November 8, 2007

A Poll Question For Tennessee Taxpayers

The goal of the Green Island Corridor Network grant program is to place biofuel stations no more than one hundred miles apart along Tennessee's interstates and major highways.

Titan Global Holdings, a California-based holding company, will receive a $190,000 grant.

The company says it will use the funds to help pay for installing underground storage tanks and dispensers to sell either E85 (ethanol) or B20 (biodiesel) at three refueling stations owned by its Appco subsidiary in Johnson City, Unicoi County and Sullivan County.

But are the grants really necessary? Might Appco have installed biofuels pumps anyway, without Tennessee taking $190,000 from taxpayers' pockets and handing it over to Titan Global Holdings?

The company has already been seeking "opportunities to lead our markets in the provision of cleaner, more environmentally friendly fuels," according to Marty Anderson, President and Chief Executive Officer of Appco. He is quoted in the press release saying, "We recently signed agreements improving pricing and access to ethanol and we are developing other plans to leverage our efficient distribution network to lead our markets."

"We applaud the Governor's strategic plan to provide the citizens of Tennessee with environmentally friendly choices at the pump," said Bryan Chance, President and Chief Executive Officer of Titan Global Holdings. "We look forward to ensuring that these grants are leveraged to make the state of Tennessee a leader in the alternative energy movement. These grants are tremendous for the state of Tennessee, the customers of Appco and Titan's shareholders."

In fact, Titan Global Holdings announced two months ago that it had completed a biofuel supply agreement with NewGen Technologies, Inc., giving NewGen's Refuel America subsidiary a 10-year contract to supply biofuel products to Appco or its affiliates. And on Oct. 24 Titan announced what it called "a milestone agreement with leading international ethanol manufacturer Tate & Lyle to supply significantly increased quantities of Ethanol at reduced price levels for calendar 2008."

The agreement is a foundational achievement in Titan's strategic plan to source and distribute biofuels to address the fast-growing demand for newer, more environmentally friendly fuel sources. As the nation increases its consumption of ethanol and other biofuels, Titan believes its supply agreement with Tate & Lyle will significantly advance the Company's efforts to establish secure sources of such biofuels and a higher margin product channel.

But would they have installed biofuels pumps in Tennessee? At this point we can only speculate, but you'd have to lean in the direction of answering "yes" to that question.

Appco, after all, is the Appalachian Oil Company, a homegrown company based in East Tennessee, where those three taxpayer-subsidized biofuels pumps will be installed. In fact, Titan Global Holdings bought Appco for the express purpose of getting into the business of selling biofuels.

The Appalachian Oil Company was formed in 1923 and is based in Blountville, Tennessee. Until its acquisition by Titan Global Holdings, a deal completed in September, Appco was a privately held company. Appco owns and operates an extensive petroleum product distribution network. The company distributes petroleum products to more than 160 dealers in the southeastern United States and owns and operates 60 convenience store locations.

And it is profitable. Titan currently currently projects that Appco will generate $433 million in revenues in the 2008 fiscal year, and Titan says it believes Appco will "generate stronger cash flow and margins as it increases the distribution of biofuels through its established distribution channels."

The extent of the improvement in Appco's cash flow and margins will be, among other things, subject to the availability and deployment of such biofuels.

David Marks, Chairman of Titan Global Holdings, said: "Appco has a history of consistent profitability. Marks said Titans intended to "market biofuels through its established retail and wholesale distribution channels."

So, you've got a big company that expects to make big profits on big revenues this coming year, and which already planned to install biofuels pumps at its fuel stations, and here comes the state of Tennessee offering $190,000 in free money. You can't blame them for taking it.

But it probably wasn't necessary to offer it.

Let me stress, I'm not casting any stones at Titan Global Holding or its Appco subsidiary here, nor am I by inference criticizing another other companies in the fuel business that have received these grants or receive them in the future. Frankly, if I managed a big and profitable fuel company and the state offered me free money to do something I already planned to do, I'd take it.

I'm also not against biofuels.

I'm just suggesting that state government might want to rethink the wisdom of subsidizing something that's already happening thanks to market forces and private-sector entrepreneurs.