בס'ד · Web viewThe sludge drying equipment market segment is projected to show even higher than average CAGR, about 7.5% until 2010, growing from an estimated $382 million in

BioPetrol LTD.

Business Plan

July 2008

Table of Contents

BIO-PETROL Ltd.Environment-friendly solution for sewage sludge disposal

I. Executive Summary 31. Company Background 61.1. Company Profile 61.2. The Opportunity 62. Product Description 72.1. Proprietary Technology 72.2. Product Modifications 82.3. Current Status and Future Development Activities 102.4. Core Competitive Advantages 102.5. Patent Protection 113. Competitive Comparisons 113.1. Direct Competition 113.1.1. STORS Technology 113.1.2. Enersludge Technology 113.2. Indirect Competition 124. Regulatory Compliance 135. Sewage Sludge Disposal Market Overview 145.1. Sewage Sludge Generation Trends 145.1.1 Europe 145.1.2. U.S.A. 155.2. Main Sewage Sludge Disposal Routes 165.3. Thermal Methods 175.3.1. Sludge Heat Drying and Pelletizing 185.3.2. Incineration 185.3.3. Pyrolysis and Gasification 185.3.4. Advanced Sludge Drying Technologies: Non-Tehrmal Drying 186. Sewage Slduge Treatment Equipment Market 206.1. European Market 217. Target Market 218. Business Strategy and Revenue Model 228.1. Preferred Business Strategies 229. Investment Requirement 2410. Financial Analysis 25

Appendix 1. BioPetrol Financial Model (Excel Document)

P.O.B 80 Kiryat Arba 90100 ISRAELTel: 972-2-9963880, Fax: 972-2-9961571 , Mobile: 972-52-3415452, email:

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I. Executive Summary

1 .The Company

BioPetrol LTD. is in the growing phase of company development and plans on worldwide commercialization of their proprietary thermo-chemical conversion technology for the environment-friendly and cost-effective treatment of the municipal sewage sludge. BioPetrol was set up in 2001 within the framework of the Mofet B’Yehuda High Tech Center (Israel) - a local "technological incubator" designed to provide financial and managerial assistance to highly innovative projects. BioPetrol has a talented and experienced project team. The three key individuals complement each other well, combining backgrounds in a diverse group of important areas.

2 .The ProblemThe management of sewage sludge in an economically and environmentally acceptable manner is one of the critical issues facing modern society, due to the very fast increase in sludge production. This is coupled with increased difficulties in complying with more stringent environmental quality requirements imposed by legislation in most developed nations.

Ocean dumping of municipal sewage sludge is forbidden for use in virtually all developed countries because of its negative environmental impacts. The remaining most common sludge disposal options both in the U.S and Europe have been landfilling, incineration, and agricultural use. Landfilling and incineration have potential drawbacks. Land and management costs of landfills are very high, and there often is a risk of materials in landfills contaminating both surface and ground water. Incineration requires a large capital investment and expensive safeguards against atmospheric pollution. The application of sludge to agricultural lands presents a partial solution to the problem. Sludge contains valuable organic matter that is useful when soils are depleted or subjected to erosion, and sludge stimulates beneficial biological activity in the soil. Furthermore, it is a possibility for farmers to supply their lands with organic fertiliser at low costs. On the other side there are concerns on long-term build-up of heavy metals and toxic organic compounds to levels high enough to damage agricultural soil. In almost any developed country, many industrially produced chemicals can be found in sewage sludge. The application of sludge in agricultural treatment may lead to a risk for humans and the environment, as several industrial produced contaminants eliciting a high toxicity can be transferred to humans via agricultural products or by leaching to groundwater. With the agricultural disposal route increasingly coming under pressure, the challenge facing sludge operators in many developed nations is to find cost-effective and innovative solutions while responding to environmental, regulatory and public pressures!


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3 .The Product & Core Competitive AdvantagesThe proprietary BioPetrol technology is a continuous thermo-chemical conversion of raw or anaerobically digested municipal sewage sludge to produce fuel oil and char products suitable for use as a boiler fuel. The main distinguishing feature of the BioPetrol process, when compared to incineration, or direct drying, is that it chemically converts sludge organics into fuel oil. The fuel oil, char and hydrocarbon gas products resulting from the BioPetrol process are capable of supplying the energy requirements for drying and conversion of the sludge feedstock (typically, 20%-26% solids), so that a municipal sludge treatment facility utilizing the BioPetrol technology is not only energy-self-sufficient, but produces surplus of fuel oil. The fuel oil product can either be sold directly to off-site refineries, or used on site in an internal combustion engine to produce electricity and offset purchases. The BioPetrol technology will allow to greatly reduce the regulatory, physical and financial hurdles of building and operating advanced municipal waste water treatment plants (WWTPs). It is an environmentally sound process, immobilizing the heavy metals contained in the sludge and destroying pathogens. Other benefits of the BioPetrol technology over traditional municipal sludge treatment operations include the economic value of the fuel oil produced, lower overall costs, economically transportable end-use product (fuel oil), and reduced operational footprint size needed to handle and process the sludge. It can be combined with existing straight drying technologies, and more advanced non-thermal ones, to increase the yield of the valuable fuel oil product.

4 .Current Status and Future Activities

To prove the overall feasibility of its technology, BioPetrol conducted preliminary batch, bench-scale experiments. The work was carried out in a prototype reactor capable of processing sewage sludge with 20% solids at a rate of 5 kg of dried sludge per hour. Up to 90% of the energy content of the sludge feedstock was recovered as combustible products – fuel oil and char. Results from the bench-scale pilot have indicated that each ton of municipal sewage sludge (20% solids), when dried to 90% solids, can be converted to about 85 kg of fuel oil, 87 kg of char, 25 kg of useful hydrocarbon gas, and 3 kg of reaction water. The fuel oil product has a heating value of about 60% that of diesel fuel. BioPetrol plans to embark on a major technology development and demonstration program by designing, building and operating a 1-ton of dried sludge per day continuous-flow pre-industrial pilot plant in Israel. As of 2005, the BioPetrol technology is patent pending in the U.S. and Israel.


