As fuel prices continue on an upward spiral on both the local and international markets, there has been renewed pressure for Government to find a definitive solution to the controversies surrounding the mandatory blending of local fuel.
On Friday, international prices galloped towards the psychological $100 per barrel mark, threatening to inflate the import bills of major petroleum consumers.
Interestingly, last week a document — a feasibility study — compiled and produced by the new Government of Zimbabwe in 1985 detailing the effort, vision and integral part the Chisumbanje sugar-ethanol project was envisioned to play in the then new political dispensation, emerged.
Critically, the report notes that as far back as 1985 Government had approved and committed to adopting E20, implying blending 20 percent of ethanol with 80 percent petrol.
However, due to funding constraints the project could not take off.
But the new revelations have lent political connotations to the current dithering within Government over the blending of petrol with ethanol, with some market watchers accusing the Minister of Energy and Power Development, Mr Elton Mangoma, of trying to frustrate the project for political reasons.
The feasibility study on the Chisumbanje Sugar-Ethanol Project was compiled by State investment agency the Industrial Development Corporation (IDC) under instruction from the former Ministry of Industry and Energy Development in October 1985 and was clearly meant to be an instrument to reduce foreign expenditures on petrol.
The voluminous document detailed the criteria, framework and implementation modalities of the projects, including the recommended blending volumes.
“In order to decrease foreign exchange expenditures on petrol, the MERD (Ministry of Energy) has decided that the acceptable design blend to petrol should be increased at 20:80 on the basis of the experience in Brazil, the United States, South Africa, Malawi, and the performance of the vehicle fleet in Zimbabwe using blends of up to 15 percent.
“In times of national emergency (for example, when scarcity of foreign exchange impedes imports of petrol), a blend ratio of up to 25:75 (E10) would be acceptable on a temporary basis.
“The use of 100 percent ethanol fuel was considered, but eliminated as a serious possibility because all engines would require major and costly modifications.
“Efforts are under way to devise a practical method of blending ethanol and diesel, but the solution to this problem does not appear imminent.
“As diesel consumption in Zimbabwe is twice that of petrol blend, such a technological breakthrough would have a significant impact on the demand for ethanol, even at the potential blend of 5:95 (E5),” reads part of the study.
Part of the visionary interventions included a pricing formula that was supposed to be adopted in order to ensure consistent supply of the product, including the viability of sugar producers.
The formula was prepared after consultations with C&L Consultants.
Some of the recommendations forming the framework for pricing of the bio-fuel include measures to ensure that the price of ethanol was always supposed to be below the price of petrol.
Also, the price paid to producers of ethanol was expected to be sufficiently above the cost of production to ensure a reasonable return on investment, while incentives were supposed to be used in times when there were high prices of sugar based on the opportunity cost to ensure that ethanol continues to be produced.
Added the visionary report: “A funding mechanism should be established whereby domestic prices of gasohol (fuel) would be buffered from minor fluctuations in world petrol prices. A reserve sufficient for this purpose could be created by allowing the National Oil Company of Zimbabwe (Noczim) to charge a slight margin in excess of costs; any major fluctuation in world prices should be reflected domestically.”
The IDC, after an extensive study, concluded then that the project “is technically feasible and supports the social and economic development goals of the Government of Zimbabwe to develop surface irrigated sugar cane agriculture and sugar and processing plants at Chisumbanje”.
In sum, some of the fundamental aspects of the project included a 900-hectare net of irrigated land under sugar cane, including 2 400 hectares that were operated by Arda (Agricultural and Rural
Development Authority) then; and the production of 23 million litres per annum and 15 megawatts of electricity from the plant.
Noczim was supposed to distribute the ethanol to the operating oil companies for blending with imported petrol to increase the ethanol percentage in this blend to 20 percent, putting a domestic product for the displaced imported fuel and reducing foreign exchange expenditures accordingly.
By that time foreign exchange revenues and savings were forecast to be a whopping Z$853 million “from avoiding the import of petroleum products”.
But in the last three years the project took shape and came to reality, but it is now being ferociously opposed.
In fact, the targets that have been achieved by Green Fuel — a joint venture project between Macdom Investments, a private investor, and Arda — markedly surpass the targets that were initially planned.
At current capacity the plant can produce more than 75 million litres of ethanol and electricity produced from the processes can reach more than 20MW.
The price of the E10 currently available on the market is even lower than that of petrol although the product in not subsidised by the Government.
Zimbabwe has now become the biggest producer of ethanol in this part of the world.
Despite these stark facts, Minister Mangoma still claims that he does not know where the project came from, suggesting that it is a project that has been selfishly smuggled into the agenda of Government by partisan interests. At a discussion forum hosted by the Zimbabwe Energy Council in May, Minister Mangoma was adamant that Zimbabwe will not adopt mandatory blend.
“I have said, and I repeat, that I don’t know where this project came from because, up to now in Government, we don’t know where it came from. Some say it came from the Minister of Agriculture, but in
Cabinet he denies that. I came from the Ministry of Economic Planning and Investment Promotion, and I don’t know anything about it. You can tell us which ministry authorised this project. I have said they can export. As for the issue of jobs, blackmail doesn’t work and blackmail will not work. If they want, they can export and those jobs will still be there.
“The current discourse, however, is about whether we should make this (blending) mandatory or not. Certainly, Zimbabwe has no policy of making E10 mandatory at this stage and, therefore, it’s one of those issues. But we don’t have to make it mandatory; in many countries where bio-fuels are, they are not mandatory, but they are available in the market. It is a discussion that requires wider consultation if we are going to have a major step like that,” noted Minister Mangoma.
In a dramatic development that showed a sea change in the thinking of the minister to developments elsewhere, the South African government only last month gazetted new regulations regarding the mandatory blending of bio-fuels with petrol and diesel.
This is a deliberate policy designed to insulate the South African economy from the vagaries of a volatile global market.
In fact, the South African government allowed a range of bio-ethanol blending from 2 percent to 10 percent as it presently does not have the capacity. Most of the countries in South America such as Argentina, Mexico and Paraguay allow for mandatory blending because they have the capacity to do so.
Governments in these countries also subsidise the product to provide relief to the economy. Of late the country has developed the capacity but is still vacillating on a definitive course to take.
Statistics from the Ministry of Finance indicated that the country imported $1 billion worth of oil in 2010 alone. In the wake of the new revelations, it appears the current debate is merely political as it is far divorced from the fundamental factors on the ground.
There are real fears that other countries in the region might overtake Zimbabwe as the authorities argue endlessly about a project that was conceived, examined and certified more than 17 years ago. - Business Editor