MANILA, Philippines — The country stands to lose some P48 billion in bioethanol investments due to lack of firm policy to grant tariff protection to the domestic bioethanol sector against ethanol imports from Brazil, which now practically enjoy zero tariff rate.

The Ethanol Producers Association of the Philippines (EPAP) issued this warning as they urged the Aquino Administration to implement the Biofuels Act of 2006’s original vision to create a local biofuel sector. The government has apparently lost that objective along with the investments that should go with it, the group said.

“We believe that under present conditions, there are only few, if any, of the remaining investors who will implement their proposals unless the seriously disadvantageous factors stunting indigenous biofuels production can be overcome.

This represents a low of P48 billion in fresh investments over the next several years,” said Jose Maria T. Zabaleta, San Carlos Bioenergy Inc (SCBI) chairman and EPAP president said in a position paper.

EPAP is asking government to raise tariff on imported ethanol to 10-40 percent from the present one percent tariff in order to nurture the local ethanol sector’s long term growth and earn higher revenue of P1.6 billion.

Zabaleta said the government is actually allowed under the World Trade Organization’s (WTO) Bound Tariff to place tariff on ethanol imports up to 40 percent if only it aims to allow growth for the local ethanol sector.

“The Bound Tariffs under the WTO actually do not prevent the Philippines to increase its tariffs on ethanol from Brazil. The Aquino Administration should avail of this,” said Zabaleta.

Based on the country’s ethanol importation of 200 million liters in the first half of 2011, the government’s revenue was only P80 million given the one percent tariff. But a higher 10 percent tariff and with ethanol’s 10 percent blend with gasoline, this government revenue will readily increase to P1.6 billion.

It is unfortunate that while government initially attracted investors to establish local ethanol plants through the incentives under the Biofuel Act of 2006 or Republic Act 9367, only two actually finally delivered manufacturing plants. These are SCBI and Roxol Bioenergy with a total of 68 million liters per year of capacity.

And yet SCBI and Roxol had to discontinue for some time between 2010 and 2011 the production of anhydrous fuel bioethanol due to losses from competition.

“Because the oil companies can import Brazilian ethanol at world market prices without tariffs and the market price for domestically produced bioethanol is below the cost of production of Filipino processors, SCBI and Roxol had to discontinue anhydrous ethanol production. It was impossible to compete with the cheap imported Brazilian ethanol,” said Zabaleta.

Aside from the liberalized tariff regime, the National Biofuels Board should also consider a pricing mechanism that will enable the bioethanol industry to compete in buying sugarcane from farmers for fuel feedstock as against those for sugar.

“It is unlikely that farmers will plant more cane in new areas for ethanol, nor investors put up new distilleries, without the DoE (Department of Energy) setting up a cost-plus pricing mechanism as the DoE of Thailand has successfully done to build production capacity,” said Zabaleta.

Ethanol producers cannot offer as much high price to farmers for their cane that sugar mills can offer.

“Thailand has followed the US and European models of internal commodity price management while the Philippines is still under the WTO model of liberalization and giving free reign to market forces, causing investors to look for other investments,” he said.