Eric McAfee: There are Tier 1 and there are Tier 2 pathways, one of which is a relatively formulaic and quick, for example, an ethanol plant decarbonizing calculation that might take three to four months for that pathway to be approved because it’s fairly standard and is changing a couple of the elements. The biogas Industry in general is all stacked on a pile of more than 50 projects, according to what we’ve been told by CARB staff. And many of those projects have developers that are not very familiar with this process and require a lot of handholding by card staff. That has been their explanations for why there’s been such a long delay in getting approvals. And unfortunately, the current process does not allow more experienced developers such as us.
We’re the largest LCFS ethanol producer in the history of California at our plant. And so, we are — our experience and our knowhow is not giving us any benefit. We’re literally in a pile with a bunch of people that may never have done this in their entire life. So, our problem is that we’re waiting for CARB to fix this in the next go around, A very easy fix. It’s just change your default pathway to negative 350. So during this time period, which we’re waiting, where we’re already generating these local and fuel standard credits, we generate them at the rate that’s more accurate. Currently, their negative 150 default rate is just not accurate, it’s just wrong. And so, I’ve got public statements, you want to Google, Andy Foster or Eric McAfee.
You’re going to find that we are very active on this topic and interfacing with the top people all the way to the number one top person at CARB on this particular topic. And their general response is, yes, we need to fix it. Yes, it’s a good solution. Yes, we need to do something about it. So, January 2024, we expect that to be an element of what they’re doing. They have changed staff management in the program within the last month. So, maybe there’s going to be some breakthrough just by having some new management. But this is an unacceptable underperformance by a regulator that’s directly damaging the financing and performance of the entire process of decarbonization, it is absolutely a problem that CARB needs to focus on and it’s far past fixing, they should have fixed it two years ago.
Operator: Our next question is coming from Dave Storms with Stonegate Capital Market.
Dave Storms: Just curious if you could talk a little bit about the pathway to increasing capacity at the biodiesel plant? I know the OMCs do a lot of gatekeeping over there, but just curious as to how you see that playing out over 2024?
Eric McAfee: Absolutely, we are very fortunate in that unlike California, which has a very long, long permitting cycle, permitting in India is not really a constraint on our timeframe. It’s mostly equivalent fabrication that is the lead time on what we’re doing there. So, our vendor in this matter is the same vendor we used for the original construction of the plant. They had, last time I checked, over 600 employees in India. They actually fabricate equipment in India. So the supply chain there is relatively straightforward, and we have an excellent relationship with some of the other fabricators in India. So it’s largely a matter of us just continuing to invest in this capacity increase. We are committed to the idea that India is largely a debt free entity.
So as it generates cash, we can use it for capacity increase. And when we get to 100 million gallons, it’s quite a large business in India. That’s a $400 million plus revenue business in India. And at the margins that we get with Enzymatic Biodiesel, which is roughly 10% higher margins than our regular business because of lower cost feedstock. We’re going to be very pleased with the outcome of that capacity expansion. So it’s going to be a gradual process. It’s a process that we’re expecting to mature in 2025 and very possibly might include some other growth initiatives, which we haven’t announced yet. But initially, this is just the first step and trying to meet this more than 1 billion gallon gap in India production that the India government is trying to have us to be a part of fixing.
Dave Storms: And then just a question of a similar nature. Now that you have the permit at Riverbank, can you just talk us through kind of what logistics and time lines look like for next steps, any milestones that we should keep an eye out for going forward?
Eric McAfee: What’s call the authority to construct the ATC permit that is issued by the air district and that’s in process right now. We expect to announce that in early Q1. And then at that point in time, we’re just in full completion mode on the project financing. The EPC, the Engineering Procure Construct Agreement, which sets all pricing will be completed in order to then have the solid financing numbers in place. So that all is happening first quarter, second quarter next year. And we have active discussions, literally on a regular basis with equity investors and debt investors. There’s a lot of interest in SAF. And so, there’s a number of peer financial players, there’s strategic players, there’s technology providers that we already do business with.
There’s a lot of people who are very, very interested in being direct investors at the entire side, right side of the balance sheet, some of whom are global names everybody would know and other ones are more strategic interests. We’ve also mentioned that our 10 airlines that we have contracts with, some of them have created funds to invest in SAF, and so we have active discussions with those guys. But those discussions are basically lining up for the air permit, the authority to construct and then the EPC agreement, the actual full wrap guaranteed a contract, with our contractor. We’ve already announced that we intend to use a $2 billion revenues per year company called CTCI, who does have experience in renewable diesel plants in California and has proven themselves to be a contractor that’s willing to get in there and really work when the going gets tough.
And we think that it’s a great opportunity to work with a proven California contractor in our industry.
Operator: Our final question today will be coming from Ed Woo with Ascendiant Capital.
Ed Woo: My question is on the Inflation Reduction Act tax credit that you sold. You sold $63 million for $55 million. As you move forward and get more experience selling these, would you be able do you think you’ll be able to lower the discount window? And also I guess, I’m not sure how much time was involved, but to speed up the I guess the organizing and completing the sale of these tax credits?
Eric McAfee: The discount is primarily driven by the non-buyer discount. The buyer discount is only a part of the transaction cost. The insurance policy and other costs in this one transaction were reflective of the first time kind of transaction costs. So, it’s roughly a 15% amount all in between $63 million in our net amount that we received. So we do expect a tightening as that goes forward. In what timeframe and in what area, I would say I’d be less certain, but I do expect it to be tightening certainly down to 12%, maybe as small as 10%. And it’s a tax credit, so we could just sit there and use it ourselves and get 100%. And so at some point in time, we’ll just make that determination and we’ll not have a discount at all because we’ll just apply it to our own income tax obligations.
Operator: Thank you. There are no further questions at this time. So I would like to turn the floor back over to management for closing comments.
