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  1. 259 Posts.
    Anyone have any thoughts on this one. They expect to sign a license agreement in a European Territry with a Major Player prior to June 2002. They expect to announce another major contract in Oz prior to June aswell. Sounds quite upbeat to me. Mind you this is my first look into these.

    Open Briefing ESI CEO on ENERSLUDGE Technology

    Document date: Wed 15 May 2002 Published: Wed 15 May 2002 10:58:03
    Document No: 216268 Document part: A
    Market Flag: Y
    Classification: Open Briefing

    HOMEX - Perth


    Environmental Solutions International Limited's share price fell
    nearly 10 percent yesterday following a press report raising concerns
    about the ENERSLUDGE(TM) treatment plant in WA. What has been the
    performance of the Perth based ENERSLUDGE(TM) plant? Is the
    technology failing to perform?


    The technology is robust and very flexible. ESI has proved the
    process in Western Australia. Disappointingly there were some
    misconceptions and inaccuracies in yesterday's press report.
    Understandably, the unfortunate headline and some of the comments
    unsettled the market. I trust the following will clarify matters.

    The Subiaco Waste Water Treatment plant is one of Perth's 3 main
    sewage processing facilities. The plant's catchment area is the CBD
    and west of the city. The plant currently produces approximately 600
    tonnes per day of wet sludge for disposal and further processing and
    this is forecast to rise to 800 tonnes per day by 2040.

    In 1996, the existing facilities at Subiaco for processing of this
    wet sludge needed upgrading and, following an extensive review of
    options including thorough evaluations by independent consultants, a
    contract was let to the ESI/ Clough JV to build a new sludge
    processing facility. Included as part of the contract was ESI's
    patented oil-from-sludge technology.

    The plant now constructed consists of a number of components and
    provides the Water Corporation with a variety of possible operating
    modes to process over one quarter of Perth's sludge such as:

    Dewatering of the sludge to a 'wet cake' for lime stabilisation prior
    to disposal off-site in emergencies, maintenance shutdown periods,

    Dewatering and drying of all the sludge to dry pellets for use on
    site as a fuel, or disposal off-site. The large amounts of thermal
    energy required to dry the sludge can either be supplied from fossil
    fuels or recovered from the process itself - the latter is the current
    mode of operation.

    Dewatering, drying, energy recover and conversion of all the sludge
    to oil and other products.

    The wet sludge dewatering and drying equipment were commissioned in
    May 1998 and have been processing all the wet sludge produced by the
    operations of the Subiaco wastewater treatment plant since then. The
    hot gas generator used for energy recovery was commissioned in
    December 2000 and has performed to target since that time.

    The dried sludge-to-oil conversion equipment was commissioned in
    April 2001 and was operated by ESI/Clough Joint Venture for 9 months
    during which time it demonstrated it has the capacity to process all
    of the dried solids from the upstream plant. All of the oil produced
    to date (over 300 tonnes) has been used off-site to generate steam at
    industrial facilities without problems.

    The whole plant (dewatering plant, the dryer, hot gas generator and
    conversion plant) was constructed and commissioning in phases, and
    has met all contractual performance tests.

    The new facility has thus provided the Water Corporation with more
    cost effective, environmentally friendly and flexible treatment
    options for wet sludge than existed before the plant was constructed.

    Approximately 100 tonnes of wet sludge cake per day, is no longer
    trucked through Perth, or over long distances to be disposed to
    landfill. It can be either dried and beneficially reused as
    fertiliser supplement (with all the energy for drying provided by the
    process itself) or converted into oil.

    When the plant is operated in conversion mode, only 4 tonnes per day
    of by-product leaves the site (1 tonne of ash and 3 tonnes of oil),
    ie a 25-fold reduction in both sludge volume and truck movements.

    At present, the dried sludge-to-oil conversion equipment is not being
    operated. It is more economical to operate the plant in the energy
    recovery (ie autogenous drying) mode and to beneficially use the
    dried sludge on land, than convert it to oil for off-site use.

    Whilst this option is the most economic for the time being for Perth
    sludge, it is fair to say that in Europe and North America, the
    economics are significantly different. In Europe and North America,
    dried-sludge to oil and off-site use of oil or generation of
    electricity on site would be the preferred operating mode by far.

    When the contract was originally let by the Water Corporation, it was
    intended that the oil produced from the conversion equipment would be
    used as a supplementary fuel for the stand-by diesel engines on-site
    driving the upstream wastewater treatment plant air blowers. Water
    Corporation subsequently decided not to adopt this option and hence
    ESI and the Water Corporation are now pursuing the installation of a
    separate oil-to-electricity unit on site. When this is installed, it
    will change the economics of how the plant is run and the
    sludge-to-oil conversion equipment which, represented less than 10
    per cent of the original contract value of the overall plant, should
    be the preferred mode of operation.

    ESI-Clough and the Water Corporation are also reviewing the design,
    operations and maintenance parameters of this "world-first" prototype
    plant. ESI continues to have access to the plant for marketing
    purposes offshore and the gathering of valuable operational data.

    Does the current operation of the Perth plant in autogenous drying
    mode have any negative financial impact on ESI?


    None whatsoever on ESI or on the ESI/Clough joint venture.

    Does ESI continue to have a reasonably strong cash position and what
    is the outlook for the June 2002 profit?


    Our cash position remains very strong and the profit result will be
    in line with our expectations. Our cash reserves and growth are being
    managed prudently. We continue to generate strong cash flows from the
    water and wastewater treatment market and we're making good progress
    with our efforts to commercialise the ENERSLUDGE(TM) technology in
    international markets.

