Aug 11, 2016
Executives
Todd Waltz - EVP and CFO Eric McAfee - Founder, Chairman and CEO
Analysts
Carter Driscoll - FBR Jim Stone - PSK Advisors
Operator
Greetings and welcome to the Aemetis Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Todd Waltz, Chief Financial Officer for Aemetis. Please go ahead sir.
Todd Waltz
Thank you, Kevin. We welcome our shareholders and financial market professionals to today's Aemetis second quarter 2016 earnings review conference call.
We suggest visiting the website at aemetis.com to review today's earnings press release, the updated corporate presentation, filings with the SEC, recent press releases, and previous earnings conference calls. This presentation is available for review or download on the aemetis.com home page.
Before we begin our discussion today, I'd like to read the following disclaimer statement. During today's call we'll be making forward-looking statements, including, without limitation statements with respect to our future stock performance, plans, opportunities, and expectations with respect to financing activities.
These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties, and that future events may differ materially from the statements made.
For additional information, please refer to the company's SEC Commission filings, which are posted on our website and are available from the Company without charge. Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results reported on GAAP.
A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended on June 30, 2016, which is available on our website. Adjusted EBITDA is defined as net income or loss plus, to the extent deducted and calculating such net income, interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, depreciation expense, and share-based expense.
Now, I'd like to review financial results for the second quarter of 2016. Revenues were $33.1 million for the second quarter of 2016 compared to $38.1 million for the second quarter of 2015.
The decline in revenue was primarily attributable to decreases in ethanol and wet distiller’s grain volumes. Gross margin for the second quarter of 2016 was $1.9 million, the same as the gross margin of $1.9 million during the second quarter of 2015.
Selling, general and administrative expenses were $2.9 million in the second quarter of 2016 compared to $3.1 million in the second quarter of 2015. The decrease in selling, general and administrative expense was driven by lower spending in the areas of salary and stock compensation compared to the same quarter of the prior year.
Operating loss was $1.1 million for the second quarter of 2016 compared to an operating loss above $1.3 million for the same period in 2015. Net loss was $5 million for the second quarter of 2016 compared to a net loss of $6.3 million for the second quarter of 2015.
We continue to experience good operational results from our North American ethanol business with gross margins at 7.5% of segment revenue. Our largest contributor to the net loss is interest expense of $4.4 million.
We continue to search for lower cost capital through a combination of debt refinancing as well as escrow releases from the first EB-5 financing. The fundamental health and improvement in our operating North America business is reflected in adjusted EBITDA for the second quarter of 2016 increased to $960,000 compared to adjusted EBITDA of $209,000 for the same period in 2015.
Cash at the end of the second quarter of 2016 was $591,000 compared to $283,000 at the end of the fourth quarter of 2015. That completes our financial review of the second quarter 2016.
Now I'd like to introduce the Founder, Chairman and Chief Executive Officer of Aemetis, Eric McAfee for a business update. Eric?
Eric McAfee
Thank you, Todd. For those of you who may be new to our company, let me take a moment to provide some brief background information.
Aemetis was founded in 2006 and we own and operate facilities with more than 110 million gallons per year of renewable fuel capacity in the U.S. and in India.
Included in our production portfolio is a 60 million gallon per year capacity ethanol plant located in Keyes, California near Modesto. We also built, own and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin bio refinery production plant on the East Coast of India near the port city of Kakinada.
Let’s discuss our ethanol business first. In Q2, 2016 the pricing of corn ethanol improved by 3% year-over-year.
Positive margins were also supported by using the remaining grant money from the California Energy Commission related to the use of milo feedstock. During the first six months of 2016, our Keyes plant processed more than 70,000 tons of grains sorghum under the CEC alternative feed stock program.
During Q3 and Q4 2016, we believe margins will continue to be positive due to the expected large corn drop and a stronger export market for ethanol. A primary component of our expenses is interest and feeds on our senior debt.
Our biofuel plant in California has created a significant number of jobs, allowing Aemetis to raise debt using the Federal EB-5 program at only a 3% interest rate with no principal payments for up to five years. Aemetis has received $24 million of EB-5 Phase I funding and currently has $12 million in escrow for release upon approval by the federal government.
