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| INCaF Deqingyuan |
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| 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 | 556565 |
| Company name | Beijing Deqingyuan Agriculture Technology Co. Ltd |
| Country | China |
| Sector | Other (For Non-Investment Projects) |
| Environmental category | C |
| Department | Environment & Social Development |
| Status | Non-Invest Proj |
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| Date SPI disclosed | December 3, 2007 |
| Projected board date | January 3, 2008 |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
Deqingyuan is currently constructing an anaerobic digester to produce biogas (the Biogas Project) that will be fueled by chicken litter collected from its egg-laying operations. This project will produce biogas for power, litter residue for use as fertilizer and Certified Emission Reductions (CERs) generated by the avoided release of methane from the anaerobic digestion of the chicken litter and by the replacement of primarily coal-fired grid electricity with biogas-fueled power. The CERs will be sold to the IFC-Netherlands Carbon Facility (INCaF). DQY sells high-quality “green” eggs and has received three different Chinese certifications for the environmental attributes of its production.
Deqingyuan’s chicken farm has three million chickens, which produce 220 tons of droppings and 170 tons of wastewater per day. If this waste were not treated efficiently, it would become a pollution source. However, the waste provides an opportunity to generate a significant volume of biogas-fueled power. The chicken excrement generated in the company’s chicken farm will be used as the raw material for the planned Biogas Project and would otherwise be a source of pollution. After treatment by the anaerobic digester, the residue will be used as organic fertilizer for approximately 19,200 hectares of surrounding corn farms and orchards. DQY’s chicken raising operation consumes 60,000 tons of corn annually produced on local farms. The estimated income to the local farmers is RMB 40 million.
The Biogas Project’s use of an anaerobic digester to treat droppings and generate biogas will avoid the emission of two greenhouse gases: methane (CH4) and nitrous oxide (N2O). Annual biogas production will be approximately 6.5 million m3. A gas engine will convert the biogas into power, which will sell power to the local grid company. The project will generate 10 million kWh annually, which will displace predominantly coal-fired power on the grid, thereby indirectly reducing the emissions of CO2. |
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| Project sponsor and major shareholders of project company |
Beijing Deqingyuan Agricultural Technology Company, Ltd. (Deqingyuan or DQY) is a privately held company established in May 2002 by Tianjin Baodi Agriculture Technology Inc. and Beijing Deqingyuan Technology Company, which had been established only two years earlier by Mr. Zhong Kaimin, now CEO of DQY, and Ms. Xia Fang. Zhong and Xia assembled a team which developed the technological know-how to produce high-quality eggs and then, with other investors, found DQY to produce them. Mr. Zhong holds an engineering master degree and an MBA. Between 1984 and 2001, Mr. Zhong worked for the Central government in Beijing where he became aware of the health, safety and environmental issues of the egg industry and saw the potential for producing high quality eggs. Mr. Zhong left the government in 2002 and devoted himself to building the company into a leading high quality egg producer in China.
IFC made an investment in DQY in 2005 and a number of other individual and corporate investors invested in DQY since its founding. Current shareholders and their respective ownership shares are as follows:
- IFC 8%
- Global Environment Fund, a Washington, DC-based private equity group 16%
- two Hong Kong Chinese investment groups, Innobiz Agricultural Ltd. and Capital Today, 9% and 16%, respectively
- Beijing Deqingyuan Technology Company 28%
- Shanghai Yibei Management Consulting 8%
- six natural persons 15% |
| Total project cost and amount and nature of IFC's investment |
| The total cost for the Biogas Project is approximately $6.5 million and is being financed by Deqingyuan’s internal cash flow and loan from Industrial Bank, a local Chinese bank. Industrial Bank is a participant in the IFC/GEF Chinese Utility Energy Efficiency (CHUEE) Program that is cooperating with Chinese banks to offer partial guarantees to portfolios of loans made to renewable energy and energy efficiency projects in China. |
| Location of project and description of site |
| The project is located in Deqingyuan’s chicken breeding park, which is 1.2 kilometers away to the northeast of Shuiyu Village, Zhangshanying Town, Yanqing County, Beijing City. The project will be constructed in the southeast of the park. National Way Highway Route 110 is 1.8 kilometers away to the south of the park, Songshan Mountain is located to the north of the park, and to the east there are several villages. There are no large-scale breeding farms or factories or other pollution sources within 20 kilometers of the park. |
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| Anticipated development impact of the project |
The development of this project accords with Chinese Government’s energy industry and technology development plan as well as its strategy for the commercialization and implementation of renewable energy power projects. The project will demonstrate a renewable energy technology and increase local employment and tax revenue. The project can be expected to improve the air quality in the vicinity of the company’s operations and be a demonstration project for environmental protection in China’s fowl raising industry.
Such project can supply a large quantity of organic fertilizer for crop production, promote the development of organic agriculture, improve the product quality of the crop farming sector and increase the income of this sector. The reduction in methane and carbon dioxide emissions benefits the global environment by reducing the emission of greenhouse gases which cause climate change. |
| IFC's expected development contribution |
| IFC was involved as an early supporter of the Biogas Project and intends to purchase the CERs generated by the project that will add a revenue stream of €3-4 million over the 2008-2012 period. |
| Environmental and social issues - Category C |
| This is a Category C project according to IFC's Procedure for Environmental and Social Review of Projects because this project will have minimal or no adverse environmental or social impact. The proposed INCaF transaction with Deqingyuan is a pay-on-delivery CER purchase contract for the period 2008-2012. Deqingyuan is an existing IFC client with good environmental and social performance. No new assets will be built or acquired for this project. Consistency with IFC Performance Standards and WB/IFC guidelines will continue to apply to all aspects of the project. |
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| For inquiries about the project, contact: |
Mr. Zhong Kaimin, President
Agronomy Building, Floor 5
Chinese Academy of Agricultural Science
Zhong Guang Cun South Street, No. 12
Haidian District, Beijing 100081, China
Telephone: +86 10 6214-2691
Fax: +86 10 6214 2681 |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
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