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Ukraine's Zarya to build $59-mil ethanol facility by 2015

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The state-owned Ukrainian chemical company Zarya has begun constructionof $59 million ethanol facility in the Luhansk region bordering Russia, theregional council's press service said Friday.

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The facility, which is expected to begin operation in 2015, will havecapacity to produce 30,000 metric tons of ethanol annually.

Zarya will use wheat, corn, rye and other grains as raw material, thepress service said in a statement.

"There are not such facilities yet in Ukraine," Dmytro Drozhzhin, thehead of the industry and energy department at the Luhansk regionaladministration, said in a statement. "About 70% of equipment will be suppliedby leading European producers."

The development underscores efforts by the government to increaseproduction of ethanol after recent report from the Agriculture Ministrysuggested Ukraine had been facing shortage of the fuel.

The shortage, among other things, will probably force the government topostpone by six months a requirement that ethanol must be mixed with gasolineto the level of at least 5% starting this month, according to Energy and CoalIndustry Minister Eduard Stavytskiy.

The law, put in effect in July 2013, requires a 5% ethanol mix in 2014and 2015, and increases the level to 7% in 2016.

Ukraine will expected to be able to produce 133,000 mt of ethanol in2014, short of 225,000 mt that are needed for oil traders to comply with thelaw, according to the Agriculture Ministry.

Demand for ethanol is expected to further increase to 315,000 mt in 2016,according to the ministry.

Ukraine increased ethanol output to 50,600 mt in 2012 from 2,700 mt in2010, according to the ministry.

The ministry has been working on a program that would encourage alcoholproducers to retool for producing ethanol to be used in automobile engines.

Zarya is one of the largest producers of a wide range of industrialexplosives, emulsion explosives and special grades of TNT in Ukraine.

--Alexander Bor, newsdesk@platts.com--Edited by Derek Sands, derek.sands@platts.com