Biofuel, BS, and a bit of BP

Back in January, the preposterous projected 99-year return on this Green Oil caught my eye; it reminded me of an ostrich scam a few years back, under which, if you took it literally, the entire surface of the world would have been carpeted with ostriches rather quickly; to the great enrichment of all, naturally.

Then I noticed that an obviously related site, also about Green Oil, had a certain familiar Web investment-scam-like look, even down to the erratic use of apostrophes. I’d show you what I mean, except that the site has been deregistered in the mean time (also not a wildly encouraging sign).

Let’s see how a 24.6% return looks in practice; this is what they claim for years 3-99 of the rather vague lease programme they trail. We’ll reinvest, of course, for extra absurdity, and because that 24.6% return over 99 years handsomely exceeds anything we’ve seen anywhere else, ever. Why would you not reinvest? And we’ll ignore the becomingly modest fees. They were £300 or so per year, plus a few hundred quid for setup, when I looked in January, though those details seem to have somehow got lost from the latest version of the web page; the investment proposition is evidently rather malleable.

Anyhow, it turns out that if we have invested enough to have £10,000 in the scheme at the start of year three, our descendants, if we just keep reinvesting, will be £14,781,961,370,990 to the good, by the start of year 99. Most excellent!

If we assume that a Jatropha plant costs about the same as a Millettia plant (another oil-bearing plant, 463 plants for £10,000, according to another deeply unpersuasive website from the same stable), and needs the same amount of room (¼ hectare for 463 plants; source: same unpersuasive site), then, in year 99, that Jatropha plantation occupies an impressive 369,549,034 hectares. A quick Google turns up a figure for the earth’s land surface – 148,939,100 km^2. At 100 hectares per km^2 that is 14,893,910,000 hectares; only 13.31% of that is arable, though, according to Wikipedia.

Do the sums: by year 99, just six reinvesting Jatropha oil dynasties, each starting with £10,000, will have taken over the arable land surface of the entire planet, and everyone else will starve. Bummer! We non-investors had better get started on the terraforming!

I suppose the objection to my analysis from the scheme promoters would be that they don’t quote reinvestment returns. But what’s to stop a suitably entrepreneurial punter reinvesting? Reinvestment is a pretty obvious limit on the growth of these schemes, isn’t it? Where’s the sustainability, exactly?

The same basic scheme crops up here and here. So there’s a hidden mastermind, if that’s the word, somewhere at the back of some of the schemes; more on that in another post perhaps. But actually, all sorts of folk are flogging Jatropha plans: see this, aimed at people who already don’t have enough pension savings, or this “incredible opportunity”; how apt *that* description is.

I noticed in passing that there were actually some FSA-regulated drongoes, I mean IFAs, selling this nonsense. So maybe there was a way of flagging it up that would get some of it shut down.

First, though, by way of sanity check, I asked a blogger, investment manager and heavyweight scam buster what he thought of my original Green Oil sighting, which, back in February, was based in Gibraltar (and presumably aimed at gormless expat Brit property investors on the Spanish coast). Equipped with the his seal of approval and the helpful extra collateral he provided, off I trotted to the FSA to do my decent public-spirited thing.

I eventually found a place there to make my report (see if you can find it, if you have the patience). I also contacted the City of London Police by email. And I spotted the quirkily-named Action Fraud and stuck something in there too, after rummaging about a bit again for the place where you rat people out.

Back came a robot email from the City of London Police, and that was about it.

I suppose if I’d actually lost some money myself, they might have taken an interest. It seems bad PR not to respond at all though: that might give the impression that no-one’s actually listening.

Since February, I’ve had the occasional extra dig; an accumulation of reports suggests that it’s not only the marketing of the schemes that is goofy, and it’s not just the design of the schemes, either, it’s the whole idea of Jatropha as a miracle crop that’s complete hooey. A partial list:

June 10th, 2007, The Sunday Times: scientific scepticism from some way back
16th May 2009 referencing this from The National, 11th May 2009: now the Indians aren’t too happy either…
15th February 2010, Independent and 16th Feb, 2010, Independent referencing this report
The respectable backing, an oil major, (just kidding – nice to get a cameo from BP in this mess, though, to go with its portfolio of messes) is pulling out.
BP’s erstwhile biofuels partner, D1 Oils, is going through some sort of multi-year spasm: first a boardroom battle against “fruitless spending” on Jatropha development by activist investor Bryan Myerson, then the old guard edging out Myerson, and oops, now Myerson has been cold shouldered by the Takoever Panel – a very stiff sanction which means he is not allowed to work in UK M&A any more. Which, I suppose, may mean the old guard will be able to carry on flogging the dead horse that is Jatropha.