    ESI recently reported (February 27) discussions with some European
    groups regarding licensing the ENERSLUDGE(TM) technology. What is the
    status of these discussions and could they lead to the
    commercialisation of the ENERSLUDGE(TM) technology in Europe?


    I am now confident ESI will sign its first licence agreement for a
    territory in Europe, with a very significant player in the water
    industry, before 30 June 2002.

    ESI has been involved in technical and commercial due diligence
    discussions with this European based, worldwide water company since
    August 2001. The due diligence has involved a substantial amount of
    information transfer (technical and economic) from ESI, visits to the
    Western Australian plant and reciprocal visits to Europe.

    The most recent discussions in Europe (in late April 2002) have
    concluded that ESI's ENERSLUDGE(TM) technology is capable of
    providing a sustainable thermal solution for sludge treatment in many
    countries in Europe, and, that it is commercially competitive in
    markets where land based disposal options are banned or diminishing.

    This outcome represents a significant step forward, and ESI has moved
    much closer to establishing the necessary first "flagship" commercial
    scale plant in Europe.

    Also, ESI is in negotiations with another large
    engineering/construction/infra-structure group regarding a licence
    agreement for the UK and Irish markets. These negotiations are less
    advanced than the former.

    What would be ESI's participation in European ENERSLUDGE(TM)


    ESI's participation in European ENERSLUDGE(TM) plants will be the
    supply of technology packages through licensees into projects.
    Typically these technology packages will include the intellectual
    property related components, ie conversion reactors, condensing,
    oil-water separators, process control system, and in some instances
    other equipment. ESI will of course, provide all of the process
    design for the initial plants.

    What advantages do you hope to gain through licensee and partner


    ESI's strategy is to market the ENERSLUDGE(TM) technology through
    licensees/partner companies. This strategy allows ESI to partner with
    selected local companies that are already strong players in the
    water/ wastewater/sludge markets in the territories covered by the
    individual licensees.

    The major marketing costs in each territory will be met by licensees
    as will the majority of tendering costs for specific projects. The
    advantages to ESI include more immediate sales, cost effective access
    to market intelligence, knowledge on local environmental regulatory
    requirements, detailed engineering expertise to meet country specific
    standards, procurement know-how in new markets, construction
    expertise, presence of larger corporate balance sheets when bidding
    projects, to mention a few.

    The other advantages are the payment by licensees of upfront licence
    fees to ESI, plus royalties from ENERSLUDGE(TM) plants built by
    licensees and ESI in each territory.

    Late last year you expressed some disappointment with the pace of
    progress in commercialising the ENERSLUDGE(TM) technology in Japan.
    What plans do you have to hasten progress in Japan?


    ESI entered into an exclusive licence arrangement with Mitsubishi
    Electric Corporation for the territory of Japan. Progress by
    Mitsubishi has been slower than I would have liked in commercialising
    the technology. I visited Mitsubishi some weeks ago and now better
    understand why this is the case.

    To hasten progress in Japan, ESI has reached agreement with
    Mitsubishi to amend its licence to a non-exclusive one. ESI will
    continue to have access to Mitsubishi's technology improvements on a
    worldwide royalty fee basis.

    Furthermore ESI has briefed, and, subject to final agreement on scope
    of contract, will engage a Japanese entity experienced in arranging
    licensing arrangements between Japanese and foreign companies to work
    with ESI to select other licensees for the technology. This time
    ESI's focus will be on selecting Japanese companies that are
    currently active in the water and sludge business in Japan and not
    necessarily on large trading houses such as Mitsubishi. This work
    will take about 3 months to complete.

    What progress has been made in marketing ENERSLUDGE(TM) in the USA?


    Because of our focus in Europe, progress in the USA has been confined
    to identifying suitable potential licensees. The initial
    identification of potential partners has been completed and we have
    provided initial packages of information on the technology to them.
    The European experience of securing good licensees indicates it takes
    6 to 9 months to complete the necessary technical and commercial due
    diligence, hence we will see the appointment of US licensees only
    after 30 June this year.

    In February 2001, ESI was awarded a contract to provide three water
    treatment plants for the Douglas Shire Council in Far North
    Queensland. The contract value was about $12 million. What progress
    has been made on this project?


    Construction of the 3 plants is proceeding very satisfactorily and we
    anticipate completion of construction of the first plant in August
    2002. The reservoir at the largest plant in Mossman is essentially
    complete. The plant building is under construction and will be
    completed in about 6 weeks. Mechanical installation at all plants is
    progressing to schedule and to budget. These being ESI first membrane
    plants, construction of all are proceeding remarkably well.

    How do you envisage ESI developing? Can you continue to grow revenue
    in the water/wastewater treatment market while also trying to
    commercialise the ENERSLUDGE(TM) technology? What is the priority?


    I believe we can continue to generate good revenue from the water/
    wastewater market. We staffed up the water group this year and
    already new potable water contracts have been won in Australia. I
    expect we should be in a position to announce at least one additional
    contract before 30 June 2002. The relatively new process control
    group continues to generate revenue and this should increase. ESI has
    agreed to the execution of an Integrated Systems Provider Agreement
    with Siemens Ltd, more details of which I expect to announce next

    To date, ESI's cash flow has been generated by our continued success
    in the water/wastewater market. This revenue has allowed the company
    to remain net debt free and fund the commercialisation of
    ENERSLUDGE(TM). At this stage I don't see this scenario changing.

    Thank you Denis.

    For previous ESI Open Briefings visit

    For further information on ESI visit
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