The unfinished plant faces $37 million in construction liens, a debt load of $87 million and a loss of all but two of its directors. It surrendered its grain license when the financial problems became insurmountable. The Central Illinois Agriculture Coalition, which spearheaded the fund drive, owns 71 percent of the defunct plant.
One week earlier, an innovative plant near Mead, Neb., filed Chapter 11 bankruptcy papers after mechanical failures undermined early output and profit projections and sent company finances spiraling downward. E3 BioFuels LLC, an $80 million plant called Genesis, had only been operational for five months. It employed a prototype technology. The plant was powered by biogas generated from cattle manure, compliments of a 28,000-head feedlot nearby. Distillers wet grains, a byproduct of the ethanol plant, fed the cattle in a “closed-loop” system.
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E3 lists $10 million in assets and $73 million in liabilities in bankruptcy papers. Major bondholders CIT Group and Oppenheimer have an estimated $40 million outstanding; Wells Fargo Bank in Omaha is owed $57 million. More than $3.25 million has been filed in construction liens. In addition, E3 lost six directors in 2007.
Like the town of Canton, Mead felt the financial pain of the bankruptcy filing. Mead’s 600 residents are among the creditors because their town board provided $5 million in tax increment financing for the project. Mead-area farmers who bypassed traditional grain markets to sell to the ethanol plant for a higher price are also listed as unpaid creditors.
Anatomy of a Meltdown: What Went Wrong in Illinois
Each plant failure features plenty of culprits and even more finger-pointing. CIE and E3 both cited an inability to pay their debts as they came due as a reason for filing for bankruptcy. Neither blamed volatile market conditions. Debt, and the near-death experience—came to both plants in the early stages of development and evolved over a period of several years before the filings.
In Canton, CIE’s main contractor Lurgi PSI is the object of much of the blame for $50 million in cost overruns. Lurgi blames CIE management, plant size and engineering design changes during construction. The plant was designed to be powered by a waste coal generator.
Lurgi, a Memphis contractor, has designed, engineered and constructed more than $2 billion in projects in the corn wet milling, grain and starch industries. When asked about the cost overruns, project manager David Cooper said, “Ma’am this company is not going to comment on any of that.”
CIE began with ICM-designed dry-mill technology in which the entire corn kernel is ground into flour. Bankruptcy attorney Barry Barash says at an early stage in the construction, the ICM technology morphed into Lurgi’s own untested method of distilling, necessitating the escalating costs. “The contractor wasn’t solely to blame,” Barash says. “The amount of water that was available from the city of Canton is not sufficient to produce 37 million gallons of ethanol, which is the nameplate capacity of the plant.”
Ironically CIE’s small size may have been a factor in its demise. Its 37 MMgy is small by today’s standards. Because of market factors most plants are currently going on line with three times that capacity.
To date, CIE investors have been unable to raise the estimated $25 million to $30 million remaining to complete construction. The plant will go on the auction block in March 2008. Barash says the pending sale has attracted a lot of attention—in part stimulated by the Energy Independence and Security Act of 2007, which mandated a six-fold increase in ethanol production.
The Meltdown in Mead: Clash of Two Energy Titans
In Nebraska, a boiler explosion in one of two boilers prevented plant personnel from attaining sustainable boiler operations to allow full capacity of the ethanol unit. Its anaerobic digester (the manure-to-methane conversion unit), was not the source of the problems even though early blame focused on the technology. The plant was never able to reach full capacity and losses mounted.
Plant officials estimated it was operating at 50 percent of its 25 MMgy capacity following the February 2007 explosion. E3 was intentionally designed small to capitalize on the feedlot’s supply of manure. Again, the economy of scale may be to blame. Like CIE, the plant may be too small to compete with the mega-plants under construction or already in operation.
E3’s start-up failures have been blamed on the pressure to bring the plant on line. Insiders who declined to be named say operators omitted some steps during the start-up that caused a “puff”—an explosion that blew a boiler door off. Former plant spokesman R.J. Wilson says contractors may be named as defendants in recovering the operating losses.
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