Due to the success of our first project, during Q2, 2016 we launched a second EB-5 financing in the maximum amounts of $50 million. We intend to use funding from the EB-5 Phase II $50 million project to fund the further expansion of the Keyes plant with the addition of the Edeniq and LanzaTech advanced biofuels production units.
I have recently made two trips to Asia, to present nine days of EB-5 seminars to investors in China and Vietnam, and I am optimistic that the program will be successful. We also believe that a revised approval process in the EB-5 program is likely to reduce escrow release times by as much as a year.
Now updates on our India biodiesel business. As we indicated in the last quarterly earnings call, the slow recovery from the low $25 per barrel crude oil prices in Q1,2006 [ph] combined with high raw material prices caused by the [Indiscernible] weather pattern temporarily reduced India biodiesel revenues during the second quarter of 2016.
We are now importing feedstock for biodiesel production and the plant is operating to supply domestic customers in India. Our glycerine unit also imported crude glycerine during the first half of 2016 to support our supply contracts with multinational corporate customers.
The market for biodiesel continues to expand with the recent approval of 100% biodiesel ethane motor fuel in India and the recently announced expansion of biofuel’s purchases by fuel retailers in India. We continue to make progress on the marketing and distribution of biodiesel into the California market using the tallow and UCO approval obtained in early 2016.
Last, I like to update on growth initiatives. On May 5, 2016 a medicine Edeniq entered into a definitive agreement through Aemetis to acquire all of Edeniq’s top ten shares in a stock plus cash merger transaction.
We are now in the process of completing the documentation and approvals required to close the transaction. We expect Edeniq to obtain its first EPA Company registration at the Pacific Ethanol plant in Stockton, California allowing the ethanol plant to generate valuable, cellulosic ethanol D3 RIN and tax credits.
We plan to install Edeniq equipment at the Keyes plant, and anticipate EPA approval during Q1, 2017 for this installation, which is expected to increase operating cash flow meaningfully. The LanzaTech technology that was licensed by Aemetis earlier this year is now in basic engineering for the construction of an $8 million gallon per year cellulosic ethanol plant that is designed to use moderate [ph] wood, forest waste and energy crops as feed stocks.
In summary, following the pending Edeniq acquisition, the combined company will be positioned to upgrade any of the approximately 190 corn ethanol plants in the U.S. to produce more than 1 million gallons per year of advanced ethanol.
The LanzaTech technology allows Aemetis to then expand these plants with the installation of eight million gallons per year capacity cellulosic ethanol production units that utilize low cost and low carbon agricultural waste and other wastes. Now we’ll take a few questions from our call participants.
Kevin.
Operator
Thank you. [Operator Instructions] Our first question today is coming from Carter Driscoll from FBR.
Please proceed with your question.
Carter Driscoll
Good morning, gentlemen.
Eric McAfee
Good morning, Carter.
Carter Driscoll
First question, can you just update us on the process – what you’ve learned from the back and forth with the EPA when trying to register the stock and facility and what gives you confidence that once you get through this first company registration that the process should move more seamlessly and more quickly.
Eric McAfee
The Company registration process would be EPA follows a extensive approval of the technology which is known as the pathway approval process. The pathway approval process required three years of work and was completed in 2015.
In order to use technology that has been approved under the pathway process, a specific ethanol plant have to file what’s called a company registration. It’s usually administrative procedures that only requires about 90 days and allows the company thereafter to use the electronic system to submit their D3 RIN request.
In this case, the application was filed in January of 2016 and we do expect it to be approved in the near future. But it was extended because the EPAs stated to us, that they believe that there would be almost 200 ethanol plants in the U.S.
who would come in with a same request for company registration and EPA were seeking a path for a quick approval of those 190 plus dry mill plants, so they wouldn’t have to replicate a three or four month process every time this happened. So what they have pursued is what I would call a streamlined methodology that would enable – kind of you couldn’t quite call it rubber stamp, but in effect they are very rapid approval for follow on plants.
And I think they have been very diligent in that effort I think that the outcome of that will enable them to rapidly process the almost 200 additional applications they expect.
Carter Driscoll
The pathway process is not tweaked to each individual facility. I mean there are some levels of variation.
Is that something that could potentially elongate moving from this first registration even if it shrinks the timeframe, I’m just trying to think about understanding of each individual facility, I realized the process is relatively standard but there are some different configuration that the EPA, is that correct?