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5 .The Target Market and Business StrategyBioPetrol believes that their ideal customers are medium-size and large sewage sludge treatment plants handling on average 60-240 ton/day of wet sludge (a city of about 300,000 and 1.2 million respectively). BioPetrol’s strategic plan is to focus its marketing efforts on targeting municipal sludge operators in Europe and the U.S.

BioPetrol assumes that stringent environment protection regulation in most developed nations will be the main push behind WWTPs’ switching to the proposed technology. BioPetrol will meet the sludge operator’s needs by providing a sludge treatment system that is both environment-friendly and cost-effective!

BioPetrol considers two principal business strategies for commercializing its technology. BioPetrol may sell its sludge disposal plants directly to WWTPs. According to this strategy, BioPetrol will be in charge of installing and launching the plant, but will not operate it. BioPetrol will seek revenues from two sources: 1) a 10% markup on the equipment sold to the WWTP, and 2) a licensing/royalty fee of $5-$8 per ton of wet sludge treated at the WWTP. The cost of the BioPetrol plant to the WWTP is estimated at about $5.5 million for a 240 t/day of wet sludge WWTP, and approximately $3.8 million for the 60 ton/day of wet sludge capacity. In an alternative business scenario, BioPetrol may not sell its sludge treatments plants to WWTPs, but instead will assume full responsibility for installing and operating the plant at the WWTP site. To this end, BioPetrol will most probably seek the required capital under the Build-Operate-Transfer (BOT) model, which provides for setting up a consortium of companies that will bring in private and debt financing. If the latter strategy is adopted, BioPetrol will generate revenues from two major sources: 1) receiving sludge tipping fees from the WWTP, and 2) selling the fuel oil surplus to off-site users (or saving on fuel purchases for on-site uses).

6 .The Required Investment

To bring its sludge disposal technology to market, BioPetrol is seeking an equity partner with $1.8 million. This capital is required to fund the initial 24-month period of negative cash flow while BioPetrol builds and operates a pre-industrial pilot plant, as well as launches an aggressive marketing campaign to negotiate and sign the first customer(s) for installing the BioPetrol sludge treatment plant.

7 .The Financials

BioPetrol plans to start sales immediately after completing its 2-year pilot plant program. If the “direct sales” business strategy is adopted, BioPetrol is expected to generate revenues from selling its sewage sludge treatment plants worth about $0.5 million in the first year of


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commercial operation, and around $4.0 million in the fifth year. The projected sales for the 5-year period are about $ 11.2 million, which yield over $5.0 million net profit. To reach that sales target, BioPetrol plans to sell about 15 plants. The IRR on the BioPetrol investment is projected at 25% (assuming a 7-year investment holding period). In the case BioPetrol opts for the “BOT project” model, its annual net operating profit is projected to range from about $3.0 million in the first year of operation, to approximately $9.0 million in year 5 (assuming a 55$/wet ton tipping fee). The total revenues for the 5-year period are projected to be about $54 million, yielding about $21.0 million net profit. The respective number of plants to be installed and operated is estimated at 11. The IRR on the BOT-type project is projected to be about 99% over the period of 7 years.

1. Company Background

1.1. Company Profile

BioPetrol is engaged in the development of an advanced thermo-chemical conversion technology for the environment-friendly and cost-effective treatment of the municipal sewage sludge. BioPetrol was founded in 2001 within the framework of the Mofet B’Yehuda High Tech Center (Israel) - a local "technological incubator" designed to provide financial and managerial assistance to highly innovative projects. To develop its proprietary technology, the Company has received until now a total financing of about $350,000, out of which approximately $300,000 was obtained from the Israeli Office of the Chief Scientist (OCS).

The people comprising BioPetrol’s staff is comprised of highly qualified specialists in the field of chemical synthesis and chemical engineering having many years of hands-on experience in investigating solid fuel-to-oil processes.

1.2. The OpportunitySewage sludge disposal represents an ever-increasing problem for modern municipalities. The volume of sludge continues to grow, as well as the imposition of legal constraints or public opposition to specific treatment options.

Fewer Options for Environment-Friendly Disposal of Municipal Sewage Sludge! Ocean dumping of municipal sewage sludge is banned in virtually all developed countries because of its negative environmental impacts. The remaining most common sludge disposal options both in the U.S and Europe are landfilling, incineration, and agricultural use.

Landfilling and Incineration


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Land and management costs of landfills are very high, and there often is a risk of materials in landfills contaminating both surface and ground water. Suitable disposal areas near cities have become more and more difficult to locate. Many citizens strongly object to disposal sites close to residential areas and to transporting sludge through or past their communities. Incineration requires a large capital investment and expensive safeguards against atmospheric pollution. Besides, incineration uses large amounts of fuel and produces a concentrated and sometimes toxic end-product (residual ash) that has no nutrient organic value as a sold additive and often is more difficult to dispose of than the original sludge.

Agricultural Use

The application of sludge to agricultural lands presents a partial solution to the problem. Sludge contains valuable organic matter that is useful when soils are depleted or subjected to erosion, and sludge stimulates beneficial biological activity in the soil. Furthermore, it is a possibility for farmers to supply their lands with organic fertiliser at low costs. On the other side, there are concerns on long-term build-up of heavy metals and toxic organic compounds to levels high enough to damage agricultural soil. In almost any developed country, many industrially produced chemicals can be found in sewage sludge. The application of sludge in agricultural treatment may lead to a risk for humans and the environment, as several industrially produced contaminants with high toxicity can be transferred to humans via agricultural products or by leaching to groundwater.

With the agricultural disposal route increasingly coming under pressure, the challenge facing sludge managers in most developed nations is to find cost-effective and innovative solutions while responding to environmental, regulatory and public pressures!

Thermal Treatment of Sewage Sludge – In Search of an Alternative!

In locations where sludge is too contaminated for spreading to agricultural land, or in urban locations where long distance transport of sludge to suitable farmland leads to high transport ‘pollution costs’, thermal treatments become the only large-scale disposal route for sludges.

