Monthly Archives: April 2019

Multi Layered Plastic Recycling: opportunities and challenges

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Multi layered plastics (MLP) such as potato wafer packet, chocolate wrapper, wrappers for ready to eat foods and pharma products are criticised for their lack of recyclability, leading to littering of our cities and oceans. However, MLPs remain the cheapest and most viable option for packaging of food and pharma products and it may not be possible to completely replace them atleast in the near term. In this blog, we examine entrepreneurial opportunities available in MLP waste management and challenges faced by these businesses.

How big is the MLP waste problem?

India consumes close to 150001 tonnes of plastics per day, of which only 60% is recycled. Packaging plastics (MLPs and single use plastics such as light weight plastic bags, coffee cups, disposable utensils), contribute to majority of the non-recycled plastics. MLPs cannot be recycled economically, as these are made of two or more layers of plastics and separating the layers is not cost effective.

MLP waste can be broadly divided into two categories: industrial waste and post use waste. Industrial waste refers to the waste generated in the flexible packaging /converting units, this waste is relatively clean and can be converted into products such as plastic ropes/bags or fuel. Post use waste comprises waste generated from households and other consumption centres such as malls, commercial establishments. Such MLPs are contaminated and have high moisture content as they are mixed with the organic waste; it is this waste, which mostly finds its way to the landfill.

Is there a shortage of MLP waste processing capacity?

MLP waste can typically be converted into power or fuel, through a number of processes (see picture 1). Additionally, it can also be used a filler for laying roads.

Picture 1: Laminate waste treatment options
wastetreatment
Among above mentioned methods, co processing in cement plants has taken off to an extent. Currently around 542 cement plants all over the country have made investments in co processing facilities that allows them to use alternate fuel in the kiln. As per Cement Manufacturers Association (CMA), cement plants currently have a Thermal Substitution Rate (TSR) of 4%, indicating that they meet 4 per cent of their fuel requirements from alternate fuels including plastic waste. Cement industry has proposed to increase their TSR to 25% by 2025, which will allow them to consume up to 12 million tonnes of plastic waste. While cement plants can handle contaminated waste, it has to be moisture free as wet waste is difficult to process.

Waste To Energy (WTE) plants burn unsegregated waste to produce power. Currently there are around 7 operational WTE plant, 403 under different stages of construction. WTE plants are ideally meant for processing dry waste, as wet waste (largely organic in nature) has lower calorific value and therefore is ineffective. However, given the lack of availability of segregated waste, they use mixed waste. While these plants have faced issues related to their compliance with pollution control norms, they are still preferred by the municipalities around the country as they can handle large amounts of unsegregated waste.

Pyrolysis refers to the process of converting plastic to oil, which can be used as a fuel. This process also needs clean /moisture free waste. Pyrolysis is yet to take off, largely to due unavailability of clean waste and risks related to the pollution compliance of such units. However, these plans can work well in industrial estates where availability of 2-3 tonnes of clean waste per day is assured.

Plastic has been used to build roads in Chennai, Indore, Pune and Meghalaya. The challenges again are lack of availability of required amount of clean plastic waste.

As such, the key issue that hampers laminate waste management is lack of availability of clean laminates that are fit to be processed and not shortage of waste processing facilities as such. The existing capacity of the cement and waste to energy facilities is enough to meet the needs of the industry.

Where are the opportunities for new businesses?

On the one hand, there is huge amount of MLP and plastic waste which needs recycling and on the other hand waste treatment providers such as cement kilns, WTE and pyrolysis plants don’t get desired quality of waste. Thus, there is a large opportunity to set up businesses that can incentivise households to segregate dry and wet waste, collect the segregated waste and channelize it to recyclers. Given the potential opportunity, a number of companies (see Table 1) have started aggregating household waste and supplying it to recyclers.

Table 1: Waste Management companies
CompanyLocationRemarks
Lets recycleAhmedabadWaste management, waste handling and reporting services for corporates, also owns recycling facilities, funded by impact investors such as Aavishkaar and Asha impact
Waste venturesHyderabadWaste collection, segregation and channelization , has been funded by Vilcap investments
Karo SambhavGurugram, HaryanaE waste PRO, funded by IFC, clients includes HP, Apple Del and Xiaomi
GEM enviroDelhiPlastic waste PRO, counts Bislery, Pepsi, Coco Cola among its clients
Raddi ConnectMumbaiWaste collection and channelization
Thekabadiwala.comBhopalDoorstep waste collection and channelizing the waste,  recently raised angel funding of Rs. 3 crores
Saahas zero wasteBangaloreWaste management, EPR and consulting services, has raised funds from India Angels network
Rudra Environmental SolutionsPuneCollects plastic waste and converts it to fuel in their own pyrolysis plant. Has been acquired by Blue Planet environmental solutions Pte limited, Singapore
Source: FineTrain research

