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Pure Energy eyes trash-to-gas IPO

by Oliver Ludwig

NEW YORK, Feb 12 (Reuters) - Pure Energy Corp. plans to use garbage to make a gasoline substitute and hopes to make a splash in public equity markets with an initial public offering (IPO) by early next year.

"Once we go public we're going to be under a high power electron microscope," said Merrick Andlinger, Chief Executive of the company that holds a patent to turn ordinary trash into a clean-burning gasoline substitute.

Pure Energy is hoping the appeal of its products in cutting U.S. reliance on imported oil and getting rid of tons of unwanted garbage are enough to get a piece of a gasoline market controlled and fiercely defended by Big Oil.

But the company, whose new fuel will be roughly 70 percent trash and 30 percent natural gas liquids, will need from $125 to $150 million to build its first commercial plant, Andlinger said in an interview at the company's New York headquarters.

"There will be a component of debt and a component of equity," said Andlinger, a former Wall Street investment banker specializing in energy. He noted the company's financial advisor is Wall Street player Donaldson, Lufkin and Jenrette.

Using data from two pilot plants, the company plans to put together a financing package by the end of this year detailing the economics of the commercial plant. That would set the stage for an initial public offering (IPO), Andlinger said.

He noted that Pure Energy, now closely held by directors and a small cadre of private investors, would give up an unspecified minority stake in any public equity offering.

Pure Energy is also likely to issue "recourse debt" which would offer a stake in the plant to its holders as collateral.

Talks are already underway for the plant to be built either in the densely populated Northeast or California. But the Pure Energy chief stressed that any location near a big city with air pollution and lots of trash would be viable.

That first plant will have capacity of at least 30 million gallons a year, or enough to power 30,000 to 40,000 cars per year, and will be built no more than 100 miles (160 km) from where its users are.

The first plant, which Andlinger says will be operational by 2001, will produce "P-series," a fuel made largely from trash-based ethanol and aimed at government vehicle fleets so that Pure Energy can gain a foothold in a mandated market.

The U.S. Department of Energy (DOE) said P-series is near approval as an alternative fuel, and Andlinger said that should ease its acceptance into government fleets. By 2002, 75 percent of all state and federal government vehicles will have to have the ability to run on alternative fuels.

But the challenge to grab additional market share beyond government fleets looks terribly daunting at the moment as oil prices have lost 30 percent since last autumn and are still falling amid a growing supply glut.

But Andlinger is more excited about Pure Energy's long term prospects than he is by falling oil prices, which he considers a near-term challenge.

The company has three other products in various planning stages, and is looking to expand the trash-to-fuel concept outside the U.S.

Andlinger has particularly high hopes for "E-series," a gasoline additive aimed at winning a piece of the federally-mandated oxygenate market, now nearly 300,000 barrels per day. (12.6 million gallons bpd).

He said he hopes E-series, which will have a higher ethanol content than P-series, will grab market share away from the controversial fossil-fuel based oxygenate MTBE.

MTBE (methyl tertiary butyl ether), used in one-third of U.S. gasoline at concentrations of about 11 percent by volume, has been plagued by charges that it contaminates ground water.

E-series will have a special formulation that will keep it from evaporating and releasing smog-causing compounds as much as gasoline oxygenated with pure ethanol, Andlinger said.

The company also plans a diesel fuel made partly from trash as well as another garbage-based gasoline substitute that will be cheaper than P-series and aimed at the consumer market.

Pure Energy will go ahead with its plans whether or not it gets financial help from the government in the form of incentives for the company or consumers, but Andlinger noted such support would speed the transition to renewable fuels.

"We are planning for free-standing economics of our products regardless of tax incentives."

"But we think it's important that those kinds of incentives exist as we and others are developing this industry, recognizing that those are temporary and we're planning for the day when they don't exist," said Andlinger.©

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