Bio-fuel Plant Taking Root on Guangxi's Coast

UNCLAS GUANGZHOU 000709

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State for EAP/CM, EB/ESC, OES/ENV, INR/EAP;
USTR for China Office
Beijing for FCS, ESTH and DOE

E.O. 12958: N/A
TAGS: ENRG SENV ETRD EINV EAGR PGOV CH
SUBJECT: Bio-fuel Plant Taking Root on Guangxi's Coast

REF: GUANGZHOU 707

(U) This report is sensitive but unclassified. Please protect
accordingly.


1. (SBU) Summary: Guangxi is expanding its use of bio-fuels and
COFCO Bio-Energy, in the city of Beihai, is playing a key role. The
firm uses cassava root to produce ethanol that is sold in gas
stations throughout the autonomous region. In addition, it uses the
plant's solid waste and methane produced from waste water for fuel.
Sinopec is one of the firm's two customers and also owns a 15% stake
in the project. However, the firm is still not profitable and
receives subsidies from the government, according to the plant
manager. End summary.


2. (SBU) Guangxi Zhuang Autonomous Region is diversifying its energy
mix with a bio-fuels plant in the coastal city of Beihai. The
Guangxi COFCO Bio-Energy Co. Ltd. plant has been operational since

2008. It uses cassava to produce ethanol to be mixed with gasoline.
The cassava root is smashed and liquidized before it is fermented
to produce ethanol distilled to a purity of 99.5%.

Waste Not
--------------


3. (SBU) Guangxi COFCO General Manager Liu Shuhai pointed out to the
Consul General on his recent visit that the plant's waste water is
also bio-processed to reduce environmental impact. The methane
byproduct of the waste treatment is used for power generation. Liu
also explained that the solid waste is dried and used as fuel. He
noted that coal available in Guangxi is low-quality brown coal. The
cassava solid waste fuel supplies about the same amount of heat as
brown coal but emits no sulfur dioxide, Liu said. The firm is also
researching the option of converting the cassava solid waste into
fertilizer.

COFCO-Sinopec Partnership
--------------


4. (SBU) Guangxi COFCO Bio-Energy is a subsidiary of China National
Cereals, Oil and Foodstuff Corporation (COFCO),the country's
largest food processor and trader. The management and technicians
at the Guangxi plant are assigned by COFCO headquarters, Liu said.
About 70% of the firm's employees are local Guangxi residents.


5. (SBU) Sinopec and Petrochina purchase all of the ethanol output
of the plant, which is sold in gas stations throughout Guangxi,
according to Liu. Sinopec and Petrochina control 80% and 8-9% of
gas stations in Guangxi, respectively. Nearly all of Guangxi's gas
stations sell a gasoline mix that is approximately 10% ethanol.
Sinopec also owns a 15% stake in the Guangxi COFCO plant.

Still Not Profitable
--------------


6. (SBU) Liu pointed out that Guangxi is a major producer of cassava
with an annual output of about seven million tons; Beihai accounts
for about 1.5 million tons. However, Guangxi COFCO still needs to
purchase cassava from sources outside the autonomous region. Liu
said the firm was working with government, enterprises, financial
institutions, research institutes, and farmers to develop secure
supplies within Guangxi. The company currently signs long-term
procurement contracts with large farming units. The government sets
a minimum price for the cassava, and COFCO also tries to help
farmers increase their income by providing seeds and technical
assistance to increase output. Liu acknowledged that the firm was
not yet profitable and that the model needed work, noting that the
firm still received subsidies from the government for its ethanol
production.

GOLDBECK