Further, changing regulatory landscape in plastic waste management sector has boosted the viability of this sector. The regulations on plastic waste management are evolving and EPR (extended producer responsibility) was introduced in 2016. EPR makes producers, importers and brand owners responsible for processing of end of life plastic waste generated by their products. These companies can also take services of a Producer Responsibility Organisation (PRO) to manage their waste. Although, EPR for plastic waste is still in its early days, some FMCG companies have started warming up to this idea. For example, Indian Pollution Control Association (IPCA), a Delhi based PRO is implementing a project called “We Care” on behalf of FMCG companies such as PepsiCo , Nestle, Dabur and other to collect MLPS and channelize them to the recyclers. Recognition and acceptance of a PRO in plastic waste management provides a sustainable source of revenue for waste management companies and therefore makes their operations more viable.

Regulation is also slowly making an impact on waste segregation mindset of Indians. For example, in Mumbai and /Bangalore in situ (on site) composting is mandatory for bulk generators who generate more than 100 kg of waste every day as the municipality does not collect wet waste from such bulk generators.

Increasing awareness about consequences of informal recycling on the health of workers and environment is also bringing about a change in the mindset of people to own up their waste and sell it only to authorised recyclers. This in turn is likely to lead to an increase in demand for PROs in the long term.

What are the key challenges?

While the opportunity is large, the waste management companies face challenges related to lack of adequate clean waste and funding.

  1. Competition from informal sector: Almost all companies in formal waste recycling sector including e waste, bio-waste and plastic waste do not get adequate waste. For example more than 90 per cent of4 e waste is handled by informal sector and 50 per cent5of plastic recycling is done by informal sector, resulting in less than adequate availability of waste to the formal recyclers. The informal sector is able to offer higher prices for the waste vis a vis formal recyclers as they their processing costs are lower due to lower operational/manpower costs/capex costs. For example, a formal plastic recycling units needs to invest at at-least Rs. 1 cr in a recycling unit including the processing machinery and pollution control equipment for treating dust and waste water. However, the cost for informal sector are negligible as most of the work is done manually, and without any compliance to pollution control.
  2. Access to funding: The waste related business are working capital intensive, as they need to pay for the waste upfront, while they get paid only after sizable quantity of each type waste is collected, sorted and sent to the recycler. Additionally, they need large godown for waste storage and employ a number of people in sorting the waste. Further, they require funds for conducting awareness campaigns and marketing. Since these businesses do not have large physical assets, traditional channels such as bank are not able to meet their requirements. Similarly, such businesses also find it difficult to attract equity capital, as it is difficult to scale up operations across geographies.
    However, emergence of impact investors and green funds has improved the funding prospects of these businesses. As can be seen in the Table 1, a number of investors including IFC, Aavishkaar, Asha impact and angle investors have invested in waste related businesses.

How can we help?

We are an advisory firm for small and medium enterprises in green industries. We can help you assess viability of your proposed plastic waste related venture including availability of waste, technology selection and market for recycled products. If you already have a waste related business, we can support you in raising capital for your growth plans and also in acquiring green businesses.

Reach us @

Write to us: bchhatre@finetrain.com , admin@finetrain.com
Call us: 800 888 4932

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Loans to MSME in 59 minutes — A radical reform or just an eyewash?

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One of the biggest announcements for MSME sector in 2018, was the 59 minute loan scheme, which promises loans of up to INR 1 crore to MSMEs from public sector banks (PSBs) through a seamless online lending market place called PSBLOANIN59MINUTES. This web portal approves a loan in 59 minutes and connects the borrower to the bank branch for sanction and disbursal.

The process is as follows: on submission of the information online, the portal does an analysis of the data and approves or rejects a loan. For loans that are approved in-principle, the portal provides information on banks that offer required product, loan amount, rate of Interest etc. The applicant has to choose the branch of the bank through which the loan shall be processed and disbursed and make payment of a convenience fee of INR 1000. The “in-principle” approval is valid for a period of 15 days from the date of approval. The Bank receives a preliminary report from the portal, where a set of 22 parameters are checked along with profile of the promoters, business activity, analysis of past financial statements, risk scoring, assessment of limits, fraud analysis and verification from GSTIN and MCA. Then, the applicant has to approach the bank branch along with the system generated approval letter and list of indicative documents. The bank would do required due diligence and sanction/disburse the loan.

