Prospects of the Philippines’ Fuel Ethanol Industry

The recently passed Biofuels Act of 2006 created a sure market for bioethanol investors
in the Philippines, paving the way for the creation of a new industry – fuel ethanol production.
This, along with incentives, strong government support and the availability of land and technical
manpower in distillery operations make the country a very good location for distillery investment.

The Philippines

The Philippines is an archipelago of around 7,100

islands straddled between the Philippine Sea and the South
China Sea. The country has a land area of 298,170 sq km
and is slightly larger than Arizona. It enjoys a warm tropical
climate, ideal for year-round agriculture and ethanol
production. It is favorably located near the existing and
emerging markets for fuel ethanol in China, Korea and Japan.

RA 9367: The Biofuels Act of 2006

By passing a biofuels law, the Philippines created a

large market for ethanol. RA 9367 or the Biofuels Act of
2006 was signed by the Philippine President on January 12,
2007 and came into effect on February 6, 2007. The law is
expected to bring a number of benefits to the country.
Commercial production of ethanol from sugarcane, cassava
or sorghum will help the country diversify its fuel portfolio
and help ensure its energy security. It could also generate
employment, particularly in the countryside, as investors put
up biofuel crops plantations and processing plants. Also, the
shift to these plant-based fuels for transportation will also Figure 1: The Philippines,
source: https://www.cia.gov
help reduce pollution. Because of the many advantages of
the use of biofuels, lawmakers consider this law as one the most important pieces of legislation
passed in recent years.

In view of this, lawmakers saw it fitting to require oil companies to use biofuels in all
“liquid fuels for motors and engines sold in the Philippines.” According to the law, all gasoline
sold in the country must contain at least five percent (5%) ethanol by February 2009. Within
another two years, this mandated blend can go up to 10% - a potential market of 594M liters/year
for fuel ethanol in 2011. This figure is expected to increase by around 30M liters per year,
according to the Philippines Department of Energy (see Table 1). It is supported by the increase
in vehicles registered, which was growing at an average rate of 5.83% per annum according to
the Department of Transport and Communication (Figure 2).
 Table 1: Philippines’ Bioethanol Requirement
Projected Gasoline Bioethanol
Mandated
Year Demand* Requirement
Blend
(In Million Liters) (In Million Liters)
2007 4,845 0 0
2008 5,102 0 0
2009 5,370 5% 269
2010 5,650 5% 283
2011 5,939 10% 594
2012 6,239 10% 624
2013 6,549 10% 655
2014 6,872 10% 687
2015 7,210 10% 721
Notes: RP DOE Demand Estimates for Gasoline (2005 PEP)

Aside from granting a number of incentives to biofuels producers, the law also empowers
the Department of Energy (DOE) stop the operation of businesses that refuse to comply with the
minimum blend, and confiscate their products. It also introduces penal provisions against the
law’s violators where company officials can be incarcerated for one to five years and the
company fined at least PhP 1M (approximately US$ 21.5T).

The Philippines’ Biofuels law is distinctive in that it imposes a minimum biofuel

blending requirement on a national basis and that it also contains penal provisions for those who
do not comply.

Feedstock Situation

While there were four feedstock initially identified for ethanol production, namely –
sugarcane, corn, cassava and sweet sorghum, sugarcane is expected to be the predominant source
of bioethanol. Sugarcane, corn and cassava are already cultivated extensively in the country,
although they are used mainly for food and feed. High yielding varieties of sweet sorghum are
currently being tested at the Mariano Marcos State University in the northern province of Ilocos
Norte, and national multi-locational trials are underway. According to the Department of
Agriculture (DA), sugarcane can be tapped for the bioethanol program considering that there is a
surplus thereof.

The Philippines is a sugar-producing country and sugarcane is grown mainly in the

islands of Negros, Luzon, Panay and Mindanao. Despite growing demand for sugar, the Sugar
Regulatory Administration says that there are still 90,750 hectares of sugarcane available that
can be used for ethanol production (Table 2).

Table 2 : Available Areas for Sugarcane Production

Province Existing Area Expansion Available
Area Area
Batangas 8,500 4,500 13,000
Bukidnon 2,000 10,000 12,000
Cebu 6,500 2,000 8,500
Camarines Sur 6,500 1,500 8,000
Davao 3,500 3,500 7,000
Pampanga 3,500 3,500 7,000
Cagayan 3,000 4,000 7,000
Negros Oriental - 7,000 7,000
Palawan - 7,000 7,000
Zamboanga del Norte - 6,250 6,250
Capiz 3,000 - 3,000
TOTAL 41,500 49,250 90,750
Source: Philippines Sugar Regulatory Administration

Some studies show that on average, sugarcane farmers produce 65 metric tons of cane per
hectare that could yield 70 liters per metric ton. Conservatively, it can be said that the country
can produce 4,550 liters per hectare per year using sugarcane as feedstock. However, with the
breeding efforts of the Philippine Sugar Research Institute Foundation (PHILSURIN) and the
Sugar Regulatory Administration (SRA), there are high yielding varieties (HYV’s) of sugarcane
available. These HYV’s are able to produce 109 tons of cane per hectare on average.

