Posted: August 13, 2010

By Philip Newswanger

philip.newswanger@insidebiz.com

A company that plans to produce ethanol from barley is encountering a few legal difficulties.

Osage Bio Energy LLC is confronting legal action from six companies seeking payment for construction of the plant, which cost $170 million to build and equip.

The plant is located on 55 acres near Hopewell.

Details of the legal challenges were reported July 5 in an article in the Hopewell News written by K.J. Burnell.

Providers of raw materials to construction managers and the firm that hired them have filed liens against Osage in a period spanning September 2009 to June 28, 2010, Burnell reported.

The liens range from a low of $19,440 from Richmond-based Southern Equipment Co. Inc. for pouring concrete, to contractor AGRA Industries Inc., which is asking to be paid $9.6 million, the Hopewell News reported.

Osage officials say the liens are standard procedure, the article reported.

John Warren, director of government relations and project development for Osage, said in an e-mail that the company pays its bills.

"With a complex project such as ours, there are many levels of contractors and subcontractors," Warren said. "Just because a subcontractor is owed money, it doesn't mean it is us that owes them.

"In fact, we do not owe anyone currently. We are in private/confidential arbitration with AGRA Industries Inc. and, in accordance with the terms of the arbitration, cannot comment further.

"AGRA's lien is part of the arbitration," Warren said. "Mechanical completion is imminent and we will begin startup activities in August."

Osage broke ground on the plant in October 2008, which includes an $8 million machine to mill and grind a variety of grains, including barley, sorghum and wheat.

Most ethanol plants in the U.S. are fed with corn. The Hopewell plant will use barley to produce ethanol, at least in the beginning.

At full production capacity, the plant can process 30 million bushels of barley a year to produce 65 million gallons of ethanol.

The plant will also produce 150,000 tons a year of food grade Co2, probably next year; 50,000 tons of barley pellets as a fuel or food supplement for animals; and 240,000 tons of barley protein meal, according to Warren.

Osage is counting on the plant's byproducts to produce revenue. By contrast, other ethanol plants depend solely on ethanol to generate revenue and profits.

The ethanol will be sold in the U.S. to wholesalers that will mix it with gasoline and then sell it to retailers.

Osage Inc., an affiliate of Osage Bio Energy, will transfer the ethanol to terminals in Richmond and Hampton Roads for blending with the gasoline.

Osage buys the barley from Purdue Agribusiness, which buys the barley from farmers. Independent dealers and retailers will sell the ethanol at the pumps.

Virginia farmers will have to plant more barley to supply the plant.

Farmers planted 67,000 acres of barley in 2009. The plant needs 35 million bushels to produce at full capacity - or 400,000 acres of barley.

In an earlier interview, Warren said Virginia's farmers need to grow at least 30 million bushels a year by switching more acreage to growing barley.

But he said local farmers don't throw the switch overnight, so the void might be filled by farmers in other states.

An article in Lancaster Farming News June 3, which publishes in Lancaster County, Pa., said the Hopewell plant "could create a large new market for winter barley - providing farmers with new economic opportunity and incentive to grow a winter crop that fits nicely in the region's cropping systems." nib