China Clean Energy delays plant construction

Web exclusive posted Oct. 28, 2008 at 2:35 p.m. CST

Civil engineering setbacks coupled with inclement weather from the Monsoon season have resulted in China Clean Energy Inc. delaying construction of its Jiangyin biodiesel plant. The 100,000-metric-ton (30 MMgy) plant is now expected to begin production in the second quarter of 2009.

"When they were digging the soil, eventually they had to dig deeper than they originally expected," Ed Job, a hired consultant for China Clean Energy, told Biodiesel Magazine.

The company has another biodiesel plant in China's Fujian Province, which began biodiesel production in 2005 but has since stopped producing because of the market conditions. "They shut down their biodiesel earlier in the year because the raw material costs shot up, and diesel prices are fixed in China and their margins did not make it worth producing it," Job said. "They are monitoring raw material prices and will resume biodiesel production when they can get margins that make sense again."

The biodiesel industry in China is very different than that which exists in the United States, Job said. "The United States has subsidies and uses different raw materials so it's very hard to compare," he said. "In china you have no subsidies – the government does not support the industry – and they use waste vegetable oils, not edible virgin oils."

Since 1995, China Clean Energy has been making specialty chemicals like monomer and dimer acids from waste oils and greases. "The production of monomer acid is very similar to the production of biodiesel, so that's how they entered the biodiesel market," Job told Biodiesel Magazine.

The original China Clean Energy plant in Fujian Province has an installed biodiesel production capacity of 10,000 metric tons per year (3 MMgy) and an 18,000 metric ton annual capacity to produce specialty chemicals.

As a result of the construction delay, the company implemented a "make-good" provision. "When they did financing to build the new plant, they set goals including starting production on the first of January 2009, and if management did not reach goals, they would transfer some of the shares to the private placement investors," Job said. In January 2008, certain members of the company's management deposited an aggregate of 1.5 million shares of common stock into an escrow account and, as a result of the construction delay China Clean Energy is disbursing the 1.5 million shares to private placement investors before the end of January 2009.