Municipalities worldwide are actively looking at alternative technologies to incineration, which are less expensive and offer a greater degree of flexibility in the use of recovered energy. One of the technologies, which have the potential to


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satisfy these requirements, is low temperature conversion of sludge to liquid and solid fuel products.

2. Product Description

2.1. Proprietary TechnologyBioPetrol is engaged in the development of an advanced continuous thermo-chemical conversion (liquefaction) of primary or anaerobically digested municipal sewage sludge to produce fuel oil and char products suitable for use as a boiler fuel.

The fuel oil, char and hycrocarbon gas products resulting from the BioPetrol process can supply the energy requirements for drying and liquefaction of the sludge feedstock (typically, 20%-26% solids), so that a municipal WWTP utilizing the BioPetrol technology CAN BE NOT ONLY ENERGY-SELF-SUFFICIENT, BUT PRODUCE SURPLUS OF FUEL OIL.

The fuel oil product can either be DIRECTLY SOLD TO OFF-SITE USERS, of USED ON SITE in an internal combustion engine to produce electricity and offset purchases. 2.2. Product ModificationsBioPetrol plans to start market penetration with two basic models of its equipment, depending on the amount of sewage sludge treated by the sludge operator: 1) medium-size plants, and 2) large plants (Table 1).

Table 1. BioPetrol Plant Modifications By Type of Sludge Operator’s Capacity.

Medium-Size Plants

Large Plants

Town/city population equivalence ~ 300,000 ~ 1.2 millionEquivalent amount of sewage sludge treated, wet ton/day ~ 60 ~ 240

To further process the dewatered sewage sludge (20-26% solids), the BioPetrol plant may be manufactured in two basic modifications:

1) As a stand-alone plant with a closed-loop processing scheme providing for receiving the dewatered sludge as a feedstock, drying it to ~90% solids, and converting the dried sludge into fuel oil (and other combustible products), which is partly burnt to supply energy for drying the dewatered sludge.

2) As part of a combined sludge treatment system comprising a conventional thermal dryer (or a more advanced non-thermal one), and the BioPetrol plant. The combined


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system provides for first drying the dewatered sludge to 90-95% of solids in the drying facility, and then converting the dried sludge into fuel oil in the BioPetrol plant. In the latter case, all fuel oil produced can be sold to off-site refineries (or used on-site for energy generation).

Tables 2-3 show fuel oil yields for both BioPetrol Plant modifications under two sludge treatment scenarios.

Table 2. BioPetrol Plant in Combination with Thermal Dryer

WWTP facility size (city/town population equivalence)

1,248,000 312,000

Operating efficiency 80% 80%Wet sludge quantity, ton/day 240 60Wet sludge quantity, ton/yr 70,080 17,520Dry matter (DM) content 26% 26%Sludge quantity, tDM/day 62 16Sludge quantity, tDM/yr 18,221 4,555Wet sludge generation per capita, kgDM 0.05 0.05Fuel oil yield, % 42.4% 42.4%Fuel oil yield, ton 7,726 1,931Fuel oil yield, barrels 60,736 15,184Price of fuel oil (barrel), $ 60* 60*Market value of generated fuel oil, $ million 2.4 0.6Savings from forgoing sludge disposal fees, $(assuming various disposal fee alternatives)

50 3,504,000 876,00055 3,854,000 963,00060 4,204,800 1,051,200

Table 3. BioPetrol Plant Without Thermal Dryer

Operating efficiency 80% 80%Wet sludge quantity, ton/day 240 60Wet sludge quantity, ton/yr 70,080 17,520Dry matter (DM) content 26% 26%Sludge quantity, tDM/day 62 16Sludge quantity, tDM/yr 18,221 4,555


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Wet sludge generation per capita, kgDM 0.05 0.05Fuel oil surplus per 1 ton of wet sludge, kg 32 32Total fuel oil surplus, ton 2,243 560Fuel oil yield, barrels 17,630 4,408Price of fuel oil (barrel), $ 60* 60*Market value of fuel oil surplus, $ million 0.7 0.2Savings from forgoing sludge disposal fee, $ (assuming various disposal fee alternatives)

50 3,504,000 876,00055 3,854,000 963,00060 4,204,800 1,051,200

________* Changing World Technologies (USA) developed a technology for processing various organic wastes into fuel products (bio-diesel) under extreme heat and pressure. At its turkey waste processing plant in Carthage, Mo., CWT sells the bio-diesel output to a Midwestern manufacturer, which buys it for 25% less than conventional fuel and uses it to run its plant Source:www.fortune.com/fortune/print/0,15935,1018747,00.html).

2.3. Current Status and Future Development ActivitiesTo prove the overall feasibility of its technology, BioPetrol conducted preliminary batch, bench-scale experiments. The work was carried out in a prototype reactor capable of processing sewage sludge with 20% solids at a rate of 5 kg of dried matter (DM)/hour. Up to 90% of the energy content of the sludge feedstock was recovered as combustible products – fuel oil and char.

Results from the bench-scale pilot have indicated that after drying 1 ton of municipal sludge (20% solids) to 90% of solids (200 kg DM), the dried sludge can be converted to about 42.4% of fuel oil, 43.3% of char, 12.7% of hydrocarbon gas, and 1.6% of reaction water, calculated on a dry basis (200 kg dried matter). The fuel oil product had a heating value of about 60% that of diesel fuel. Table 4 shows BioPetrol process mass yield of products from 200 kg of dried sludge:

Table 4. BioPetrol Process Products Yield from 1 ton of Municipal Sludge (20% solids), kg

Fuel oil 85

Char 87

Hydrocarbon gas 25

Reaction water 3


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BioPetrol plans to embark on a major technology development and demonstration program by designing, building and operating a 1.0-ton of dried sludge per day (5 ton of wet sludge) continuous-flow industrial pilot plant in Israel.

2.4. Core Competitive Advantages Here is the summary of the BioPetrol technology’s main competitive advantages:

1. Greatly reduces the regulatory, physical and financial hurdles of building and operating advanced municipal wastewater treatment facilities.