Eric McAfee
Not so much. The actual process that every plant will be operating will be exactly the same.
We are running a specific device called Cellunator which has particle side reduction and that a specific enzyme, let’s just say weighs [ph] enzyme. So the process is actually the same with each plant.
What maybe different of course is each plant’s capacity may be slightly different, but that’s not actually relevant to the process that the EPAs is reviewing. What they are actually reviewing is a measurement, the laboratory and documentation process related to measuring amount of cellulosic ethanol is produced.
And so the one time approval, Edeniq’s owned company registration allows that process to be literally rubber stamped on to additional processes, because when the reports to the EPA are generated they actually come from the Edeniq’s data, calculating how much cellulosic ethanol is produced.
Carter Driscoll
Thank you for that clarification. Remember to -- you had mentioned that you are thinking about the FDA in acceleration again the release or the shrinking of the timeframe for escrow for 85, could you talk about when you think that might be implemented, the process involved, and now they say it’s important for as you said you are refinancing and your continued access to capital markets is one important bucket so, anything you could share there would be helpful.
Eric McAfee
Yes the first time that we proposed a project it was to 72 investors at $500,000 each and the total amount of $36 million. But we were an unproven EB-5 project developer and now that we have, not only raised the funding from the 72 investors, but also created all of the jobs that those investors they will rely upon to get their permanent green cards.
We’re now in a very small select group of proven project developers and so this second offering is different in two respects. First, is if the bank into which the funds gets deposited originally would have not let us receive the funds until we received U.S.
customs and immigration of approval of the foreign investors application. The idea there is -- for an unproven project and we get rejected by the government and the funds would have to be reimbursed.
Now that we are a proven project developer, the bank is contractually willing to release funds to us upon just the application by the foreign investor to the U.S. government.
Now the wait period is currently approximately 14 months, but the range we’ve experienced is up to 18 months between the date in which the funds are deposited and the approval comes from the USCIS. So that elimination of 15 to 18 months period is extremely material for our business model of course because it’s a relatively short time period between us presenting to investors and they deposit funds into our account.
And they then have to wait up to a year and a half after that has cost us a tremendous amount of interest and fees on our senior debt which we will not be repeating this time.
Carter Driscoll
Maybe just shifting gears well can you talk about maybe the selling process you hope to [Indiscernible] for plans attacking Edeniq technologies over to competitor plans to increase their yields. LanzaTech if I understood correctly you were hoping to do the 8 million expansion sometime at the end of 2017, is that timeframe still viable?
And then is that -- will that accelerate or that is the release point which you begin to market the product externally?
Eric McAfee
You are correct in that our strategy is defined only in a corn ethanol plant we are able to implement incremental improvements in advanced biofuels using non food, low carbon feed stocks at our own plant and then use that as a demonstration base to rapidly adopt that technology across the industry. So our first technology of course is the Edeniq technology, which we do believe is applicable to all 190 or so dry mill plants in the U.S.
The second technology enables us to go beyond the corn kernel fiber. Corn kernel fiber comprises approximately 10% of the feed stock of the corn ethanol plant, by extracting the cellulosic ethanol from that we expect to turn between a one and one and half million gallon per year production of cellulosic ethanol, but that is kind of a practical limit because you are limited by the amount of corn kernel fiber in your feed stock.
The LanzaTech upgrade is the second step which allows you now to use just solely cellulosic materials, such as orchard waste from almonds etcetera or wheat and corn and so you are not restricted to the corn kernel fiber in your plant. You now can go and have seen very expensive wastes and in some cases waste that has very high tipping fees.
So the 8 million gallon upgrade for our plant is the first step on a multi-step upgrade for our facility but we believe once the 8 million gallons has been demonstrated then we will have other customers including customers that have adopted our Edeniq technology who will also be interested in generating a significant additional margin from using low cost feed stock and selling a product for what is today over $4.5 worth of valuance [ph] if corn ethanol which is rough in the $1.50 range.
Carter Driscoll
And then just the last question, if we could dig a little deeper into the facility in India obviously had some sourcing issues or I should say surprising issues from as you mentioned the [Indiscernible] factor. What in your opinion Eric is the next catalyst for driving further utilization, is it the retail adoption, is it the fact that it’s just an adjustment period from diesel being decoupled from subsidies some years ago and people get accustomed of that whole supply chain kind of rationalizing, is it acquiring different feedstocks so that you have more flexibility, if we kind of characterize in whatever way you wish to, to talk about what really is going to drive that facility to greater amounts of utilization, I think you guys have envisioned in the past.
