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A. LE FLOCH
Compared to their oil-business counterparts in the likes of Saudi Arabia, South Africa’s new energy ‘sheiks’ lead fairly ordinary lives.
Many have a bakkie in the driveway, a tractor in the shed and boast membership of the local agricultural co-op.
While Saudis may pump mineral oil from desert wells, South Africa’s farmers harvest maize, sunflower, sugar cane, soybeans, sorghumand sugar beet as feedstock for petrol and diesel manufacture.
And, while today’s Middle Eastern oil wells will eventually run dry, South Africa’s farmers enjoy infinite supply horizons, courtesy of their renewable crops.
Southern Africa Biofuels Association (Saba) CEO Erhard Seiler tells Engineering News that the local biofuels industry has the potentialto produce 10% of South Africa’s petrol anddiesel by 2010. South Africa currently consumes about 11-billion litres of petrol and 8-billion litres ofdiesel a year.
Hence, if the industry achieves the 10%biofuels target by 2010, it will contribute about 1,1-billion litres of petrol and 800 000 of diesel to the country’s liquid-fuels market. The initiative to develop the local biofuelsindustry enjoys strong support from government, and is a priority sectorof the Accelerated and Shared Growth Initiative for South Africa (Asgisa), which aims to stimulate economic growth, create a large number of new jobs and halve poverty by 2014.
The government isfinalising a much-awaited national bio-fuels strategy, which will probably be released in October.
It is expected that the strategy will enforce a mandatory biofuels-blending regime on oil companies and allow the development of 100% biofuel supply and distribution systems.
Independent biofuels producers are already implementing a number of projects to produce bioethanol and biodiesel in anticipation of the strategy and in response to growing local market demand for cleaner and cheaper liquid fuels. In one of the most significant developments, Ethanol Africa last month launched South Africa’s first large-scale bioethanol production plant in Bothaville, in the Free State.
The planned R700-million plant is the first of eight the company intends building in South Africa.
Bioethanol can be blended with conventional petrol and used as an additive to boost the octane number of unleaded petrol.
The plant, which is scheduled to be in full production by the end of next year, will be able to process 1 125 t/day of maize – which equates to about 375 000 t of maize a year – andproduce 473 000 /d of alcohol and 63 000 /d of biodiesel.
The plant will also produce 270 t/d ofdistillers’ dried grains as well as coproducts, which will be either a high-protein animal-feed or an organic fertiliser. The seven other Ethanol Africa plants will be located elsewhere in the Free State, Mpumalanga and the North West province.
At full capacity, the company’s eight plants could supply up to 12,5% of South Africa’s fuel requirements by 2015.
Cheaper than oil
South African con-sumers are currently paying record prices for liquid fuels – R7,04 for a litre of petrol and R6,63 for a litre of diesel.
And more increases are expected, as geo-political issues, such as the war in the Middle East and militia activities in the Niger Delta, take their toll. Other issues that are driving up the price of oil include growing demand and the rapid depletion of fossil-fuel reserves.
Ethanol Africa CEO Johan Hoffman assures that the production of biofuels in South Africa is profitable, even at an oil price below $50/bl and regards local bioethanol production as the best hedge that South Africa can have against high oil prices.
Concerning fears that a sharp rise in the maize price will negatively affect bioethanol production, he counters that, at the current international price at which bioethanol is sold, bioethanol can be manufactured at a profit in South Africa, even if maize is bought at import-parity prices. “Even if maize prices rise and the oil price drops below profitable margins, the government should keep the bioethanol industry operating, as it is an insurance policy against high oilprices,” Hoffman advocates.
Job creation
Besides acting as a natural hedge to cushion the effects of the oil price on the economy, the large-scale production of biofuels in South Africaalso provides several other benefits, probably the most important of which is job creation at a lower cost than in most other industries.
For instance, the estimated cost for every job opportunity established by the motor industryis R250 000, while the cost in the biofuelsindustry is R12 000.
In addition, the production of biofuels willcreate 100 times more jobs than oil refining.
For instance, it is expected that the establishment of every Ethanol Africa plant will result in up to 10 000 direct and indirect jobs. Moreover, most jobs will go to people in the rural areas where the biofuel plants will besituated, thereby boosting rural economies and stemming migration to urban areas.
Speaking at the launch of Ethanol Africa’s plant in Bothaville, Free State Premier Beatrice Maarshoff said that the agricultural sector was at the core of rural development and occupied a central place in the Free State Growth and Development Strategy.
She added that the Ethanol Africa initiative could not have come at a better time, given the “deteriorating agricultural economy and the drastic decline of the mining industry in the Free State”.
The advent of the bioethanol industry is viewed as the largest single economic investment in the Free State since the inception of the gold-mining industry.
“The only difference is that our gold will never run out, as maize is a renewable gift from God,” Hoffman says. Small farmers, in particular, will benefit.
Ethanol Africa’s crop securitisation division, EA Crop Securities, is managing the company’s emerging-farmer programme, which is one of the first large local programmes to focus on small-scale farmers.
Small-scale farmers could potentially supply up to 30% of the maize required as feedstock by the Bothaville plant.
The emerging-farmer programme will assistsmall-scale farmers with detailed grower plans, budgets and cash flows, financing andmentorship.