2. An environmentally sound process, immobilizing the heavy metals contained in the sludge.

3. Most of the heavy metals from the sludge are concentrated in the char and remain in the mineral ash residual when the char us burned. The ash residual can be either safely buried, or, in some cases, even sold for various beneficial uses.

4. Greenhouse gas emissions in the process are greatly reduced.

5. Can be combined with existing sludge drying technologies, and more advanced non-thermal

ones.

2.5. Patent Protection

BioPetrol filed a patent application in Israel in 2002 entitled “A process for treatment of organic waste”. By the end of 2003, BioPetrol filed the PCT application. As of 2005, the BioPetrol technology is patent pending in the U.S. and Israel.

3. Competitive Comparisons BioPetrol faces competition from both direct and indirect competitors. Sludge equipment manufacturers who employ thermo-chemical liquefaction methods (or similar technologies) are in direct competition with the BioPetrol process. However, there are not many. The two principal competitors in this field are Thermoenergy Corporation (USA) and Environmental Solutions (Australia-Canada)

3.1. Direct Competition

3.1.1. Sludge-To-Oil Reactor (STORS) Technology


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STORS is a process developed by Battelle Laboratories (USA), which granted exclusive worldwide rights for its commercialization to Thermoenergy Corporation. The STORS technology is a sludge and wet biomass treatment process utilizing extreme pressure. The company operated a small demonstration pilot for a short period until closing in 2001. Performance data was not disclosed, either in the company’s various technical publications, or on its web-site.

BioPetrol Competitive Positioning

The STORS plant is by far more expensive that the BioPetrol Plant for the same sludge treatment capacity. For one thing, in one of the press releases, Mr. Denis Cossey, Thermoenergy’s CEO, was quoted saying: “A large treatment plant range anywhere from $35 million to $60 million and last for 20 years while a smaller system cost $10 million”. By contrast, the BioPetrol plant for a medium-size WWTP serving a city of some 300,000 citizens is estimated to cost about $3.8 million.

3.1.2. Enersludge Technology

The Enersludge technology, developed by Environmental Solutions, is a pyrolysis process that allows to produces gas, char and oil from sewage sludge. The gas and char are used to heat the plant leaving the fuel oil product for revenue earning activities. However, the quality of the oil produced by the Enersludge plant is too poor to be used in generators. So the company’s Subiaco sludge-to-oil plant was shut in 2002 after less than four months of full operation.

Table 5. Comparison between Enersludge and BioPetrol Process Yield

Product Enersludge BioPetrol %

Fuel Oil 29 42 +45

Compared to the Enersludge technology, the yield of fuel oil from sludge in the BioPetrol process is higher by 45%! (Table 5).

When compared to existing thermo-chemical methods (mainly pyrolysis) of sewage sludge disposal that aim to generate fuel oil, the Bio-Petrol process is by far advantageous in that it allows generating a considerably higher amount of the fuel oil product, and is more cost-effective as far as the cost of the plant hardware is concerned!

3.2. Indirect Competition


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Manufacturers of sludge straight drying equipment constitute the main indirect competitors to BioPetrol. Among the latter, Andritz (Austria) and U.S. Filter (USA) stand out as the clear leaders in the European and U.S. markets respectively. Chart I shows competitive comparisons between the BioPetrol plant and the Dragon Dryer manufactured by U.S. Filter. The comparisons are prepared for a WWTP capable of processing 240 ton/day of wet sludge. In the case of the BioPetrol plant, there are two sources of potential income: savings on foregoing sludge disposal fees, and the sale of fuel oil surplus. When the Dragon Dryer is operated, the WWTP also saves on disposal fees, and sells dried sludge as pelletized fertlizer. The operating profit is calculated for three sludge disposal fee scenarios ($50, $55, and $60 per wet ton) to compare the economics of both plants.

Chart 1. WWTP Operating Profit Comparisons ($Million)

BioPetrol stands up very well against one of its primary indirect competitors, U.S. Filter Corporation. The WWTP’s operating profit from sludge disposal operations is estimated to be from 1.2 to 1.5 times higher for the BioPetrol plant compared to U.S. Filter’s Dragon Dryer.

4. Regulatory Compliance

In most developed nations, sludge management has received widespread attention in the media, and public forums. Particularly in Europe, the issue has become topical following increasingly stringent legislation and growing pressures from regulators and the public.


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European Sewage Sludge Disposal Regulation

The key drivers for the European sludge treatment equipment market have been the Urban Waste Water Treatment Directive (which banned the sludge disposal at se in 1998), the Landfill Directive (Council Directive 1999/31/EC), and the Sewage Sludge Directive (86/278/EEC), which stipulate the discharge of waste substances by regulating their composition and content. These three regulations have shaped the methods of treating and patterns of disposing sewage sludge in the European region by introducing:

- More stringent limit values on heavy metals in sludge;- New limit values on heavy metals in soils;- New limit values on organic compounds in sludge;- More stringent obligation of treatment;- New requirements on sludge quality assurance system.

For one thing, the Landfill Directive stipulates that material with an organic content greater than 5% cannot be disposed on a landfill area. This directive has already seriously affected sludge disposal routes and precipitated a shift away from the traditional dependence on landfills to more innovative solutions that in-turn further propel demand for enhanced sludge treatment methods and will present multiple opportunities for BioPetrol.

The BioPetrol sludge disposal solution is completely safe by immobilizing heavy metals, which are a potent source of polluting the soil when the sludge is applied on agricultural land!

National Sludge Treatment Requirements

By the severity of existing legislation, national regulations can be roughly classified into the following three groups (Table 6, Sludge Treatment Directive as a reference).

Table 6. National Requirements Compared to EU Requirements

Much more stringent

Denmark, Finland, Sweden, Netherlands, Switzerland

More stringent Austria, Belgium, France, GermanySimilar U.K., Ireland, Italy, Spain, Greece,

Portugal

Compliance in Agricultural Use

Public debate on sludge disposal is mostly marked by a concern for safe application of sludge on agricultural land. While agricultural application still continues to provide the most economical route for sludge, health concerns have fueled recent debates on sludge disposal.