Investors may also bring in genetically-modified (GM) crops because legislation and
systems and procedures are already in place. In fact, Bt corn has been approved for release in the
country as early as 2002, and several other GM crops have been permitted for release. With this
in place, companies may bring in higher yielding and more insect and disease resistant GM crops
for higher feedstock productivity and lower cost.

Because the Philippines produces sugar, molasses are available and are being used by the
potable ethanol industry and in feeds manufacture. The 900,426 MT of molasses produced
during the 2004-2005 milling season were insufficient to meet demand and local distillers
resorted to importation. Unfortunately, due to limited availability and high prices of molasses,
these distillers are said to be operating at only 50% of capacity. Because of this, it may not be
feasible to construct new fuel ethanol plants that use only molasses as feedstock.

Technical Pool

The Philippines has a wide manpower pool that can be tapped for the ethanol industry.
The country produces 400,000 college graduates every year. Around 10% are engineering
graduates, many of whom end up as a construction or operations engineers in the Middle East
and elsewhere. In addition, the country also produces agriculturists, microbiologists, chemists as
well as graduates of other allied courses.

Furthermore, there are a lot of technical personnel experienced in alcohol production

because of the large number of distilleries in operation in the country. The Philippines has a
robust alcohol industry, and one of the country’s top corporations made its fortune in alcohol. In
addition, a number of public institutions such as the National Institute of Molecular Biology and
Biotechnology, as well as the
National Science Research Institute Table 3 : Incentives Granted by the Philippines’ Board of Investments
maintain collections of yeasts and
1. Income Tax Holiday or additional deductions from taxable income;
have new strains to optimize ethanol 2. Tax credit on raw materials, supplies and semi-manufactured products;
yields. Also, a number of private 3. Exemption from wharfage dues and export tax, duty, impost and fees;
and public institutions, as well as 4. Minimal or zero percent duty on machinery, equipment, spare parts and accessories imports;
the academe continue to develop 5. Employment of foreign nationals;
6. Guaranteed repatriation of foreign investments and earnings thereon; and
technologies and manpower in
7. Tax-free importation of consigned equipment for an unlimited period.
support of the alcohol industry.

Incentives & Government Support

The Philippines’ Board of Investments grants the fiscal and non-fiscal incentives to
priority projects, such as those in biofuels as shown in Table 3. The law granted additional
incentives to biofuels investors in addition to the existing investment incentives as can be seen in
Table 4.

In addition to incentives, Table 4 : Additional Incentives for Biofuels Production

the Philippine Government, 1. zero specific tax on local or imported biofuels component;
through the DA, plans to provide 2. exemption of biofuels feedstock from the value added tax;
the additional support to biofuels 3. Exemption of distillery slops from wastewater charges if reused as fertilizer; and
producers and farmers as can be 4. Financial assistance by government financing institutions.
seen in Table 5. A total of PhP
3.4B (US$ 73M) is being budgeted over the next five years for this. The money will go into
nursery development, crop protection, irrigation, training, information programs, information
technology development, farm to market roads construction, market development, R&D, and
general support for the program. The R&D program aims to continue the development of
HYV’s for sugarcane, test the new crops and cellulosic ethanol production, improve quality
assurance, improve distillery waste and effluents management, and other projects to ensure the
sustainability of the industry. The Philippine Government is putting its money where its mouth
is in support of this budding industry.
Table 5 : Philippines’ Department of Agriculture Support for Biofuels Production

1. Production support
2. Information support
3. Marketing Development
4. Research, Development and Extension
5. Technical Assistance for Production (Regulatory)
6. Credit Facilitation
7. Policy Support and General Supervision

Conclusion

A number of factors are converging to make the Philippines an excellent biofuels

investment site. Aside from providing a number of incentives for investors to put up distilleries,
the government also plans to develop more infrastructure and support research and development
to improve feedstock handling and productivity. Also, it has a large pool of technical manpower
that can be tapped by the fuel ethanol industry. Finally, by mandating the blending of ethanol
into all gasoline sold nationwide and imposing heavy penalties on oil companies that do not sell
fuel with the minimum blend, the law assures investors of a big local market for ethanol.

Strong government support, a good technical base, and a law on biofuels make the
Philippines an ideal bioethanol investment location.

About the Authors

Ari Luis Halos teaches Industrial Engineering at the University of the Philippines Los Baños. He
has over a decade of experience in renewable energies such as geothermal, wind, micro-hydro and
biofuels. He is also part of the Philippine government’s Technical Working Group on Biofuels.
He can be contacted by e-mail at alchalos@uplb.edu.ph.

Marriz Manuel B. Agbon is the focal person of the Department of Agriculture for biofuels and
head of its Agribusiness Lands and Investment Center. Prior to this, he was active leader in the
private sector – he was a member of the National Small and Medium Enterprise Development
(SMED) Council, executive director of the Mindanao Business Council (MBC), as well as
secretary general and chief operating officer of the Cagayan de Oro Chamber of Commerce and
Industry, among other positions. He can be contacted by e-mail at marriz_agbon@yahoo.com or
by telefax at +63 2 9267976 during office hours 8am to 5pm, Mondays to Fridays Manila Time
(GMT +0800),

Tamara Jean C. Palis is a project development officer at the Department of Agriculture Agribusiness
Lands and Investment Center She can be contacted by e-mail at tameyrah@yahoo.com.