Eric McAfee
Tell me cite the couple of items that I think are not factors. Currently, the customer adoption has been very rapid and very enthusiastic because we're selling at a discounted diesel and with the 2016 approval of B100 as a motor fuel.
The customers in India are very rational. So, selling a product that is approved as a motor fuel at a discount is very attractive opportunity.
They are not so inclined to look at the pollution reduction and greenhouse gas reduction benefits as being verification that biodiesel should be a premium. So, by selling at a discounted diesel we have found that customer adoption is not really the constraint on our growth.
What is a constraint on our growth in India and as they are removed we'll allows us to rapidly deploy. Our number one, the price in crude which was a $25 in January in an unsubsidized free market environment such as India which is what the current situation has end up being is a very difficult environment to sell into when our feedstock prices are sitting at record highs over the last five years.
So the [Indiscernible] restricted feedstock supply drove up the price and $25 crude oil came in. That was a temporary situation.
We have moved beyond that situation now and the -- is no longer factor in and frankly $25 is not a factor at this moment either. So our number one milestone is India would be correlated with the price of crude oil.
And if you watch crude oil when it goes back to $25, we are doing some things to lower our feedstock costs and this environment will be more difficult than $25, but I think we could actually continue to make progress in expanding capacity. Our customer buy diesel or at discount buys our products.
So what we have to do is make sure that feedstock costs are correlated with crude oil and we're fine. So, obviously our next question what's our projection on crude oil prices.
We do have our own view. I think we would probably match with most analysts and say we do not expect to see $80 to $100 crude oil any time soon, but we have a very good business at $40 range in crude oil worldwide and so we think that we're well positioned to do fine with that.
So crude oil would be my first item recovering from the $25 is very material to us. Second would be opening the California market.
Indian markets, it's already there, it’s already very large 25 billion gallons per year. The California market is approximately $4 billion gallons per year, but has the unique characteristic of having its own carbon market, the low carbon fuel standard in California.
And so there is a premium paid in California and we are the only Indian Company approved to bring biodiesel into California. And so we had very, very successful entry into the market.
And we're looking for study progress and growing the California market with the customer. In California, we should have about a 20% biodiesel blend, B20 what is known as.
But of the rack in California are controlled by Kinder Morgan and are limited to 5%. So we're going through a transition in California in which the economic value of biodiesel which is very, very high is driving consumers of diesel to try to adopt B20 because it just a cheaper fuel.
The same thing we're seeing in India is now happening in California. And so we have been working directly with large end users of diesel and supplying them in a direct relationship which again was our entry point into India and expect continued progress on that.
The margins are very positive and it’s a rapidly growing market.
Carter Driscoll
I appreciate all that color. And I don’t want to monopolise time.
Just two quick follow-up. So, on that point, so I heard you correctly, you thought somewhere around crude of $40, would it be an ideal feedstock to continue to sold a discount to fossil fuel diesel in India and what type of discount are you experiencing?
And then as a follow-up to the comments you made about the LCF in California, I mean, there are some issues along, the expiration 2020, some people I've heard some comments, externally that maybe you'd like to see that extended and maybe that's hindering to investment, can you just gives your thoughts there? Thank you.
Eric McAfee
Yes. Good questions.
Our current feedstock for India is primarily stearine our approval to use used cooking oil is in process to the Indian government. And if you look in the media you will see that there is increasing support for that as of excellent solution for biodiesel just report last week came out and we've described there could be 2 billion tons of used cooking oil available in India.
So, as that approval goes through the process in India, we think we will be a primary beneficiary because we do not only can supply to Indian market with a low cost feedstock using UCO, but we can sell into the California market. And early this year had a $1.20 a gallon has increase value by selling into California.
So, we are uniquely position to be able to take advantage of UCO. We currently used primarily stearine.
We have some technologies which have successfully tested recently that would broaden our feedstock to use lower costs and which you could consider lower quality feedstock and those technologies we've been developing over the last several years along with partnerships with very, very large global companies and we expect to continue to adopt those technologies and broaden our footprint in India. So, the ideal feedstock would be UCO and it would open up the California market to us.