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An estimated 67% of sludge in the short term, and 83% in the long term, fails to comply with limit values on heavy metals or organic compounds in sludge, or in soil, if no pollution prevention policy is implemented!

Sewage Sludge Disposal Compliance in the U.S.

Sewage sludge (biosolids) must meet the requirements specified in the 40 CFR Part 503 Biosolids Rule, “The Standards for the Use or Disposal of Sewage Sludge” before they can be beneficially used. The Part 503 Biosolids Rule land application requirements ensure that any biosolids that are land applied contain pathogens and metals that are below specified levels to protect the health of humans, animals, and plants. More specifically, the Part 503 Biosolids Rule sets metals limits in land-applied biosolids for heavy metals.

5. Sewage Sludge Disposal Market Overview

5.1. Sewage Sludge Generation Trends5.1.1. Europe

There are currently over 50,000 WWTPs operating in the European Union that yielded a total of about 7.9 million tons of dry matter (tDM) in 2000. As shown in Chart 2, Germany is the leading sludge producer, followed by the United Kingdom, France, Italy and Spain, all producing more than 500,000 tDM in a year. These 5 countries generate altogether nearly 75 % of the European sewage sludge. All other countries produce less than 250,000 tDM each (Frost & Sullivan Market Report, January 2005).

Chart 2. Sludge Production in Selected EU Member States (tDM)


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5.1.2. U.S.A.

An estimated 6.9 million tDM of sewage sludge were generated in 1998, of which about 60% were used beneficially (e.g., land applied, composted, used as a landfill cover), and 40% disposed of (i.e., discarded with no attempt to recover nutrients or other valuable properties). Future biosolids production is expected to increase from about 7.6 million tDM in 2005, and 8.2 million tDM in 2010 (Table 7). It is also anticipated that the percentage of biosolids used (rather than disposed of) will grow from 63% in 2000 to 66% in 2005, and to 70% in 2010. The changes are expected to occur in 2005 due to increasing reuse of biosolids and a corresponding decrease in landfilling, primarily because of cost and siting considerations.


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Table 7. Projected U.S. Total Sludge Generation (Selected Years)*

Year Projected U.S. Total Sludge Generation, mln tDM

1998 6.92000 7.12005 7.62010 8.2

5.2. Main Sewage Sludge Disposal Routes

Agricultural use is presently the principal outlet for sewage sludge in Europe, accounting for about 46% of the total sludge production. Landfilling constitutes the second major route, representing 21% of total sludge production. However, various thermal methods, such as heat drying, gasification, pyrolisys, and incineration, are rapidly caching up with landfilling, and are projected to overcome the latter by 2010, to account for about 23% of sludge produced in the EU, while landifilling is forecast to drop to 18% by the same year (Chart 3).

Chart 3. Projected Sludge Disposal Routes in EU Member States, 2004 & 2010

Landfilling: More Expensive in the Future!

Landfilling of sludge has been until now an inexpensive method of disposal. However, national restrictions and the EU Landfill Directive will make landfilling more expensive in the future.

_________* Biosolids Generation, Use, and Disposal in The United States, EPA, 1999.


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Composting: Glutted Market for End-Use Products!

Composted sewage sludge can provide valuable nutrient benefits in agricultural and horticultural soils, as well as in land restoration. However, markets for sludge compost products for land restoration and for higher value, horticultural growing media, are currently small and are unlikely to expand.

Agricultural Use: More Stringent Regulation is an Excellent Opportunity for BioPetrol!

Despite persisting public and environmental pressures, agricultural recycling is forecast to retain its dominance as the key disposal route in the coming years, to account for about 45% of all disposals. Sludge contains valuable organic matter that is useful when soils are depleted or subjected to erosion, and sludge stimulates beneficial biological activity in the soil. Furthermore, it is a possibility for farmers to supply their lands with organic fertiliser at low costs. Therefore, at the first glance recycling of sludge for agricultural purpose looks to be an appealing solution for sustainable management of sludge. However, there are serious concerns regarding long-term build-up of heavy metals and toxic organic compounds to levels high enough to damage agricultural soil. In almost any developed country, many industrially produced chemicals can be found in sewage sludge. The application of sludge in agricultural treatment may lead to a risk for humans and the environment, as several industrial produced contaminants with high toxicity can be transferred to humans via agricultural products or by leaching to groundwater.

An increasingly stringent legislation for sludge disposal in many developed nations shows that if future quality standards for sludge and the receiving environment are made too stringent, the agricultural outlet may become untenable for many sludge treatment facilities, which is gradually making way for novel, more environment-friendly and cost-effective sludge disposal technologies!

5.3. Thermal Methods

If the "material utilization" described above is not possible, legislation in many developed countries increasingly requires "thermal use". This does not mean that the organic waste should be necessarily destroyed by heat (incineration). Today, it is often processed to make solid fuel and then used in place of a primary energy source. The idea behind this regulation is to reduce carbon dioxide emissions.


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In locations where sludge is too contaminated for spreading to agricultural land, or in urban locations where long distance transport of sludge to suitable farmland leads to high transport “pollution costs”, thermal treatments can be the only large-scale disposal route for sludges and therefore are an excellent option!

5.3.1. Sludge Heat Drying and Pelletizing

Heat drying involves using active or passive dryers to remove water from biosolids. It is used to eliminate most of the water content (typically, to 90%-95%), which greatly reduces the volume of biosolids. Heat drying has the advantage of conserving nitrogen but does require fuel for processing. In some cases, the heat-dried biosolids are formed into pellets. These products are very dry and, therefore, can save significantly on transportation costs over compost or other forms of biosolids with higher moisture contents. Thus, heat drying might be the process of choice for urban communities where distances to agricultural land can be substantial.

Sludge Dewatering

The sludge feedstock, that is to be heat dried to 90%-95% solids, is first dewatered by the WWTP operator to 20%-26% solids. Obviously, the higher is the content of solids in the dewatered sludge, the lower are the energy requirements to further dry it to 90%-95% dried matter. Advanced equipment for dewatering sewage sludge is already available on the market (e.g., centrifuges by Pieralisi, Italy*) that allows dewatering sludge to 30%-32% solids!