“The ultimate aim is to achieve sustain-ability,” Hoffman adds.
EA Crop Securities will also assist commercial farmers, who have been hit hard by negative movements in the maize market.
This year, only 1,5-million hectares of maize was planted in South Africa, which is a third of the potential area of 4,5-million hectares that is suitable for the cultivation of maize.
Hoffman is confident that South Africa can comfortably produce a maize harvest of up to 14-million tons a year, which will supplysufficient maize for local consumption andbiofuels production.
He points out that the planting of maize for the production of bioethanol is not a threat to food security, as Ethanol Africa will use only yellow maize, which is not planted for human consumption.
EA Crop Securities’ aim is to secure sufficientmaize for Ethanol Africa’s plants by contractingproducers to grow maize exclusively for the company.
It provides farmers with two options that make provision for the participation of as manysuppliers as possible.
The first option is a standard production loan with a cession, comprehensive insurance and a mandatory contract.
The second option entails that farmers enter into a contract to supply the company with maize.
The price grading will depend on the ferment-able-starch grading of the maize, and farmerswill be assisted to select the best varieties to plant.
Eco-enviro spin-offs
A 10% bioethanol-blending ratio with conventional petrol would save South Africa billion of rands on the import of crude oil and aromatic reformants, such as MMT and ferrocene.
Some local liquid-fuels producers add these reformants to unleaded petrol as an octaneenhancer.
Hoffman says that the use of the 10% bio-ethanol blend, E-10, would reduce the importof MMT and ferrocene and could save South Africa up to R2-billion a year in foreignexchange (forex). The forex savings on crude-oil purchasesfor the local refining of liquid fuels and otherpetroleum products would be even greater.
It is expected that each Ethanol Africa plant will have average turnover of R550-million a year.
If this eventuates, every plant will add atleast 0,05% to the gross domestic product (GDP), or 0,074% of the planned national growth of6% a year. The eight Ethanol Africa plants would thus contribute up to 0,4% of South Africa’s GDP, and 0,6% to the growth rate.
Though the export of biofuels could also earn forex for South Africa, as there is worldwidedemand for these fuels, Hoffman says that Ethanol Africa is committed primarily to supplying the local market.
Another economic benefit of bioethanolproduction is the sale of carbon credits under the Kyoto Protocol.
Environmental finance group Sterling Waterford Securities, which owns 50% of Ethanol Africa, listed one of the world’s first carboncredit investment products on the JSE last year.
One litre of bioethanol produces half the greenhouse-gas emission of a litre of conventional petrol.
Hence, the production and use of bioethanol could assist South Africa to earn valuable carbon credits byreducing greenhouse-gas emissions.
South Africa is the third-worst offender in the world concerning the per-capita production of greenhouse-gas emissions and the use of cleanerfuels will improve air quality.
Funding
Ethanol Africa plans to list on the AlternativeInvestment Market of the London Stock Exchange by year-end to raise R700-million for the roll-out of the company’s first plants in South Africa and will also raise R500-million in a private share sale, facilitated by Absa Bank.
Besides Sterling Waterford Securities, the other two shareholders in the company are a con-sortium of farmers and agronomists, Eco Fields, and local maize-producer investment company, Grain Alcohol Investments.
The South African government has the option to buy a 25,1% stake in the company through the Energy Development Corporation (EDC), which is part of the State-owned Central Energy Fund.
Should the EDC exercise its option, thetransaction could be funded by the State-owned Industrial Development Corporation, whichearlier this year announced that it would beinvesting in at least five biofuels projects. EDC commercial manager Sibusiso Ngubane tells Engineering News that Ethanol Africa is but one of several biofuel projects which the EDCis evaluating.
German support
Grain-based ethanol-technology companyKatzen International, of the US, is supplying the technology for Ethanol Africa’s Bothaville plant.
Uhde, a subsidiary of German group Thyssen-krupp Engineering, is the main engineeringcontractor for the project. Seiler, who, besides being Saba CEO, is also the head of the business development department of the German Chamber of Commerce and Industry in South Africa, says that Germany is actively supporting the establishment of the South African biofuels industry.
The German Chamber is hosting Saba andseveral German companies providing products and services to South African projects.
Germany is the largest producer of biodiesel and biogas in the world, and the eighth-largest producer of bioethanol. The country is also the largest exporter of biofuels technology, equipment and expertise worldwide.
National strategy ‘imperative’
The lack of a national biofuelsstrategy is viewed as the mainchallenge that could impede the growth of the South African bio-fuels industry.
While the government has statedthat bio-fuels should account for40% of South Africa’s renewableenergy to achieve a target of 10 000 GWh ofrenewable energy by 2014, the blending ofbiofuels with conventional liquid fuels is still voluntary.
Seiler says that it is imperative that government create a reliable and supportive business environment for biofuels.
The strategy should include a mandatory blending regime and 100% biofuel supply systems.
Seiler says both blending and pure biofuel consumption require government regulation and clear quality-management systems in order for the industry to win support from international and local investors.
South Africa is believed to be the only member of the Southern African Development Community – which is regarded as the area with the largest untapped potential for the production of energy crops in the world – that is working on a nationalbiofuels strategy.