Muswellbrook critics ask why council wants to put ratepayers on hook for $10m biofuel grant

That's one question that arises from a confidential item, headed "grant for a bio-refinery", on the agenda at tomorrow night's Muswellbrook council meeting, which starts at 6pm.

The proposed grant is part of a chain of events involving Ethanol Technologies Limited, or Ethtec - a private company chaired by Queensland businessman and sugar cane farmer Robert Carey.

Ethtec announced it was moving to the Hunter in 2017, from its previous base near Maclean, about 500km north of Newcastle.

Mr Carey says he began Ethtec in the early 2000s when he was looking at ways to use the waste from sugar cane.

When Ethtec packed up its equipment at Harwood and moved it to the Hunter for storage, it had a grant of $11.9 million from the federal government's Australian Renewable Energy Agency (ARENA), with matching funding to come from a Chinese company, Jiangsu Jintongling Fluid Machinery Technology (JTL).

The University of Newcastle's Newcastle Institute for Energy & Resources (NIER) was also involved and in May 2018 the NSW government announced a $4.6 million grant to build a research facility at the Muswellbrook Industrial Area, next to BHP's giant Mount Arthur coalmine.

Muswellbrook's high-profile mayor, Martin Rush, has been an enthusiastic backer of the project, and of renewable energy in general, which he sees as a way of diversifying the shire's economy as part of what he sees as an inevitable shift away from coal. Ethanol can also be used in plastics manufacture, which is also in Ethtec's sights.

But not everyone in Muswellbrook is as happy with the idea of putting ratepayers' money into such a project, saying that if the proposal was good as Ethtec says it is, private enterprise would fund the work.

Midway through last year, Ethtec learned that the Chinese firm JTL was pulling out of the project.

JTL's website shows it as a manufacturer of heavy industrial fans, blowers, turbines and similar equipment. Mr Carey said JTL was not a technology partner, but an investor committed to funding the project for its downstream potential.

"We went through 18 months or more of due diligence, it cost a lot of money and a lot of negotiations between lawyers," Mr Carey said. "We had everything fundamentally agreed and at the finish line when they pulled out."

ARENA says this happened after JTL was taken over by a Chinese state-owned enterprise that decided "after some deliberation, not to proceed".

The ARENA funding had been contingent on matching money from elsewhere, and so Ethtec began a search for alternative sources of funding.

It is important to point out that the Ethtec proposal is for a form of bio-fuel known as "second generation" ethanol, as distinct from the "first generation" ethanol sold in service stations around Australia through "E10" branded petrol.

This ethanol is made from energy-rich plant products, including sugar cane molasses, and the market in Australia is dominated by Manildra Group, chaired by company founder Dick Honan.

Second generation ethanol is made from less energy-rich plant material, generally cellulose-based stalks and leaves rather than sugar- and starch-rich materials such as corn cobs and wheat that have caused controversy over the displacement of food crops for fuel.

But second generation ethanol takes more technology and energy to produce than conventional ethanol.

Its critics say it has consumed years of generous public subsidy without really taking off. At the same time, they say, commercial plants are already available.

Ethtec's senior microbiologist Geoff Doherty is a conjoint appointment at the university and has a laboratory at NIER's Shortland premises.

Dr Doherty said Ethtec used high pressure sulphuric acid rather than the "species specific" catalysts deployed by other companies to produce ethanol from plants.

ARENA says it has independent and extensive due diligence undertaken on Ethtec's technology.

It says the acid-based process is unique and "potentially more cost effective than other more common second generation ethanol processes using enzymes".

Having proved the feasibility of the first two stages of a four-stage process to produce ethanol, Dr Doherty says the proposed Muswellbrook plant is all about taking the technology to the final, scaleable stage.

He says Ethtec is also looking at acacia species regarded by farmers in the region as "woody weeks" as a feedstock.

Taken together, Dr Doherty says these things help give Ethtec an advantage over rivals.

Recent developments on the Ethtec proposal have been dealt with at council in confidential session, and recently two related but separate notices were posted on the council website.

One was an application form, with a closing date of May 8, titled "Grant for a shared-access pilot bio-refinery, Expression of Interest".

The other concerned the proposed $10.4 million grant, with the council giving notice "of a proposal for Muswellbrook Shire Council to pass a resolution at its meeting on Tuesday, 26 May 2020, providing up to $10.4 million in financial assistance (in the form of a repayable grant) to the successful tenderer . . . for the development of a bio'refinery facility in the Muswellbrook Shire."

It's this proposal that has Muswellbrook councillor Steven Reynolds questioning the council's involvement.

His council website biography describes him as a coalminer, first-term councillor and the council's spokesperson for community engagement.

"I'm open to any new industry that wants to come to our shire," Cr Reynolds said.

"What I have said is I am not for council in any way taking a risk of such proportion, as it will essentially impact ratepayers if it is not successful.

"This is a pilot project and whilst it's necessary to have test facilities of this nature before commercialising, this is for the private sector, not a local government to finance, whether it's a grant, a loan or any other method."

Cr Reynolds said Mayor Rush had "always told us to err on the side of caution" when "setting a precedent", which is "exactly what we are doing".

"We're essentially saying if you have grant funding for a pilot project and you can't find an investor, come see Muswellbrook council, we're open for business," Cr Reynolds said.

"But that's not part of a council's functions.

"I welcome Ethtec and their venture and wish them nothing but the best wishes in their endeavours, but it sets a precedent if there is no investor to step in before Tuesday night's meeting."

Muswellbrook resident, Granville Taylor, who lists an Oxford degree in biochemistry and 30 years experience experience as a stockbroker, recently addressed the council in a "public participation" forum.

He believes he was ignored.

"I regard the cellulosic ethanol industry as speculative and high risk," Mr Taylor told the council in his address.

He quoted a range of international documents, including a November 2018 article published by the International Council on Clean Transportation that said "a handful of cellulosic ethanol projects have finally begun production, but their rollout has been haphazard, prone to delays and cost-overruns".

"In the USA some of the companies couldn't even make cellulosic ethanol work economically despite all of the available financial assistance," Mr Taylor said.

"A European review published in October, 2019 stated that 'many commercial scale cellulosic ethanol plants appear to be currently in idle or on-hold states'."

The Herald has put these concerns to Ethtec, the federal funding body ARENA and Cr Rush.

Mr Carey says the firm is thinking long-term.

"It could be five years before we know if it succeeds as a total integrated process, and the 'if' and the 'how well' are critical steps for commercialisation," Mr Carey said.

"We're confident, but we have to go through the steps".

ARENA points out that it has not provided any of the $11.9 million to Ethtec, and although the grant is still valid, it will "consider the funding arrangements in due course once the council process is final".

Concerns have been raised, also, about the calling of an open tender for the $10.4 million grant, given that Ethtec appears to be the only logical applicant.

On this, Cr Rush said: "Council readily concedes it's unlikely there are other second generation ethanol technologies in the region at the pilot stage, but local government legislation doesn't allow us to assume that's the case.

"Nor does council want to make this assumption, given that - at its heart - this is a shared-access research facility.

"This is a case where multiple tenderers could be successfully accommodated in the facility - and that's what we want."

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