This presents an additional opportunity for making the BioPetrol even more economically attractive, as with the increase of the solids content in the dewatered sludge feedstock, less converted fuel oil would be burnt to dry the sludge, and, respectively, more surplus fuel oil could be sold to end-users or used on site for electricity generation!

5.3.2. Incineration

Incineration reduces the sludge to ash, which then can be used for landfilling. In most cases supplementary fuel is needed to burn the sludge, which makes this method less economical.

5.3.3. Pyrolysis and Gasification


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Pyrolysis and gasification appears to be a better environmental option than conventional incinerators as they produce lower emissions than the latter, can be built on a smaller, more flexible scale, and generally produce more power as a by-product of the process. _________* Source: www.sewage.net

5.3.4. Advanced Sludge Drying Technologies: Non-Thermal Drying

Various energy efficient sludge-drying technologies are currently being introduced into the market. The combination of an energy efficient drying system with the BioPetrol plant looks especially attractive as it would allow to produce a coniderably higher quantity of the valuable fuel oil product, instead of “burning” it for drying the sludge feedstock. Among the innovative non-thermal sludge drying technologies, the Pulverizer Air Dryer (PAD) technology and the “hothouse technology” deserve special mentioning.

PAD Technology

The PAD technology was developed and patented by GulfTex (USA), and was originally tested to separate the solid and liquid portions of the waste stream from swine farms and dry the solid portion. The technology employs a high-speed air stream to separate solids from liquids, dry the solids, and then pulverize the solids. The technology is already being used to separate the solid and liquid portions of mash from ethanol plants, and waste sludge from paper mills. GulfTex claims that it can save up to 50% of the energy in drying the dewatered (20%-26% DM) sludge feedstock to 90% solids compared to conventional drum dryers. In addition to the anticipated energy savings, GulfTex also claims 30%-50% lower cost for its hardware (equipment) over the conventional drum dryer (e.g., U.S. Filter’s Dragon Dryer). However, as of 2005, GulfTex has not yet tested its technology for sludge disposal in an industrial pilot-scale demonstration facility.

“Hothouse” Technology

The hothouse sludge drying technology was developed and commercialized by Thermo System GmbH (Germany). It employs fully automatic solar sewage sludge drying system for dewatering sludge up to 90% of solids. This is done in hothouse-like drying chambers made from non-corroding solid constructions and translucent glass elements. The solar drying unit operates at a low temperature level with solar radiation being absorbed by the dark sludge.


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http://www.sewage.net/


A sophisticated aeration system exhausts the humid and warm air, which is free from harmful emissions. Compared to conventional high energy drying methods, solar power plus a minimum of personnel expenditure result in a low-cost (add-on) fuel with a caloric value similar to brown coal (about EUR36 - EUR50/t of sludge after mechanical pre-dewatering). The only disadvantage of the hothouse technology for drying sewage sludge seems to be quite a considerable area required for building the hothouse. For one thing, a WWTP serving a city of 300,000 would have to make available 12,000 sq.m to build the hothouse for drying its sewage sludge.

Provided GulfTex has thoroughly tested its energy-saving sludge drying technology, BioPetrol may seek some sort of partnership with that company in the future.

BioPetrol may consider some cooperation with Thermo System in jointly approaching small to medium-size WWTPs that have enough land area to build the hothouse for drying their sludge output.

6. Sewage Sludge Treatment Equipment Market

6.1. European Market

Demand for sludge treatment equipment has been consistently expanding in the last 5 years. The Frost & Sullivan market report (2005) values the sludge treatment equipment market in Europe at $1.85 billion for the year 2003, and the market is anticipated to continue its growth at a compound annual growth rate (CAGR) of 6.6% until 2010. The sludge drying equipment market segment is projected to show even higher than average CAGR, about 7.5% until 2010, growing from an estimated $382 million in 2004, to about $587 million in the year 2010 (Chart 4).

Chart 4. Sludge Drying Equipment Market Forecasts (Europe), $Million 2004-2010.


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National Markets: In Search for Innovative Technological Solutions

While the sludge treatment industry is supported by this overall impetus towards growth and expansion, considerable regional variations exist within the European market. It is evident that the traditionally large markets (for example the Alpine region, Germany, Scandinavia followed by UK and France) that experienced technological advancement and market growth earlier are now approaching first stages of maturity. In these markets therefore the demand for new equipment is increasingly restricted to replacement and upgrades. With this trend, however, new opportunities are arising for more innovative solutions (Chart 5).

The more developed sludge markets are now directing resources and expertise towards the development of more advanced technologies that aim at performance enhancement measures.

The latest innovations in the sludge treatment equipment market have been targeted at the dewatering and drying technology segments that have become the most vibrant technologies in that market.

The market for novel solutions is still "embryonic" and constitutes a little over 7% of total market revenues. With most plants still in experimental stages, it is envisaged that this segment will grow at a compound annual growth rate of 9.8% over the forecast period 2000-2010, thus gaining market share.

Chart 5. European Sludge Treatment Equipment Market: Novel Solutions by Regions, 2003


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The European sludge treatment equipment market is currently poised towards a period of continued growth and prosperity owing chiefly to the need for further compliance with the EU UWWT Directive deadlines. Legislative compulsions supported by mounting public pressure have ensured that environmental concerns in general and waste disposal in particular have remained high on the agenda of national governments in Europe.

7. Target Market

BioPetrol believes that their ideal customers are medium-size and large WWTPs handling on average 60-240 ton/day of wet sludge (a city of about 300,000 and 1.2 million respectively). BioPetrol views countries in North America and the EU as particularly attractive geographical markets to enter with the proposed sludge disposal technology. BioPetrol assumes that stringent environment protection regulation in most developed nations will be the main push behind WWTPs’ switching to the proposed technology. BioPetrol will meet the sludge operator’s needs by providing a sludge treatment system that is both environment-friendly and cost-effective!

