waste or any type of biomass that can be used for their production. In other words, not only bioethanol, biodiesel or biogas should be taken into account but also other possible biofuels,” Mirabella said.

To encourage consumption, all state institutions, public and cargo transport should use biofuels and biogas three years after the law becomes valid.

Production companies would maintain tax benefits, especially those related to VAT and the purchase of capital goods, to civil, electromechanical and assembly works and associated services.

New tax exemptions would apply to the distribution of dividends or profits and fees for the use of the water infrastructure that apply to traditional fuels.

Problems

The current law expires in May 2021. But the senate approved a four-year extension last week, on which the lower house still needs to vote.

While biofuel associations support this measure, they insist that a new regulation is needed to boost the sector.

A key concern are prices that are 25-28% lower for blends with gasoline and diesel due to the government’s 10-month fuel price freeze. As result, 54 plants cannot cover operating costs and have reduced activity.

In response, the government has increased the value of sugar cane and corn bioethanol by 10% to 32.8 pesos/l and biodiesel based on soybean oil to 48,533 pesos/t.

However, the price of raw materials (especially soybean oil) has kept rising throughout the year, offsetting the measure and putting pressure on the sector.

“With the initial recomposition, none of the plants can operate and we told energy minister [Darío Martínez]. Now, we hope that the second [rise] is a percentage that allows us to go back to work,” Juan Facciano, president of the Santa Fe’s renewable energy chamber, told Enernews.

Due to the situation, companies refused to comply with the 13.5% wage increase agreed in 2019 which was due for April, triggering threats from unions to paralyze activity.