Ecogreen Fatty A

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27403
Company name	PT Ecogreen Oleochemicals
Country	Indonesia
Sector	Chemicals
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Dropped

Date SPI disclosed	September 18, 2008
Projected board date	October 20, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

PT Ecogreen Oleochemicals (Ecogreen, or the company) plans to implement a project of up to $100 million project, which involves setting up a new fatty acid production unit at its existing plant in Indonesia. The fatty acid plant would provide:

- ability to process intermediates produced at the fatty alcohol plant into higher value added products; and
- a more complete product range for Ecogreen’s customers.

PT Ecogreen Oleochemicals was established in 1989 in Indonesia and has grown to become the world's fourth largest fatty alcohol producer. Ecogreen has a total fatty alcohol production capacity of about 180,000 tonnes per annum ("tpa") and annual sales of about $214 million in 2007 including revenue from fatty acids, methyl esters and glycerin, which are co-products of the fatty alcohol production process. Ecogreen has two production plants in Indonesia, located at Batam and Medan, and affiliated marketing and distribution companies in Singapore, Germany and the USA. The company exports about 90% of its production of which about 50% is to the Asia-Pacific region and about 20% each to the Americas and Europe. In the international market, Ecogreen competes against large multinational companies by keeping operating costs and overheads low and by systematically improving its asset utilization through debottlenecking.

Anticipated development impact of the project

This project involves the strengthening and expansion of an existing oleochemicals company in Indonesia. The project will generate developmental benefits in the form of preservation of existing jobs and some new jobs, and will signal IFC’s confidence in the Indonesian economy. A summary of development impacts includes:

Energy Efficiency: Under the proposed project the company will implement changes to its operations resulting in an improved capture of waste heat, which in turn will result in lower consumption of external energy.

Job Preservation and Social Stability: The proposed new project would require about 70-75 new employees to be hired at the plant location. In addition, directly and indirectly, the company’s operations support about 2,500 jobs, a major contribution to social stability in the vicinity of its operations, where living standards have yet to recover to the pre-crisis levels.

Value Added Exports: Through the project, there will be higher value addition to the Indonesian economy. Instead of simply exporting the raw materials, for processing elsewhere, the project will enable Indonesia to retain a higher value. Ecogreen’s proposed new Fatty Acid plant will add $250 to every tonne of palm oil used before export.

Foreign Currency Earnings: As the company exports about 90% of its production, the project will add to the inflows of much needed forex into the Indonesian economy.

The key development indicators that are proposed to be monitored during the life of the IFC investment are:

- Company production and average net back margin
- Turnover per employee
- Company profitability as measured by net income before taxes and taxes paid.

IFC's expected development contribution

Country Context and Strategy: Indonesia graduated from IDA, the World Bank Group’ concessional lending window, in July 2008 due to its performance in achieving macroeconomic stability, fiscal management, building institutions, and managing recovery from natural disasters over the past decade. Yet the milestone comes at a time when Indonesia faces a number of critical challenges: rising inflation, the world’s third largest CO2 production through land use change, massive infrastructure development needs, and over 100 million living below $2 a day.

The need for the private sector to increase its impact on Indonesia’s development is greater than ever. In this context, IFC will provide investment and advisory services in four priority areas: increasing access to finance, improving infrastructure, strengthening commodity based supply chains and improving the business enabling environment. Cutting across all four programs is a program to reduce green house gas emission. The project complies fully with the Country Strategy.

IFC’s role will be to:

- Assist the company mobilize long-term funds in line with its business requirements, since availability of long-term financing on commercially acceptable terms is an issue in Indonesia

- Support Ecogreen’s ongoing efforts towards improving its global competitiveness

- Help Ecogreen to set up an integrated waste management approach under which, among other things, the company will recycle the heat contents of the filter cake to generate power and as a result also reduce particulate matter emission. Also, through the proposed new investment, IFC will help Ecogreen to organize a comprehensive safety audit and a hazard operability study (HAZOP) to improve the operation safety.

Environmental and social issues - Category B

This is a Category B Project according to IFC’s Environmental and Social Review procedures because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

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