Global Energy Inc. (Bulletin Board: GEYI) has signed a contract with Covanta Energy Corporation (NYSE: CVA) that is potentially worth billions of dollars. The facts emerge from the company's 8-K form filed with the US Securities and Exchange Commission.
The contract relates to the activity of Global Energy's division for the setting up, operation, and ownership of plants using proprietary technology for the production of diesel fuel from organic waste.
Covanta is a US renewable energy company. The deal garnts Covanta exclusive rights in the US and non-exclusive rights in China, the UK and Ireland to use Global Energy's technology and know-how in household, contracted, and commercial, as well as radial biomass projetcs, subject to meeting order thresholds. Global Energy also granted Covanta a right to sell systems based on the technology to governmental organizations.
Covanta is due to order the first unit, which will begin operating in the fourth quarter of 2008. After a 30-day run, Covanta will order five units. It is due to order 600 over ten years. Each unit costs $4-5 million.
In order to keep the right for an additional five years, Covanta has to buy 150 more units a year during this period. This will bring the total number of units to 1,350.
Global Energy is selling the units through AlphaKat-Global Energy GmbH, a joint venture held in equal shares with AlphaKat GmbH, which owns the technology. Global Energy will receive a 2.5% commission on each sale. At $4-5 million per unit, Global Energy will make $100,000 on each sale.
Covanta will also pay Global Energy 10% royalties of the gross revenues derived from the sale of diesel oil in each project for a period of 20 years from the date each plant is established. Each unit can process one ton of waste per hour to produce 500 liters of diesel. Assuming a conservative price of $0.50 per liter, each unit will produce $2.5 million worth of fuel per year, from which Global Energy will make $250,000 in royalties.
The agreement also stipulates that Global Energy has the right to be a partner with a stake of up to 35% in each plant that will be set up under the agreement, investing a proportional amount of equity in them, in exchange for 35% on the diesel sales, carbon dioxide credits, and waste treatment. This revenue is in addition to the royalties.
Global Energy also signed a contract with American Renewable Diesel LLC, which will set up for Global Energy projects in New York, California, and Texas. American Renewable Diesel will find sites, customers, and waste that does not compete with the waste being handled by Covanta, such as waste from oil refineries, agriculture, and industry. Global Energy will own 51% of these projects, Covanta will own 25%, and American Renewable Diesel will own 24%. Global Energy will own 75% of projects it finds on its own and American Renewable Diesel will own 25%.
Global Energy controlling shareholder and CEO Assi Shalag was unavailable for comment.
Published by Globes [online], Israel business news - www.globes-online.com - on February 13, 2008
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