Argent Scraps N.Z. Biofuel Project on Excise Tax

By Gavin Evans

Aug. 1 (Bloomberg) -- Argent Energy Plc, operator of the largest biodiesel plant in the U.K., abandoned plans for a NZ$100 million ($73 million) project to make the fuel in New Zealand.

An excise tax advantage enjoyed by fuel-ethanol, a rival product, made the project ``utterly uneconomic,'' Dickon Posnett, Argent's New Zealand managing director, said in a statement today.

Motherwell, Scotland-based Argent spent two years developing plans for a plant on New Zealand's North Island to make as much as 85 million liters (22 million gallons) of biodiesel a year from animal fat. The project stalled in June after lawmakers said they may not review the tax treatment of different alternative fuels before 2010.

New Zealand, a signatory to the Kyoto Protocol on climate change, is requiring the use of fuels blended with either biodiesel, derived from natural oils, or ethanol, made from common crops such as corn or wheat, starting Oct. 1.

By 2012, retailers including the local units of Royal Dutch Shell Plc and Chevron Corp. are to meet 2.5 percent of their volume with biofuel, down from an earlier 3.4 percent target.

While some rivals are pressing on with biodiesel production, uncertainty on the excise tax and the government's reduced biofuel target made it too risky for Argent to proceed on the scale it had proposed, Posnett said in a telephone interview from Tauranga.

Ethanol Output

Energy Minister David Parker had indicated excise was unlikely to be charged on ethanol before 2012, Posnett said, and demand for biodiesel by then was unlikely to exceed 55 million liters a year.

Ethanol is exempt from an excise of 42.5 New Zealand cents (32 cents) a liter imposed on gasoline. Fuel makers including Argent and government-owned Biodiesel New Zealand Ltd. told lawmakers earlier this year the exemption, equivalent to about 20 percent of current pump prices, risked skewing retailers toward ethanol and away from biodiesel which has no tax advantage over the conventional product.

Still, demand for biodiesel is good and Biodiesel New Zealand will complete construction of a 15-million liter a year plant at Rolleston, southwest of Christchurch by June, director Andy Matheson said in an interview.

Excise is a type of tax charged on goods produced within the country.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net