INDIA BUSINESS WORLD - NOVEMBER 16^th - NOVEMBER 30^th - 2007

UTI VENTURES INVESTS $8M IN ALTERNATIVE ENERGY FIRM PESCO

Realizing that the environment protection business in India is becoming attractive for investment, venture capital firm UTI Ventures has invested $8 million in Pesco (Pragmatic Environmental Solutions Co) Beam Environmental Solutions, a company involved in waste oil recycling and alternative energy systems.

The investment comes even as oil nudges close $100 a barrel and alternative energy sources are becoming more critical globally.

The 18-year-old Pesco builds plant and machinery for companies that are into waste recycle management and manufacture of alternate fuel such as ethanol. It has offices in the US and in Chennai. "Investors are chasing these opportunities. Globally, many clean energy funds have been raised to invest in this sector," said UTI Ventures CEO, Raja Kumar.

This week, the clean technology sector received more than the usual share of interest when Nobel Peace prize winner and former US vice president Al Gore joined Silicon Valley venture capital firm, Kleiner Perkins Caufield & Byers (KPCB). Vinod Khosla of KPCB has also backed clean technology enablers in India and picked up stake in Praj Industries, which makes equipment for ethanol manufacturers.

In addition to the environment concerns, the more immediate driver for these technologies is expected to come from the rising price of crude. In the last few weeks, the price of crude has threatened to breach the $100 mark on rising consumption and fears of an increasing gap between supply and demand.

"The biggest driver to building alternate energy plants will come from high crude prices," said S N Rajesh, director at UTI Ventures, who is joining the Pesco board. This is the first external funding for Pesco. "The price of lube oil is directly related to crude. So, if companies are able to recycle even 50% of it, it would make a difference to their profitability. If 5-7 billion gallons of lube oil get recycled, you would need 800-100 recycling plants. But the number of recycling plants today are only 10% of this. The market opportunity is tremendous," said Mr. Rajesh.

Similarly, if 5% biodiesel is blended with the diesel, then the demand potential for bio-diesel is 7.5 billion gallons, requiring about 300-350 plants. "Each plant would need an investment of at least $40 million. Right now, we have only 20-25% of that number," he said. Adherence to the Kyoto protocol and stringent emission norms in some countries are also driving the move towards biodiesel from sources such as corn and soya. While green technologies are currently the flavour globally, companies in this business face cost pressures like those in any other sector. But firms like Pesco are able to tap engineering and design talent in locations such as Chennai to show margins better than some of their peers that function only from high-cost locations.

Pesco employs about 100 people in the United States and India, and has customers across the globe. Its order pipeline has seen a ten-fold increase in the last year and is currently around $200 million, according to UTI Ventures officials.