Green Fuel to revolutinise local market
Taking shape … The ethanol plant at Chisumbanje
11/04/2011 00:00:00
by Gilbert Nyambabvu
GREEN FUEL, a $600 million agro-industrial and renewable energy complex
under development at Chisumbanje in Manicaland is, this June, expected to
produce its first litre of ethanol in a development that could potentially
revolutionise the local fuel market by addressing the twin-challenges of
cost and security of supply.
As a net importer, Zimbabwe is vulnerable to the vicissitudes of the global
oil market where crude oil prices have risen 75 percent since the second
quarter of 2010 and supply concerns continue on the back of political
instability in the Middle East.
Management at Green Fuel – a joint venture between the state-run ARDA and
private investors — say when fully operational, the project will produce
enough ethanol to significantly cut-down Zimbabwe’s fuel import bill and
help end shortages the country experiences all too frequently.
Cheap alternative
Globally, the oil majors are also turning to ethanol as a renewable and
cheaper alternative to petroleum with BP chief executive, Bob Dudley noting
in February 2011: “There will obviously be a time when oil will run out and
with that prospect on the horizon we will use more renewable energy
sources.”
Dudley added that his firm was committing 40 percent of its research on
renewable energy resources for the year to Brazil ethanol, describing it as
an “ultra-potent fuel that could revolutionise the market”. Not to be
outdone, Royal Dutch Shell also announced that it had set-up a US$12 billion
joint venture with Brazil’s biggest sugar and ethanol producer.
The interest in Brazil is logical. The country has the second largest
national fuel industry after the United States and 85 percent of vehicles on
the country’s roads have flexi-engines which run on either ethanol or petrol
or a mixture of both.
Green Fuel have also modeled their project on Brazil which took this path
more than three decades ago when one litre of ethanol was three times more
expensive than a litre of petrol.
The company envisages putting up to 50 000 hectares of ARDA land at
Chisumbanje and Middle Sabi under sugarcane which will supply at least three
ethanol production plants.
Already, US$200 million has been invested in the project, rising to US$270
million by December 2011 when 11500 hectares of land will be under
sugarcane, producing some 40 million litres of ethanol.
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“We will be producing ethanol at a much cheaper cost than we are currently
importing petroleum products into the country,” general manager, Graeme
Smith told newzimbabwe.com recently.
But the government and the local fuel sector will have to buy-into the
vision for the project to work.
Support
Elsewhere, the US government subsidies ethanol production and has introduced
legislation encouraging the use of blended petrol. Senators are also pushing
for legislation forcing 90 percent of vehicles sold in the country by 2016
to be capable of running on E85 blend — fuel that is 85 percent ethanol,
and 15 percent petrol.
In Brazil the government has, since 2007, fixed the mandatory blend at 25
percent ethanol and 75 percent petrol which is known as E25. The local car
industry has responded by boosting production of flexi-engine cars with 85
percent of new vehicles sold in the country able to run on 100 percent
ethanol.
Smith says the necessary legislative framework for ethanol use on vehicles
in Zimbabwe is already in place while the government has backed the Green
Fuel project by giving it National Project status.
“Legislation is in place and has always been in place since the 1970s in
terms of blending petrol and ethanol because of the water requirement. Our
ethanol will be anhydrous (without water),” he said.
“We have also held discussions with the local distribution network and they
are very supportive of the project”.
The company says vehicles manufactured after 2002 can use E50 (petrol
blended with 50 percent ethanol) without the need for any modification while
drivers keen to run on 100 percent ethanol will require a software
modification that costs up to US$40.
“Vehicles made between 2002 and 1997 can run on 50 percent blend. Those made
before 1997 can only use E20 although we do not have many such vehicles on
the road. The company will also provide facilities for the software
upgrades. It is very viable for us to do that,” he said.
Challenges
Still, the key question for motorists will be how much better the ethanol
option is. Critics point out that ethanol is 34 percent less energy
efficient than petrol which means drivers have to make more trips to the
pumps. They add that ethanol can only be transported by road since it would
pick up water and impurities in pipelines which adds to its cost.
Even so, ethanol also has a lower average price per litre than petrol. A US
Energy Department report for January 2011 noted that a gallon of petrol sold
for an average US$3.08 against US$2.72 for ethanol. Again, US ethanol is
produced from maize which is more expensive than producing it from
sugarcane.
There are also other challenges for the Green Fuel project. Shareholders
have had to provide all the funding to date because of a lack of capacity in
the local financial market.
“It has been a large challenge to source financing for the project since the
local banks do not have the capacity while sanctions have also put-off
potential investors. At the moment the funding is coming from our Zimbabwean
shareholders,” Smith said.
Again it is also predictable that a project of such magnitude would face
political problems in a country where land is a sensitive issue and some
politicians are uncomfortable with the arrangement between ARDA and its
technical partners.
The project is being developed on a Build, Operate and Transfer arrangement
under which ARDA has given two private companies a 20 year-lease on the land
with automatic rights of renewal.
Employment
Already, near-on 3000 people have been employed with company officials
saying 7000 more jobs would have been created by the completion of all the
development phases, effectively transforming Chisumbanje into a significant
agro-industrial area.
But some politicians are not satisfied.
Said Agriculture, Mechanisation and Irrigation Minister, Joseph Made in
March last year: “I am very concerned about ARDA going into joint venture
operations that do not reflect the 51-49 percent government-stipulated
shareholding structures. ARDA is free to enter into joint venture operations
as long as they reflect the 51-49 percent ownership (requirement) or even
better.”
Smith insists that shareholders in the companies partnering ARDA are
Zimbabwean; but accepts that there is considerable risk in operating in a
country where the politics are unpredictable at best.
“It’s a risk that the shareholders and investors believe is worth taking.
Look: who has invested in this project? These people are all Zimbabweans;
they know the country; they know the people and they know the politics,” he
said.
“Yes, there is a reasonable amount of risk; but I don’t think it’s a high
risk.”