by Neels Blom
NOW that the government has slashed the contribution it envisages biofuel should make to the national motor fuel reservoir - from 4,5% to 2% - it remains to ask whether the decree has crushed any prospect of the industry getting off the ground soon.
Minerals and Energy Minister Buyelwa Sonjica's announcement last week appeared to have cooled the biofuels fever, though it is possible to argue that the government's ambitious plans to see 200 new refineries built, mostly in rural SA, and to create 55 000 jobs, has always been a non-starter. With notable exceptions, business has almost universally complained that in the absence of a clear government policy on biofuels, an industry could not be developed.
What they mean to say is that without adequate incentives, no one will take the risk of investing in new plant, developing channels to market or committing resources to a long-term enterprise. Fuel and potential biofuel feedstock producers have consistently pointed out that nowhere in the world has an important biofuel industry developed without heavy state subsidies and that it would require fundamental changes to the existing motor fuel market.
The sugar industry, whose product is already in surplus worldwide and in SA, is a logical first stop for ethanol production, as happened globally during the Second World War, and in the development of a sugar-ethanol industry in Brazil. But it took Brazil 25 years to develop a sugar-ethanol industry, and then only because that government enforced a 20:80 ethanol-petrol blend and paid massive subsidies to sugarcane producers and ethanol plant operators.
That happened in a country which produces the greatest tonnage of sugar in the world, about 33,5-million tons a year. SA and the Southern African Development Community rank eighth, producing 5,4-million tons a year of which just less than half is exported.
South African Sugar Association executive director Trix Trikam said there was little enthusiasm for investment from the sugar supply side unless the government's incentives included at the very least a mandatory blend of ethanol and petrol.
Sonjica's announcement disappointed maize producers chiefly because any surplus maize has to compete abroad against subsidised maize production. Local farmers say they can easily produce a surplus beyond domestic food and animal feed consumption and that an alternative domestic market, such as for biofuel, would ensure long-term growth in the sector.
Grain SA chairman Neels Ferreira says excluding maize at any stage of the industry's development was a mistake, and that it would not ensure food security or decrease domestic food prices.
Biodiesel presents a somewhat different picture in that blending would not be required. Biodiesel can be produced from a variety of feedstock, such as seed oil, jathropa and waste cooking oil, and then used without any of the fundamental changes in the market such as those required for ethanol. Yet, biodiesel projects have failed to take off in any significant way, with some small farm-based refineries shown up as nothing more than hare-brained schemes and huge industrial-scale projects relegated to mere generators of goodwill.
The soya-biodiesel project that energy company Sasol and the state's Central Energy Fund are considering is the largest such project envisaged for SA, but it is still in the feasibility study phase. This is mainly because it would consume SA's entire soya crop and soya beans would have to be imported to sustain the plant, negating the desired outcome of stimulating rural economic development and agricultural job creation.
Clearly, biofuel is not going to be a new growth node for SA, nor will it fulfil the role envisaged by the government earlier this year as a key element earmarked for state intervention in its industrial development plan.
The reasons for developing a biofuels industry should be reassessed, too. These are the mitigation of greenhouse gases and reduced dependency on finite fossil fuels. In SA, job creation and rural development are added to the list.
So far, none of these purposes can be fulfilled. Agricultural production of biofuel feedstock has been shown to be marginally positive at best, but more likely to be neutral in mitigating greenhouse gas emissions.
Though oil remains finite, new reserves and production efficiencies mean it is still cheaper to produce than biofuel. In SA, the scale of state intervention required does not yet justify the number of jobs a sustainable biofuel industry will create.
Concern that SA could miss the biofuels boat may be legitimate, but unless business can see a way of turning a sustainable profit from it, it is unlikely to move. In SA, the time for biofuels is not yet come.
Business Day