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February 5, 2004

Ethanol backers await word on funding

Bruce Johnstone, with files from James Wood
Saskatchewan News Network

REGINA -- Proponents of a $90-million ethanol project in southwestern Saskatchewan are hoping to hear from Ottawa next week on its application for funding under the federal ethanol expansion program.

Cypress Agri Energy Inc. of Shaunavon announced plans to build a 150-million-litre-a-year ethanol plant in May 2002, as part of the province's ethanol strategy. In March 2002, the province announced plans which included eliminating the fuel tax on ethanol produced and consumed in Saskatchewan, mandating ethanol-blended gasoline and supporting the development of the ethanol industry in the province.

Last October, the federal government announced a three-year, $100-million program to expand ethanol production in Canada, starting with $60 million to be awarded this year. Natural Resources Canada, which administers the program, said an announcement could be made later next week.

Cypress Agri Energy submitted an application for funding under the program and hopes to hear good news soon from Natural Resources Canada. "That would be a big help," said Frank Salmon, president of Cypress Agri Energy. "It's a big project."

Salmon said the Cypress plant would be financed primarily by local investors and private financial institutions, but federal and provincial support would give the project a shot in the arm.

"It would certainly give us a boost," Salmon said. However, failing to get the federal money would not be fatal to the project, he added. "It would only stop us in our tracks for a minute or so."

Brian Wilton, communications manager for Cypress Agri Energy, said the federal program appears to be tilted in favour of corn-based, rather than wheat-based, plants, but gives extra marks for low-cost production.

Assuming the project gets funding from Ottawa, Cypress Agri Energy hopes to begin construction this spring or summer, with completion in 2005. But Wilton said federal approval wouldn't guarantee the project will proceed.

"We have some 't's to cross and 'i's to dot," Wilton said, adding that project financing has to be finalized and environmental approvals received. "That doesn't appear to be a problem."

Industry Minister Eric Cline said his preference would be for a project that comes from the private sector.

"If the private sector can step up to the plate, albeit with some federal incentives along with provincial incentives, that would make me very happy. I think it would make most taxpayers happy, as well," Cline told reporters.

When a project comes forward, then the government can set a deadline for mandated blending of ethanol with gasoline in the province, he added. The government moved back the April 1 deadline indefinitely last year because there would not be an adequate supply of ethanol from the province.

The government's ethanol strategy is a key part of its pledge to grow a "green" economy. Produced from grain or cellulose, gasoline blended with ethanol reduces greenhouse gas emissions.

However, the ethanol strategy has been sent off-kilter by the inability of the government's partner, Broe Cos. of Denver, to secure financing for a $60-million plant at Belle Plaine. Construction was supposed to begin last spring, with production starting in the spring of 2004.

"It's not dead, but it certainly would appear to be moribund," Cline said, adding "that it seems reasonable to assume that if the Broe people have not obtained financing as of now, then it doesn't appear likely it will be moving forward anytime soon."

Zach Douglas, senior vice-president of Investment Saskatchewan (formerly Crown Investments Corp. Industrial Interests Inc.) agreed the Broe deal is not dead, but "it certainly has been on the back burner, pending financing."

He said the ethanol expansion program could determine which, if any, Saskatchewan ethanol plants get the go-ahead. "It could make a material difference in our ability to finance a deal," Douglas said.

 

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