I should mention in passing though that Tallow which is animal Tallow is readily available in India not enough to run our entire plant, but certainly in material amount and we have used in the past to ship to Europe. What's interesting is that, just within a last month or so Tallow has been taken on the lower carbon feedstock under the low carbon fuel standard and we expect the dramatic decrease in the carbon intensity of Tallow, I wouldn't say almost to UCO, but close enough economically they say, that Tallow becomes a very attractive feedstock and that's the proven feedstock for us in India and we're going to the paper working in California right now to confirm the lower carbon intensity score.
So the answer in India is UCO and then second in line would be Tallow which we're already approved for. Regarding the California low carbon fuel standard, there is some regulatory uncertainty going on in California.
It’s not political uncertainty, the governor and pretty much his – all of his contingent have fully committed to an expansion of low carbon fuel standard path 2020, but there are – there's a court case pending and there is an initiative underway by the oil industry primary to amend the California regulation. Interesting enough in California we have an initiative process in which the governor can go directly to the people and have them vote on pretty much anything and California is a place that adopted some pretty radical measures by just going directly to the people through the initiative process.
And the governors made it clear that if the legislative process in anyway should perform doesn't move in his direction of extending that 2020, he will just go ask to the voters which have over 70% approval rating for this low carbon initiative and just get them to pass exactly what you want with no negotiated carve outs, and that is a very important commitment that the governors made. And as a producer in California, I would say, I think the governor is going to win on this one.
I think that we will see continuation of the low carbon fuel standard path 2020, no matter what court issues happened, because he can overturn it with the initiative process.
Carter Driscoll
Appreciate all that color. I'll get back in queue.
Eric McAfee
Thanks.
Operator
Thank you. [Operator Instructions] Our next question today is coming from Jim Stone from PSK Advisors.
Please proceed with your question.
Jim Stone
Good morning, folks or good afternoon to you. There are number of questions.
I'd first like to look at India. You said that India is now building up the use of the diesel that all of the restrictions have been – I'm just trying to understand why the diesel fell off in the second quarter and what are we looking at for third quarter?
We're looking for a major job or just a few people are going to add – just a few people are going to come on, I'd like your input on that?
Eric McAfee
We do, just from a statistical perspective the third quarter is a major jump from the second quarter, that's true. What we had was a temporary increase in feedstock prices and a temporary decrease to $25 crude oil prices, and that because our plan not to operate at the rate that our customers would like us to do.
And we're now back in the business of producing product for those customers. What we're doing is we're importing feedstock in order to enable us to get back in the production cycle.
So, yes, the actually numbers we're not disclosing at the time, but we are certainly back in the growth mode and we are working in the latter half of this year to opening of the California market as well, which will help us go through [Indiscernible].
Jim Stone
Okay. You heard me ask this question a number of times, but what is that that's keep you from going to full capacity at this point?
What are the limiting issues? Are there any other clearances that you have to get from people?
Is all the paper work done? Is it just building up the distribution?
What are the issues that are controlling? How fast you ramp?
Eric McAfee
We do not any regulatory constraints. Our issues are primarily just logistical.
We're importing feedstock and so ramping up the importation of feedstock and the domestic sale product from what essentially was a very low period is our primary constraint at this point in time.
Jim Stone
Okay. So, you see no problem in getting all the feedstock you need.
It just a matter of ramping it up and all of the timing issues or what?
Eric McAfee
Accordingly to feedstock requires credit lines and Letters of Credit and banking relationships that take time and take a commitment of capital. So our feedstock acquisition program and how fast we accelerate that is really the primary constraint on our growth in India.
Jim Stone
Okay. So there is a credit issue – possible issue a problem there or credit line problem I should say?
Eric McAfee
Yes. There's a commitment of working capital that's required for importing.
You basically have to have the cash on hand and/or should be able to back the Letter of Credit. And so, as you ramp up the business you ramp up your Lines of credit and the capital committed there.
So, we're going through that process right now. We've had a significant expansion of our credit lines recently and we're using those credit lines to expand our importation of feedstock.
Jim Stone
Do you see anything installing [ph] that, building it up for getting you this capacity or is it -- what are the issues that are done? Again I'm not sure?