As per MSME PULSE , the size of loans to MSME (under INR 25 crore) is estimated to be around INR 25 lakh crore, of which the share of public sector banks is large (around 48%). While the share of PSBs in MSME lending has been declining, they still retain a dominant share of over 75% for loans under Rs. 10 lakh, highlighting their critical role in financial inclusion. The biggest advantage of a PSB loan is its low cost, which could be 5-7 % lower than that of NBFCs and fintech portals. For a small borrower looking to borrow a collateral free loan under INR 1 crore, PSB loans are the most accessible loans, as both private banks and NBFCs mostly lend against a security. PSB loans are also an important source of funding for the manufacturing sectors such as food processing, textile, chemicals, and auto components.

As such, this policy measure may be a sincere attempt to reduce the time and effort required to secure credit from PSBs, thus easing the life of an entrepreneur. The demand for such a portal is validated by both the large number of applications (around 1.31 lakh) received within 2 months of its launch, and their total loan value. To substantiate, assuming an average loan size of INR 30 lakhs, these applications translate into loan requirement of INR 40,000 crore, which is almost 5% of the total MSME credit for loans below INR 1 crore . However, unless these applications translate into loan disbursals, the portal would remain just another channel for the PSBs to generate qualified leads

Advantages of the portal

The difficulties in getting a loan from PSBs stems from unwillingness of the ground level staff to even acknowledge/accept the loan application. Even after a loan is approved, the high turnaround around time for the disbursal of the loan remains a challenge. Therefore, the portal is a good first step to ateast reduce the number of branches to be visited. In addition, the MIS behind the portal would make it easier for the banks to closely monitor reasons for rejection of a loan.

Performance

While the intent of the scheme is good, its success depends on the ability of PSBs to quickly disburse the loans that have been approved by the portal. According to official data, the portal received 1.31 lakh applications during the first 50 days of its launch, of which around 1.12 lakh applications were approved, with a strike rate of 85%. However of these 1.12 lakh applications, sanctions were accorded for just 40,669 cases, which translates into a loan sanction ratio of around 36%. This loan sanction ratio could actually be overstated as the applications through the portal may include those for loan renewals from existing clients of banks, which are likely to have higher approval to disbursal ratio vis-a-vis that of a new client. Even if we assume that these applications are all new, the conversion ratio does seem low, as just over a third of the approved loans seem to have been sanctioned. The above performance indicates the following gaps:
1) High approval ratio of the portal suggests one of two things: either most of SMEs that are applying through the portal have good credit quality or the portal’s credit sanction norms are relaxed. Low loan sanction ratio suggests that there are differences in the credit assessment methods of banks vis-a-vis that of the portal;
2) Takeover of loans among banks is not easy, and banks are finding it difficult to extend loans under multiple banking arrangements
3) Lack of resources at bank branches to follow up with the SME and carry out due diligence
4) Unwillingness at branch level staff to lend under CGTMSE

Suggestions

To address the above issues, some of the following steps may be needed to improve the credit evaluation process of the portal along with related policy measures to facilitate loans by banks and improve their loan disbursals:

Process improvements that may be needed to improve loan disbursal

systems to increase the likelihood of the sanction of approved loans. Specific areas that require attention are:

  • The portal should be able to capture the existing liabilities of the borrower correctly so that rejection from the banker does not take place on account of inaccurate information on the existing debt levels. Moreover, the risk rating parameters of the portal have to be similar to that of the banks so that there are no disputes in the quantum of credit sanction.
  • For borrowers seeking term loans for a new asset, the portal needs to assess viability of new projects and the availability of other resources such as required land/technology with the entrepreneur.
Policy measures to support easy lending
  • Relaxation of takeover norms would be required to facilitate easy takeover of loans among lenders. For example, for borrowers who already have a secured loan, a new lender may not be willing to provide a collateral free loan and may want to take over the existing loans as well. Similarly obtaining any enhancement on working capital loan from a different lender would be difficult, as banks would not be inclined to share security on pari passu basis for such small exposures.
  • Since MSME sector credit seekers also require assistance in filing the application, consultants enrolled with SIDBI could be incentivised to take up the work related to filling application forms
  • Many small enterprises do not have GST registration and may not want to obtain the same as the threshold turnover for GST registration has been revised. The portal may want to waive GST registration as a mandatory requirement for companies with turnover of INR 40 lakhs. The credit assessment parameter for such companies could be based on bank account statements and alternate data points such as profile of their customers, industry profitability, and track record of the utility bill payments.

