Joint venture to build £200m UK biofuel plant

Associated British Foods plc ("ABF"), the international food, ingredients and retail group has today announced that it has reached agreement with BP and DuPont on an investment to build a world-scale biofuel plant in the UK. A joint venture will be formed, subject to regulatory approval, to build the plant and operate the business. ABF and BP will each hold 45% of the joint venture and DuPont will hold the remaining 10%.

The plant will produce bioethanol from wheat and will be built at a cost of £200m at BP’s chemicals site at Saltend, Hull. Its capacity will be 420m litres (330,000 tonnes) of bioethanol per year and is planned to come on stream in late 2009. ABF expects a return on its investment ahead of its cost of capital in the first full year of operation.

The plant will initially produce bioethanol, but the partners will look at the feasibility of converting it to biobutanol once the technology is available. BP and DuPont intend to build a jointly funded biobutanol demonstration plant, which will run in parallel with the main plant, to support this objective. I

t is expected that formal agreements will be entered into by the joint venture, after its formation, with other ABF businesses: Frontier Agriculture and AB Agri. The supply of locally grown wheat would be arranged by Frontier which is the UK’s leading grain marketer and supplier of agricultural inputs. The major co-product of bioethanol production, distillers’ grain, would be sold to AB Agri. It will use its highly specialised sales and marketing business, which sources and develops co-products from the food, drink and energy industries, to market the distillers’ grain as an alternative feed for livestock. This announcement follows the previously announced investment by British Sugar to build the UK’s first bioethanol plant at Wissington, Norfolk. Its capacity will be 70m litres (55,000 tonnes) of bioethanol a year, using sugar beet as a feedstock, and the plant will start production next month.

The European Investment Bank is finalising its approval for the provision of £120m of project financing for both of ABF's biofuel investments at attractive interest rates. This would be the first direct financing provided by the Bank for a biofuel project.

“We are delighted that this exciting new project has achieved this important milestone, and are confident that construction work will commence early next year after the required regulatory approvals are obtained,” said Mark Carr, CEO of British Sugar.

“Front end engineering and design work will commence immediately with Aker Kvaerner leading the project and their joint venture partner Praj providing the technology expertise.”

George Weston, Chief Executive of Associated British Foods, said, “This exciting project will make ABF the major producer of biofuel in the UK. Its announcement reflects our confidence in our sugar and agricultural businesses, in our partners BP and DuPont and in the government’s commitment to biofuel production.”