Eric McAfee
Yes. I understand.
We don't see any regulatory barriers. What we do see is margins and seeking out lower cost feedstocks and higher margin market is our primary focus at this point in time.
Jim Stone
Okay. Now, what is the issues controlling shipments to the U.S.
of the diesel? Are those all regulatory stuff out of the way or is there still something in the way?
Eric McAfee
Good question. Shipping in the California and delivering a product that has EPA approval is fully approved at this point in time.
And so our job at this point in time is to make sure that our distribution process in California is able to maximize our opportunity. And our approach has been to work directly with large users and instead of selling at the port in a tank at relatively low margins, you go directly to end users and allow them to go to a 20% biodiesel blend, which frankly is not available to them in most cases because at the fuel rack there's only 5% blend.
So what we're really doing is we're enabling them to achieve their lower cost fuel objectives, their lower carbon fuel objectives and their renewable energy objectives, which are not available through the current distribution channel. And those direct relationships in India allowed us to frankly penetrate the market very rapidly and that's exactly what the -- approach we are taking in California.
Jim Stone
Well, again asking it from a slightly different standpoint. I don't know the Indian markets that well, but I'm pretty sure in the U.S.
if you stood on the street corner and sell your diesel at 5% or whatever it is under your current diesel price, you'd be a long line of trucks for you to fill. And on that basis I would expect a ship load of diesel to be on its way now.
So again, how do you see that? You're not interested in those smaller customers who would buy immediately if you had it for them?
Eric McAfee
What we have in California is a rack system that is currently kind of interesting. They take all of the different biodiesel of producers and put them in the same tank at a 5% blend and that distribution system largely controlled by one company.
And so, until that one company has a large, large percentage of their customers that require higher percentage B-5, the customer itself is limited to 5%. So what we done is, we go to large customers and workout arrangement for a 20% blend and then gone back to the rack and have workout our situation to be able to have our own control of tankage.
What this will over a certain period of time do, is rapidly transition the market to a B20 market and I even anticipate we might just go back to the commodity seller of biodiesel as all the customers start asking for B20, B20 being a less expensive product than B5. And so, we're doing some market opening and in process doing that.
That is about 600 million gallon, so 15% increase on 4 billion gallons, it’s about 600 gallon increase in the demand in California as we make that transition. We are not able to today go to Iraq and just put any percentages of biodiesel into the tank.
There are regulatory constraints that basically allow a B20 blend in California. I should mention, we have still biodiesel product and that does allow us to blend a higher percentage.
As you know we're approved for 100% in India. But in California due to the fact that we are one of the only distilled biodiesel producer in the world, most of the biodiesel does not meet our high standard of 99.8% purity and cetane of 66, most of doesn't have cetane below the regulatory threshold of 56.
And that's really what's limiting the biodiesel infrastructure, is that most of the suppliers don't have a high quality product that has enabled us to go directly to customers, offer a discount to customers.
Jim Stone
I understand that, but I thought at one point we were thinking that the diesel is 100% replaceable of regular diesel, so why are they buying a full tank full of diesel?
Eric McAfee
That's true in India. It's not true in California.
In California B20 is the number that's the current regulatory limit because of the fact that most quality – the quality standard of the most biodiesel is not up to our standards.
Jim Stone
Then since you got a problem to get California to say that your diesel is a better quality and they can fill the whole tank with it?
Eric McAfee
After we have the next 600 million gallons of annual market filled that will definitely be the next phase. We think we've got several years here before the B20 market will be satisfied in California.
So, we're dealing with customers right now they just want to buy 20% blend and can do it if the racks working directly with them and we'll be able to provide them that product.
Jim Stone
Okay. So, it’s not 100% compatible, because as I said, if its 100% I thought I can just pack it up and buy your biodiesel but…?
Eric McAfee
Yes. In California essentially it’s a 20% number.
And that's largely because of the quality standard that the California regulators had adopted which are lower quality standard than what we produced. The drop in fuel known as renewal diesel and in our business plan as we roll out our business you will see that renewable diesel becomes one of the products we produce.
It's actually effectively a by-product of one of our processes. But renewable diesel is the drop in replacement fuel that does not have a regulatory limitation in California.
But I should reiterate again, we have about 600 million gallon per year increased of biodiesel in California in order to get to B20 blend.