In the absence of the above measures, this web portal would just be a superfluous channel for generating qualified leads for the PSBs alongside their websites and tie ups with online e-commerce platforms; what would be really enterprising is converting these leads into qualified loans for disbursal.

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Bio-CNG: Should you consider entering this business?

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Though Biogas has been around for nearly three decades, it has been a small business, dominated by family size plants used for providing cooking fuel and power. Prospects of Biogas sector are improving slowly but significantly, largely driven by the government policies that have allowed use of Bio-CNG (purified Biogas, also known as Compressed Bio Gas or CBG) in commercial vehicles and availability of subsidy for large scale plants. Recently in September 2018, government of India (GOI) announced a policy on Sustainable Alternative towards Affordable Transportation (SATAT), which proposes to set up 5000 new Bio-CNG units across the country by 2025 and generate 15 million tonnes of Bio-CNG.

India is the third largest energy consumer in the world with fossil fuels accounting for over 90 per cent of the energy mix. Renewable fuels such as Bio-CNG present a huge opportunity as they not only reduce our dependence on imports but also offer a solution to tackle the growing amount of organic waste and pollution arising out of crop burning.

This blog takes a close look at the viability metrics of the Bio-CNG industry.

What is Bio-CNG?

Bio-CNG is purified form of Biogas, obtained after removing Carbon di oxide and Hydrogen sulphide. As compared to Biogas which has up to 60% Methane, Bio-CNG has methane content of over 90%. Bio-CNG can produced from various bio-mass / waste sources including agricultural residue, municipal solid waste, sugarcane press mud, distillery spent wash, cattle dung and sewage treatment plant waste.
Bio-CNG compares favourably (See Table 1) with CNG (compressed natural gas, used in vehicles) as well as LPG (household fuel) in terms of technical specifications and calorific value. Further, it comes with the added advantage of being a more environment friendly fuel.

Table 1: Bio-CNG versus other fuels
Calories per kgPrice (Rs per kg)
CNG10,95044-57
LPG (non-Subsidized, domestic)11,20047-51
LPG (commercial)11,200upwards of 68
Bio-CNG11,200upwards of 52
Notes
• CNG price in Delhi is Rs. 44.70 per kg and in Dadra & Nagar Haveli is Rs. 57.73/kg
• LPG prices have been sourced from IOCL website
• Bio-CNG price has been calculated assuming a purchase price of Rs. 48 /kg for the OMC

What are key policy measures supporting the industry?

Key policy initiatives include subsidy for setting up large scale Biogas/Bio-CNG units and assured offtake of Bio-CNG by oil marketing companies as part of SATAT (See figure 1 and box 1). Additionally, the industry would also benefit from investment in the infrastructure creation towards nationwide city gas distribution network and CNG dispensing stations.

Figure 1: Policy measures for largescale Bio-CNG plants

Box1. SATAT: key features
1.The applications for Compressed Bio Gas (CBG) units are invited through websites of oil marketing companies (OMCs). Applications were open from September 2018 to March 2019 and around 100 expression of interest (EOI) received. Overall 5000 plants are to be set up by 2025
2.OMC would select the location of the retail outlet through which CBG will be sold and finalise offtake agreement, price has been fixed at Rs. 46 per kg (plus taxes) for a period of three years from 1ST October 2018
3.Entrepreneur will be responsible for land procurement, plant construction and operations. OMCs will only purchase the gas
4.Minimum size of the plants would be around 2000 kgs of CBG per day (or 50 tonnes of waste per day), CBG shall meet IS 16087:2016 specifications of BIS.

What is the current scenario of Bio-CNG Industry?

Bio-CNG industry is in a nascent stage, with only a few large scale plants (see Table 2) that supply their CNG to industries where it is used as a fuel for boilers or for as a cooking fuel in hotels. There is no commercial scale plant that produces Bio-CNG for vehicles.

Table 2. Bio-CNG plants
CompanyLocationCapacity (kg/day)Remarks
Spectrum Renewable EnergyKolhapur, Maharashtra8000Feedstock Press mud, output is sold to commercial institutions
Green Elephants IndiaSatara, Maharashtra7290Feedstock distillery spent wash, output used in industries
Bharat Biogas Energy LimitedAhmedabad, Gujarat6500Feedstock urban and industrial waste, more focused on sale of fertilizers
Amul DairyVadodara, Gujarat6000Dairy waste, output used for power production
Primove EnergyPune, MaharashtraPilot plant for vehicle fuelAgro waste
Mahindra Waste to Energy SolutionsMalur, Karnataka1000Food waste, CNG is sold to commercial institutions
Spectrum Renewable EnergyRohtak, HaryanaN.AUpcoming, likely to commission by end of 2019
Mahindra Waste to Energy SolutionsDera Bassi, PunjabN.AUpcoming, feedstock paddy straw/wheat straw, CNG to be used for tractors

Source: MNRE publications and FineTrain research

In addition to the above plants, a number of new units are likely to come up as part of SATAT programme. For example, National Agricultural Cooperative Marketing Federation of India (NAFED) alone has proposed to set up more than 100 units that would use the waste in its agri mandis to produce Bio-CNG. In addition, a number of players including biogas plant fabricators, sugar mills, paper mills, LPG distributors could be interested in entering the Bio-CNG business.

