C._Charcoal_pic1.jpgC. Charcoal Ltda. set out to produce and sell high quality biomass (wood derived) charcoal to the steel industry utilizing a modern Isomovel oven that affords various advantages such as high productivity, consistent high quality, minimal gas emissions and improved worker conditions. The production facilities were to be located Parana, Brazil. At the request of a lender the Company secured two wood supply purchase agreements (4,000m3 per month) for about 150% of the projected wood needs during the first year, assuming production capacity of 60%. Also the Company has signed a contract to sell two-thirds (1,000 m3 per month) of its production during the first six months of operations to a leading Brazilian steel producer controlled by Arcelor, the largest steel group in the world.

Overview
Lessons Learned
  1. Riskier deals should perhaps be considered for equity investments
Thumbnail Analysis
  1. The Policy-Enterprise-Technology Balanced Approach
  2. The Enterprise-Customer Connection




OVERVIEW:


Began: 2005, in Parana, Brazil.

What: A company that sought to produce better quality and more sustainable charcoal for use in Brazilian energy intensive industries (steel mills, cement factories, etc). The key innovation was the use of a new Isomovel oven featuring a layer of insulation that could be peeled off during the cooling process to avoid lifting the entire kiln out of its brick liner. The ovens were energy efficient, operated on shorter production cycles, and fully combusted the vast majority of gases produced during the carbonization process. C. Charcoal also produced its charcoal from certified sustainably harvested trees.

The Energy Need: Brazil, at the time, was the largest producer of charcoal in the world (~1/4 of global production) and the steel sector was operating at 100% capacity, being limited only by the supply of available charcoal. Needless to say, this put significant pressure on native forests.

E+Co Investment: $160,000 in 2005.

Business Development: Aid in developing business plan and investment recommendation; help in locating wood suppliers. In hindsight, there could have been more investment officer involvement after funds were disbursed.

Now (2008): C. Charcoal, after a slow start, is no longer operational.

Outcomes/Impacts: Nil, at least none that were quantified and reported.
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LESSONS LEARNED:


1) Riskier deals without sufficient collateral should maybe be considered for equity rather than debt investments

There were many compelling reasons to lend to C. Charcoal. Given the nature and scale of charcoal production in Brazil, something simply had to be done to find ways of supplying the enormous demand in a more eco-friendly fashion. All things considered, C. Charcoal looked like a promising means of addressing the pre-existing market failures; the management was committed to the idea of using better technology as a means of promoting more sustainable production in a cost-competitive fashion.


That being said, simply being committed to the ideals of triple bottom line impacts is rarely enough to ensure success. The sponsors of the project lacked experience that might have helped them navigate the obstacles faced by a start-up. There was also a less than complete understanding of the ways that the charcoal market functioned with regards to the value chain, price fluctuations, competitors, etc. In addition, the technology was innovative itself and not completely field-tested. These factors, taken together, resulted in business projections that were not perhaps entirely realistic.

An equity investment, on the other hand, would have given the investor some more say with regards to the governance structures and allowed C. to be more closely and frequently scrutinized. This would have no doubt resulted in increased assistance or interventions that might have helped put the company back on track before it was too late. Also, the higher risk associated with this start-up would have been best handled with a venture-type approach seeking higher eventual returns down the road.
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THUMBNAIL ANALYSIS:


The Policy-Enterprise-Technology Balanced Approach

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The Enterprise-Customer Connection

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