Jim Stone
But I'm thinking of a slightly different issue, as if you had that in place now you could ship diesel now and get revenue now which is a rather important issue?
Eric McAfee
Yes. We're actually are in a position we'll be able to ship now and have revenue now and we're in the process of doing it.
What we're not so excited about doing is to ship it in and sell it as a product that's after port it sold as a lower quality product, which should leaves on the table a very significant margin if we just simply truck from the port to a customer or a tank near the customer. So, we're going direct to the customers and significant margins are as much as a dollar per gallon, so it’s a very large amount of money with the 50 million on plant to incentivize [ph] us do what we're doing which just puts us the distribution channel place in California.
By the way, same distribution channel we did in India. So we're just replicating what we already successful, we did in India.
Jim Stone
I understand and I won't be this anymore but as you and I discussed it’s better to earn $0.10 a gallon than sitting there, not getting any revenue and nothing down any of debts and other thing?
Eric McAfee
Actually in the last year we paid down approximately 80 plus percent of our debt in India. We have only about $1 million of debt in India, so virtually debt free asset, so we're extremely well positioned with low operating costs, virtually no debt and a dominant high quality product in India approve to the 100% blend and a 20% market opportunity in California.
So, I think we're very well positioned. We have been patient with various regulatory agencies and I think the barriers are of in both California and in India.
What we're doing now is just simply the sales and marketing and working capital allocation part of growing the business.
Jim Stone
Okay. The merger was originally scheduled for what was at June, then July.
I think you do our shareholders at the service saying hey, we didn't meet debt. When the event occurs we didn't meet the close out date, but we're worrying because we're still working on it.
And I think a little information would be very helpful? That said, why based on the history, what can we expect that this will finally be closed?
Eric McAfee
I think you're – we're trying to close in the third quarter. Our expectation is that this is a legal and accounting process and Edeniq is a private company with a large number of shareholders, and there are some processes that just take some time there to get all those shareholders to do the necessary they need to do.
We have fully performed all of the obligations we have under the agreement and the next step as it deliverable by the Edeniq side private closing. So we're in very good speed to close this in the third quarter.
I'm pleased with the progress that the Edeniq team has been doing with the EPA, but I should say that we got directly involved with the EPA and I can tell you confidently that the delay in closing had no impact at all on the EPA process and therefore no impact at all on our financial performances combined company because after the EPA approval that you will see rapid revenue growth and other things. The Edeniq $20 million of revenue last year, about $6 million of positive EBITDA and we expect it to be a rapid growth company after the EPA approval.
So we've been patients with the paper work process and understanding of the Edeniq's time requirement to get their necessary approvals and we look forward to closing it here in the third quarter.
Jim Stone
Are you in the parts that you got installed and is that all up and running and when would that begin producing revenue?
Eric McAfee
The Edeniq equipment is that what you're referring to?
Jim Stone
Right. Is that installed and you're shipping product under it?
Eric McAfee
The Edeniq Company has equipment installed and a number of facilities.
Jim Stone
No. I'm talking on your facilities?
Eric McAfee
No. Our facility one of the installed until the fourth quarter and operating from a financial perspective how they impact in the first quarter of next year when we get an EPA approval, which is what we would expect would occur would be a Q1, 2017 EPA approval for our facility.
Jim Stone
Okay. I misunderstood, because I thought you had already started installing and would be shipping in the third quarter?
Eric McAfee
Yes. There's a lead time on the equipment at the skids [ph] etcetera, but the real lead time is the EPA approval lead time and again we're working closely with the EPA to make that rubber stamp process, it’s pretty rapid
Jim Stone
No, I heard out of the conference. I understand it.
Okay. I'll go back at the line at this time.
Thank you.
Eric McAfee
Thank you, Jim.
Operator
Thank you. We reached end of our question and answer session.
I'd like to turn the floor back to management for any further closing comments.
Eric McAfee
Thank you very much for your time today and thank you all to the analysts joined us today. We look forward to meeting with you and continuing our dialogue about pursuing growth opportunities at Aemetis.
Todd Waltz
Thank you for attending today's Aemetis earnings conference call. Please visit the investor section of the Aemetis website where we will post a written version and audio version of the Aemetis earnings review and business update.
Kevin?
Operator
Thank you. That does conclude today's teleconference.
You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.