ANALYSIS-Argentine biodiesel sector knocked by tax hike

By Maximilian Heath

BUENOS AIRES, May 5 (Reuters) - Investment in Argentina's nascent biodiesel industry could be slowed by a tax hike on exports the government introduced in March.

Argentina, the world's top supplier of soyoil, started exporting biodiesel in significant quantities for the first time last year, and analysts forecast strong growth in 2008 due to rising global demand for so-called greener fuels.

However, the center-left government hiked the export tax levy for biodiesel shipments to 20 percent from 5 percent as part of a wider shake-up of grains export duties that also raised soy rates by tying them to international prices.

"The problem is with new projects ... there are foreign investors who have decided to put the brakes on a move to Argentina," said Claudio Molina, head of the Argentine Biofuels Association (AAB).

Increasing the tax burden on biodiesel fourfold narrowed the difference compared to soyoil exports, even though the government also upped the rate on soyoil.

The massive gap between what exporters paid in export tax between soyoil and biodiesel had convinced many exporters to enter the industry, but March's biodiesel tax hike has reduced that incentive.

"We'll carry on with the projects that we've already launched. But the projects that are more long- or medium-term, we're going to wait a bit," said Julian Echazarreta, deputy managing director at ACA, one of Argentina's leading grains exporters.

ENERGY SOURCE