8. Business Strategy and Revenue Model

BioPetrol will focus its marketing efforts on targeting municipal sewage sludge operators worldwide. The Company believes that stringent environment protection regulation aimed to drastically limit the amount of contaminants reaching the soil, will be the main push behind the sludge operator’s switching to more environment-friendly disposal methods. That is why BioPetrol will strive to initiate its marketing efforts primarily in the EU countries and U.S., which are already under the pressure of tough environment protection guidelines with regard to sludge disposal.


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8.1. Preferred Business Strategies

Basic Assumption

BioPetrol believes that there are only two drivers in the municipal wastewater industry: compliance and cost. BioPetrol will position its thermo-chemical sludge conversion technology as the best available technology for not only achieving and/or exceeding regulatory requirements, but in most cases, significantly reducing the overall cost of operating the municpal WWTP.

Strategic option # 1:

BioPetrol will sell its sludge disposal plants directly to WWTPs. BioPetrol will be in charge of installing and launching the plant, but will not operate it.

Revenue Model:

BioPetrol will seek revenues from two sources: 1) a 10% markup on the equipment sold to the WWTP, and 2) a licensing/royalty fee of $8-$12/ton of wet sludge treated by the WWTP.

Tables 8 and 8.1 show BioPetrol’s projected sales in the forecast 7-year period. The average price for BioPetrol’s medium-size plants is projected to be about $3.8 million, and the larges plant is expected to sell for $5.5 million.

Table 8. Strategic Option # 1: BioPetrol Unit Sales Plan

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7# of Plants Sold

Medium-size plants 0.0 0.0 1.0 1.0 2.0 3.0 3.0

Large plants 0.0 0.0 1.0 1.0 1.0 2.0

Total # of plants sold: 1 2 3 4 5

Equivalent amount of sludge treated, wet t/yr 17,520 87,600 105,120 122,640 192,720

Cost of Plants SoldMedium-size plants 3,500,000 3,500,000 7,000,000 10,500,000 10,500,000

Large plants 0.0 5,000,000 5,000,000 5,000,000 10,000,000

Total Cost: 3,500,000 8,500,000 12,000,000 15,500,000 20,500,000

Table 8.1. Strategic Option # 1: BioPetrol Value Sales Plan

Value Sales ($) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Royalties from customers 175,200 876,000 1,051,200 1,226,400 1,927,200

Mark-ups on sold plants (10%) 350,000 850,000 1,200,000 1,550,000 2,050,000

Total Sales: 0.0 0.0 525,200 1,726,000 2,251,200 2,776,400 3,977,200

Under the “direct sales” business model, BioPetrol projects that it will generate approximately $11.3 million in revenues by selling around 15 medium-size and large sludge treatment plants in the forecast sales period.


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Strategic option # 2:

BioPetrol will not sell its sludge treatments plants to WWTPs, but instead will assume full responsibility for installing and operating the plant at the WWTP’s site. To this end, BioPetrol will most probably seek financing under the so-called Build, Operate, Transfer (BOT) model. The latter typically provides for establishing a consortium of companies that form a joint venture for specific regions an assign the proposed technology to that joint venture on an exclusive basis. The consortium will be in charge of bringing in the required funds for installing and operating the BioPetrol plant, both in the form of equity and log-term bank loan (e.g., 20years@8% annual interest).

Revenue Model:

BioPetrol will generate revenues from two major sources: 1) receiving sludge tipping fees from the WWTP, and 2) selling the fuel oil surplus to off-site users (or saving on fuel purchases for on-site electricity generation).

Tables 9 and 9.1. illustrate BioPetrol’s sales plan assuming the BOT-type business model.

Table 9.1. Strategic Option # 2: BioPetrol Unit Sales Plan

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7# of Plants Installed

Large plants (240 t/day wet sludge) 0.0 0.0 1.0 2.0 2.0 3.0 3.0 Total # of plants installed: 0.0 0.0 1 2 2 3 3

Cost of plants installed 5,000,000 10,000,000 10,000,000 15,000,000 15,000,000

Table 9.1. Strategic Option # 2: BioPetrol Dollar Sales Plan

Revenue, $ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Fuel oil surplus + WWTP payments (55$/ wet ton of sludge) 4,912,211 9,824,423 9,824,423 14,736,634 14,736,634

Under the BOT business model, BioPetrol plans to generate approximately $54.0 million in revenues by selling about 11 mainly large sludge treatment plants in the forecast period.

9. Investment Requirement

To bring its sludge disposal plants to market, BioPetrol is seeking an equity partner with $1.8 million. This capital is required to build and operate an industrial sewage sludge pilot plant, as well as to engage in active pre-sales marketing activities to negotiate and sign the


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mailto:payments@35$

mailto:payments@35$

mailto:20years@8%25


first customer(s). Tables 10-11 show the main assumptions and costs breakdown for building and operating the BioPetrol pre-industrial pilot plant in Israel.

Table 10. Building and Operating BioPetrol Pilot Plant: General Assumptions

Pilot plant capacity 20,000(population equivalence, # of citizens)Operating efficiency 80%Wet sludge quantity, ton/day 5.0Wet sludge quantity, ton/yr 1,460Dry matter (DM) content 20%Sludge quantity, tDM/day 1.0Sludge quantity, tDM/yr 292Dry sludge generation per capita, kgDM/day 0.05Ash residue (wt% of dried sludge), ton 18

6%Ash residue disposal fees, $ 526

Disposal fee, $/ton: 50.0

Table 11. BioPetrol Pilot Plant 2-Year Budget

Year 1 Year 2Pilot Plant Capital Cost Design, building and installation costs, $ 1,000,000

Pilot Plant Two-Year Operating Costs R&D Department Personnel Cost: # of Employees Annual salary, $ - Chemical engineer 1.0 40,000 20,000 40,000

- Chemical apparatuses engineer 1.0 35,000 17,500 35,000

Total R&D Personnel Cost: 37,500 75,000 Fixed Expenses: - Laboratory analysis and testing (outsourcing) 0.0 25,000