Also since February, the relatively smart promoters (yet another from the same stable as my original Green Oil mob) have changed smoothly from pushing the miracle oil plant Jatropha to pushing the miracle oil plant Millettia. I suppose some of their investors actually read around the topic.

With the less bright promoters, the switch of focus can be, let us say, jarring – these guys have just pasted some new guff about Millettia on top of their old guff about Jatropha. Without noticing that they’ve left untouched some of the old guff, further down the page; and they’ve forgotten what their web site is called. Slick.

This ridiculous craze is making a lot of not-very-rich developing-world farmers rather worse off than they would be otherwise. And actually, worse than that: if you skipped the ActionAid report cited by the Independent, take a look now.

It is also going to cost some UK investors, motivated by some high-octane blend of idealism, desperation, and greed, a fair amount of money. I am guessing a few millions, rather than some Stanford style insanity; unless the professional investment community has got involved, of course. The bill to be footed by certain optimistic Asian, African and South American governments could be chunkier.

These schemes seem more like hopelessly ill-considered investment ideas than outright Ponzis, at least to begin with, though one can’t be sure, until the cops arrive.

But worth a warning shot from the powers that be, I would have thought, all the same. Wake up, FSA!

Update: Thanks to Andrew Dittmer who points out that the whole mess was written up in advance, in 2004

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  1. Doug Terpstra

    BTW, I hear tulips are a sure thing; they multiply … and of course you can NEVER, EVER go wrong with real estate, especially a time-share; buy as many as you can and keep reinvesting.

    This is the new global market, a pervasive culture of economic Darwinism run amok. Who could have imagined that the masters of Wall Street and the City of London, all those nice, sharp-dressed men, could so quickly turn the entire planet into a Nigerian boiler-room.

  2. attempter

    Since mass production agrofuels are a scam in principle:

    1. They do not and cannot achieve the environmental goals alleged for them. They don’t reduce greenhouse gas emission.

    2. Their real purpose is simply to prop up personal car usage by the rich West at the expense of food production and therefore of food consumption by the global poor.

    That is, the criminals want to take food from the mouths of the already hungry in order to burn it in their SUVs. We’ve already seen the results – food price spikes, famines, food riots. This process will only get worse.

    Needless to say, as with every other crime of globalization, this one too will be “coming home”. The domestic ethanol racket was artificially produced by government policy (starting with the 2005 energy bill and continuing with the 2007 bill and the proposed cap and trade bill). It’s a racket which can never be capitalistically “profitable”, but which can exist only through artificial wealth transfers from the taxpayer and consumer to privileged criminals. If the logic of this policy continues, then even as fewer and fewer Americans can afford to drive and even to eat, they’ll face ever higher food prices in order to subsidize the rich being able to continue to fuel their armored cars, private jets, and other pleasure machines.

    (The last I saw, even corporate environmentalists had mostly weaned themselves from support for mass agrofuels, at least domestic production. I don’t know offhand if they still support the enslavement and forced starvation of the Global South so they can keep motoring. Probably.)

    Given the level of organized crime inherent in the very concept of mass-production agrofuels, it’s no surprise, indeed it seems fitting, that more conventional scams are cropping up to free ride on the structural scam. But these kinds of scams are to the big scam what Madoff was to Wall Street in general: A minor, relatively innocuous ornament of the vastly more malevolent structure.

    This of course applies to mass production to be used by “consumers”, i.e. to prop up the personal car. It doesn’t apply to e.g. a farm with a small on-site biodiesel facility to run the farm’s own tractor. As with every other alternative to fossil fuels, decentralized, relocalized production can be beneficial, while any proposal to mass produce it to prop up centralized consumerism is both fraudulent and malign.

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