Equity and debt financing: IFC providing up to $35m to SAFCO Venture

ISLAMABAD: IFC is providing up to $35 million in equity and debt financing to SAFCO Venture Holdings Limited (SAFCO Ventures) to help establish Pakistan’s first greenfield sustainable aviation fuel (SAF) facility, which will convert thousands of tons of used cooking oil and other waste oils into aviation fuel, helping to reduce global emissions.

IFC’s investment, mostly in the form of long-term patient equity capital, has been instrumental in anchoring this project and financing a nascent sector, said a press release.

The project is expected to help promote a circular economy in Pakistan, create jobs, and support export-led growth.

SAF, a biofuel made from renewable biomass and waste resources, can reduce life cycle greenhouse gas (GHG) emissions by up to 94 percent compared to conventional jet fuel. The transport sector accounts for about a quarter of global greenhouse gas (GHG) emissions, with aviation contributing 13.9 percent of these emissions, making it the second-largest source of emissions in the sector after road transport. Producing SAF is therefore expected to help reduce global emissions.

The new 200,000 tons-per-annum (TPA) facility in Sheikhupura, Punjab will collect 250,000 tons of feedstock oil annually and convert it into SAF, helping to reduce more than 500,000 tons of CO2 annually. It is also expected to create 300 direct jobs through the transfer of technology and technical training and lead to an estimated 20,000 indirect jobs in the waste-to-fuel value chain, while generating foreign exchange revenue for Pakistan through SAF exports.

IFC’s $35 million financing package comprises $30 million equity and $5 million debt. Of the total equity contribution, $20 million is from its own account and an additional investment of up to $10 million is from a climate-related blended finance program (CIFPAK) that was recently launched in partnership with the UK Foreign Commonwealth & Development Office.

The facility, the first-of-its-kind in South Asia, will be managed by Safco OPCO, a subsidiary of SAFCO Ventures. Biotech Energy (BTE) another subsidiary of Safco Ventures, currently manages Pakistan’s first-large scale biodiesel refinery as well as one of its largest oil feedstock collection networks. The facility will produce SAF and Bionaphtha, a raw material to produce sustainable plastic products.

"We are pleased to collaborate with IFC in setting up this important facility in Pakistan," said Ali Shaikh, Founder and CEO of SAFCO Ventures. "We believe we are strategically positioned to scale up SAF production, while fostering a more efficient and sustainable feedstock oil value chain in the country."

“This initiative demonstrates how fuel production can be part of a circular economy, drawing from raw materials that would otherwise go to waste and, therefore, how it can be done with no adverse impact on food production or water supplies. As IFC’s first investment in sustainable aviation fuel production, it also sets the tone for similar IFC investments in this space as well as for other financiers to follow suit,” said Ashruf Megahed, Regional Industry Head for Manufacturing, Agribusiness and Services for the Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan.

Pakistan generates more than a million tons of collectable used oils per year, including cooking oils and other waste that can be used to produce biofuel. By leveraging Pakistan’s abundant supply of used oils and restoring otherwise hazardous waste products, the initiative will help promote the development of a circular economy.

IFC has invested approximately $13 billion in Pakistan since 1956, supporting diverse sectors such as renewable energy, financial inclusion, infrastructure development, agribusiness, manufacturing, housing, healthcare, and trade, among others.

Copyright Business Recorder, 2024