Capital cost and project economics

The capital cost depends on the plant capacity and cost of the land. However, as a thumb rule cost of a project that handles around 100 tonnes of waste per day (produces 12,000 cubic feet of biogas or 4,800 tonnes of Bio-CNG) is likely to be around Rs. 20-25 crores. The project would be eligible for a credit linked subsidy of Rs. 4 crore, to be reimbursed after the plant is commissioned.
The project economics will depend on a host of factors such as market acceptability of the product, land cost, feedstock availability, cost and yield and biogas purification technology.

    • Market: While the offtake for Bio CNG from OMC is assured to an extent, it would be important to develop alternate set of customers such as industries/hotels, who can perhaps provide better pricing/payment terms and provide cushion when the demand from OMC declines.Also, the potential for sale of organic fertiliser would need to be assessed. Fertilisers/compost are typically sold through dealer network and require large sales force that can educate farmers on benefits of organic fertilisers. Alternatively, the option of bulk sale to fertiliser companies needs to be explored.
    • Land cost: Around 4 acres of land is required to set up a plant that can handle 100 tonnes of waste per day. The land cost can vary hugely depending on the location and whether the land is agricultural or industrial.
    • Feedstock: Factors such as availability of the feedstock through the year, feedstock yield in terms of biogas, cost including the transport cost, play a critical role in the viability of Bio-CNG unit. For example, feedstocks such as poultry litter/press mud already have a market and may be relatively more expensive to procure, whereas rice straw/wheat straw doesn’t have many other buyers, but are not available throughout the year. Also, the cost of feedstock tends to increase significantly over a period of time as its demand increases correspondingly due to the commissioning of biomass based projects.
      Therefore, it is critical to examine the price revision /escalation clause/agreement with the OMC so as to ensure that any increase in the feedstock price can be passed on.
    • Timely receipt of regulatory approvals: A Bio-CNG unit requires a number of permissions including a license from Petroleum and Explosives Safety Organisation (PESO), fire safety certifications and a certification from MNRE (Ministry of Renewable resources). Ability of the company to secure these licenses on time can prevent the delay in commissioning of the plant and result in cost savings.
    • Availability of supporting infrastructure for CNG dispensing: Currently the infrastructure related to supply and distribution of CNG is limited, with only about 1424 dispensing stations, 82% of which are located in Maharashtra and Gujarat . Similarly, gas distribution network pipelines are available only in Northern and Western part of country. The Bio-CNG projects are likely to be more successful in states, where the supply network is already available or is being developed.
    • Favourable govt policies: Lastly, favourable govt policies are a must, not just for Bio-CNG, but for the entire waste to energy industry. Therefore, initiatives such as SATAT must be allowed to continue by the successive governments.

Our view

The need for cleaner fuels like Bio-CNG is evident given that by 2030, under the Paris Climate Agreement, India has committed to meeting 40% of its energy consumption from renewable energy sources. While macro environment remains positive, the key risk to a Bio-CNG plant viability is lack of any linkage between the feedstock and final product price and lack of clarity on the price revision mechanism under SATAT. Since Bio-CNG would compete with fossil fuels, its pricing would depend on the price of CNG/LPG, whereas the price of its feedstocks may move very differently. This is already the case with the biogas based power plants/waste to energy plants that are not able to compete with decreasing tariffs of solar/wind power plants.
Therefore, feedstock analysis, availability and long term agreements for purchase of feedstock are critical to the viability. Industries such as sugar mills, paper mills poultry farms that have captive access to feedstock would be most favourably disposed to take advantage of this opportunity.

How can we help?

We can help you assess viability of your proposed Bio-CNG venture and support you in raising capital for the same. If you are looking to purchase/sell an existing Biogas/waste management company, we can identify prospective buyer/ seller and support you throughout the transaction.

Reach us @

Write to us: bchhatre@finetrain.com , admin@finetrain.com
Call us: 800 888 4932

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