The Need for Affordable Energy:
Indonesia is slowly running out of oil, and they're going broke having to subsidize it for their poorest citizens.Yet, they still have tremendous reserves of low-grade lignite, very near the surface and easy to mine. That lignite however is of such poor quality that it is virtually unmarketable in today's market. So along comes Evergreen, with a viable method for refining their lignite, making it very marketable all over Asia. Sounds compelling, doesn't it?
Evergreen tried to build a plant in Indonesia years ago, but the project never got off the ground. However, the overall prospects for this new deal are MUCH better now. Coal prices have never been higher, and tightening emission regulations around the globe have made that Indonesian lignite virtually worthless without serious refinement. Also consider the new sky-high costs associated with transporting Indonesian coal to far away customers like China, Japan, and India. Fortunately the K-fuel process greatly reduces the lignite's moisture content, significantly increasing the number of BTU's per ton, which lowers transport costs.
OK, so let's talk about that first deal in Indonesia, roughly 12 years ago, and what went wrong:
Evergreen Energy (formerly called KFx) contracted Yanke Energy to build that first Indonesian plant. Yanke was a relatively small company that specializes in dinky wood burning power plants, not coal refining. Yanke signed a contract to take full responsibility for the entire Indonesian K-fuel plant design and construction. That's a tough job for any company to take on, especially with no experience in the coal business. Why did Venners select Yanke? Well, when you're a small company with only a handful of employees, and depend on using somebody else's money, you don't have much choice in EPCs. Fortunately Evergreen has grown quite a bit since then, and learned a few important lessons. Most importantly they hired Bechtel to build the new Indonesian plant, and have been working closely with Bechtel for the past couple years. Bechtel now has a new plant design with resolves the Ft. Union plant design problems, and they're ready to move forward. Bechtel also has major industrial construction experience in over 50 countries (No comparison to little Yanke".)
To further contrast the prospects between the original Indonesian deal and this new one, consider that the first Indonesian plant hadn't even been designed yet when the initial contract was signed. Phase I of the contract was established to have Yanke design the WHOLE plant. At the time Evergreen was a VERY small company, with only a handful of employees, and simply didn't have the resources to do a major plant design.
Another thing Evergreen has working in their favor this time is lots of experience with Indonesian lignite. They have run this stuff through the Ft. Union plant, and even "test transported" it across the ocean, in a manner comparable to the barge transport that will be used to move the final product from Kalamantan island to the various Asian customers.
The choice of feedstock between these two projects is completely different. The old project was to utilize higher value coal from the island of Sumatra, while the new project will exploit much lower cost lignite from the island of Kalamantan. Having tested more than 100 types of coals and lignites from all over the world, Evergreen now has good reason to believe that the of Kalamantan lignite has greater profit potential than Sumantran coal.
The old plant construction was to have been financed by RCD Development, a joint development partnership that was rather difficult to hold together, especially since part of it was controlled by the unstable Indonesian government of that era. In other words, without the full and continued financial support of the shaky Indonesian government, this project had no chance of survival. This new Evergreen project however has been endorsed by the newer and more stable Indonesian government. It will also be financed by a SINGLE large entity, Sumitomo, which has lots of experience in the Asian coal and power markets.
Here is some more interesting history. Incredibly, the original Indonesian deal was put together without the benefit of actual commercial scale test burns of the Indonesian feedstock. The Indonesian government wanted coal refining capability so bad that the first plant deal was put together based on little more than Koppelman's/Venner's laboratory scale K-fuel experiments. This new project is MUCH different. Evergreen now has lots of first-hand experience working with the actual Indonesian lignite that will feed the new plant. The Indonesian lignite has been processed at the Ft. Union plant, and even "test transported" by water, in a manner comparable to the barge transport that will be used to move the final product from the Kalamantan K-fuel plant to the various Asian customers.
Another thing to consider is that Indonesia's government has improved considerably since Evergreen last tried to build a plant there. Although arguably far from "fully democratized", this new government is considerably more easy to deal with. Back in 1996, when Venners attempted to build the first Indonesian plant, the situation was much more unstable. Initially, the Indonesian government was very excited about the first K-fuel project. They found a home for it on Sumatra, and even convinced Venners and his financing partners to double the size of it before it was ever designed. However, in mid 1997 the political and economic situation in Indonesia became increasingly unstable, and the project never got off the ground. That's what you get for dealing with a crooked foreign government. Fortunately, things are much more stable in Indonesia these days, and this new project has a MUCH greater chance of success.
With more than 20 million shares currently shorted, this stock is really going to SQUEEEEEEZE to the moon when that first K-fuel plant contract is announced. |