Total R&DFixed Expenses: 0.0 25,000

Plant Operation Department Personnel Cost: # of Employees Annual salary, $ - Plant operator (shift manager) 4.0 30,000 0.0 120,000

- Electrician 1.0 25,000 0.0 25,000

- Mechanical technician 1.0 25,000 0.0 25,000

- Plant operator assistant 4.0 22,000 0.0 88,000

Total Operation Personnel Cost: 0.0 258,000 Plant Operation Department Variable expenses: Electricity cost, $ 0.0 33,638 - Electricity consumption, kWh:

60.0 - Cost of 1kWh electricity, $/kWh

0.1 Fuel cost, $ 0.0 1,168


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- Fuel (LPG) consumption, ton/tDM sludge0.008

- Fuel cost, $LPG/ton500.0

Residue disposal fees, $ 0.0 876

Total Operation Variable Expenses: 0.0 35,682

G&A Department Personnel Cost: # of Employees Annual salary, $ - CEO 1.0 60,000 60,000 60,000

Total G&A Personnel Cost: 60,000 60,000

Fixed expenses: - Computers and peripherals 3,000 0.0

- Car rental+local travel 15,000 18,000

- Overseas business trips 8,000 15,000

- Communication (mobile phone+fixed lines) 2,000 2,000

- Accounting 4,500 4,500

- Legal 5,000 7,000

Total G&A Fixed Expenses: 37,000 47,000

Marketing Department Personnel cost: # of Employees Annual salary, $ - Marketing Manager 1.0 50,000 0.0 50,000

Total Marketing Personnel Cost: 0.0 50,000 Fixed expenses: - Marketing materials 15,000 25,000

- Other marketing activities 100,000

Total Marketing Fixed Expenses: 15,000 125,000Total Operating Expenses: 149,500 675,682

Total Capital Costs: 1,000,000 0.0Total 2-Year Project Budget: 1,825,182

10. Financial AnalysisThe financial analysis is conducted separately for two possible BioPetrol’s business strategies:

1) Direct sales of BioPetrol plants to WWTPs;2) BioPetrol’s operation of plants at WWTPs sites.

Business Strategy # 1:

BioPetrol will commence selling its sludge treatment plants upon completing the 2-year pilot plant program. BioPetrol is expected to generate revenues worth about $0.5 million in the first year of commercial operation, and around $4.0 million in the fifth year. The projected sales for the 5-year period are about $ 11.2 million, which yield over $5.0 million net profit. To


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get at that sales target, BioPetrol plans to sell about 15 plants. The IRR on the BioPetrol investment is projected at 25%, assuming a 7-year investment holding period.

Table 12 presents BioPetrol’s forecast cash flow statement, assuming direct sales to WWTPs.

Table 12. Strategic Option # 1: BioPetrol Cash Flow Projection ($)

Revenue Sources Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Royalties from customers 175,200 876,000 1,051,200 1,226,400 1,927,200

Mark-ups on sold plants (10%) 350,000 850,000 1,200,000 1,550,000 2,050,000

Total Cash In: 0.0 0.0 525,200 1,726,000 2,251,200 2,776,400 3,977,200

Operating ExpensesR&D 37,500 100,000 180,000 200,000 210,000 220,000 230,000

General & Administrative 97,000 107,000 200,000 260,000 320,000 380,000 420,000

Marketing & Sales 15,000 175,000 150,000 160,000 170,000 180,000 190,000

Pilot plant building, installation & operation 1,000,000 293,682

Total Cash Out: 1,149,500 675,682 530,000 620,000 700,000 780,000 840,000

Operating Cash Flow -1,149,500 -675,682 -4,800 1,106,000 1,551,200 1,996,400 3,137,200

Income Tax (36%) -1,728 398,160 558,432 718,704 1,129,392

Net Operating Cash Flow -1,149,500 -675,682 -3,072 707,840 992,766 1,277,696 2,007,808

Accumulated Net Operating Cash Flow -1,149,500 -1,825,182 -1,828,254 -1,120,414 -127,646 1,150,050 3,157,858

Business Strategy # 2:

Under the “BOT project” model, BioPetrol’s annual net operating profit is projected to range from about $1.9 million in the first year of operation, to approximately $5.7 million in year 5 (assuming a 55$/wet ton tipping fee). The total revenues for the 5-year period are projected to be about $54 million, yielding about $21.05 million net profit. The respective number of plants to be installed and operated is estimated at 11. The IRR on the BOT-type project is projected to be about 99% over the period of 7 years.

Table 13. Strategic Option # 2: BioPetrol Cash Flow Projection ($)

Revenue Sources Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Fuel oil surplus + WWTP payments ($35/wet ton of sludge) Total Cash In 4,912,211 9,824,423 9,824,423 14,736,634 14,736,634

Operating Expenses 741,950 1,483,901 1,483,901 2,225,851 2,225,851


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Financial Expensess Private financing 1,149,500 675,682 750,000 1,500,000 1,500,000 2,250,000 2,250,000

Loan amortization, 20yrs@8% Average annual payment 432,872 865,744 865,744 1,298,616 1,298,616 Total Cash Out 1,149,500 675,682 1,924,822 3,849,645 3,849,645 5,774,467 5,774,467

Operating Cash Flow -1,149,500 -675,682 2,987,389 5,974,778 5,974,778 8,962,167 8,962,167Income Tax (36%) 1,075,460 2,150,920 2,150,920 3,226,380 3,226,380

Net Operating Cash Flow -1,149,500 -675,682 1,911,929 3,823,858 3,823,858 5,735,787 5,735,787Accumulated Net Operating Cash Flow -1,149,500 -1,825,182 86,747 3,910,604 7,734,462 13,470,249 19,209,036

The BioPetrol financial model presented in Appendix 1 shows main financial assumptions pertaining to different scenarios of prospective commercialization of the BioPetrol technology.


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בס'ד · Web viewThe sludge drying equipment market segment is projected to show even higher than average CAGR, about 7.5% until 2010, growing from an estimated $382 million in