THE DEFINITIVE TRUCKING SITE

February 2009

BIOFUELS JOURNEY towards providing the expected credible contribution to reducing the country’s dependence on fossil derived liquid fuels and achieve worthwhile reductions in CO2 emissions has, according to several expert views expressed at the international Biofuels Africa Markets conference held in Cape Town in late November last year, been more pedestrian than it was in early 2007. The apparent hesitancy, slow responses and even lack of interest on the part of once hoped for mega-investors seems mainly due to a lack of certainty around food security and sustainable access to acceptable second generation feedstocks at ongoing affordable prices. Uninterrupted access to land use and an identifiable distribution system are also listed as items of concern. 

The Department of Minerals and Energy’s (DME) handling of the national biofuels strategy and policies came up for considerable debate and a significant degree of criticism from some speakers and several attending delegates representing growers, producers, equipment and technology suppliers. 

Andrew Makenete, president of the South African Biofuels Association (SABA), felt that the DME’s proposed strategy is neither clear nor concise. SABA, he says, believes the decision to exclude maize from Ethanol production is an opportunity lost to uplift the rural poor and make a contribution to poverty alleviation. South Africa’s biofuels policy is seen as having stalled while others in Africa have moved on. 

Speakers and delegates were outspokenly disappointed and rebuked the Minister for not being present, or sending a credible representative from the DME to answer questions as to why it has failed to get to grips with the key issues of a successful and sustainable biofuels national policy. Be this as it may, it should also be acknowledged that achieving such a successful policy and strategy is fraught with complex political and economical issues. The short synopsis that follows sets out some of the key aspects discussed and debated at this event in respect of feedstocks, land use, job creation, registration and licensing of producers, distribution and the need for partnerships. 

As you may have guessed, there was considerable discussion around the use of maize as a preferred feedstock for large production of Ethanol. The grain lobby believes if properly managed, food security will not be compromised or threatened. While no definite information emerged to suggest the DME might relent on its decision to exclude maize, there were rumblings in the wings that in light of the persistent lobbying for mielies, government resistance may be waning. In the meantime, the Central Energy Fund (CEF) and IDC, together with Sugar Beet SA, have announced a 90 million litre a year project to be launched soon. 

The pros and cons of Jatropha trees was the subject of comprehensive debate in which contrasting views were expressed by a diverse group of attendees ranging from growers with intention to use Jatropha to those that recommend further research and those that are strongly against planting the aggressively invasive tree. Interesting views and experiences were presented by Norway’s Equator Fuel and Mozambique’s Dendrofuels. Both are well past the research and pilot periods and are at various stages of wrapping up the myriad of technical, production, business and legal requirements for their respective large scale undertakings. 

Depending on who expresses or raises a question supporting Jatropha, comments include the ability to grow it on sub-arable land that it is not a threat to food security. When it comes to yield, forecasts were not satisfactorily agreed. Claims range from anything between 1 200 and 2 500 litres a hectare or, when expressed in tons per hectare, anything from 2,4 to 7,2 depending on how often it is watered and fertilised. The protagonists plug it as a suitable feedstock that small farmers can sow and develop, thereby supporting job creation and poverty alleviation. This, even although the growers and producers that have succeeded in biofuels projects are emphatic that only large undertakings capable of growing more than 100 000 tons a year have any hope of succeeding...(this is explained further on). 

The more cautious and reticent at this gathering focused on factors such as the huge amount of water that Jatropha needs for a decent yield to be achieved. It is known to be aggressively invasive, so much so we could be invoking a new Port Jackson Willow type problem, this especially so should large plantations be planted. Unless it is consistently managed, it will invade arable land. Looking at some of the experiences in other countries suggests that since it needs a lot of water and does even better with fertiliser, it tends to find its way to being cultivated on arable land. 

With South Africa’s appalling inability to implement and enforce such laws (think RTQS), it might be downright irresponsible to allow this feedstock to be used. Lastly, the biomass of Jatropha (what is left over after the production process) is said to be of no further value and somewhat toxic. If this is so, it is another negative. Just think, there is nothing wrong with any of the vegetable oils as a credible biodiesel feedstock. In all cases the biomass has a ready market as an animal feed or fertiliser. It seems there is little incentive for the DME to change its preferred choices for the production of bio-ethanol or biodiesel. 

Contrary to what many of us may have thought a year or so ago is the fact that used cooking oil (vegetable oil) is widely regarded as one of the better feedstocks for the production of good quality biodiesel. Vegetable oils such as canola, soya and others are rich in free fatty acids, an important ingredient needed in the production of biodiesel. There are, however, a number of pitfalls producers, investors and consumers need to be aware says Francois Labuschagne, CEO of PSS Oils, a company engaged in producing quality biodiesel since 1996. PSS is a large buyer of used cooking oils with three strategically located production  facilities and are leaders in promoting an agreement with major food outlet groups to secure used oil at an agreed fair price for the production of biodiesel according to EU specifications. 

Labuschagne is adamant that inferior quality used oil must not be used. “Everyone from entrepreneur, producer and investor to consumer must come to grips with understanding the technology and tried production methods to produce quality biodiesel”. PSS Oils emphasises the need to negotiate quality feedstocks at an acceptable price linked to some recognised commodity price. “Every batch of oil purchased must be tested, there is no short cut”, says Labuschagne. The refining process to improve biodiesel produced from old cooking oils is in the process of changing and needs to be carefully followed by all stakeholders. PSS Oils is in the process of finalising a JVC with oil major. This should improve the technology and the price.

Reviews of successful biofuels projects, especially in the US and EU introduces a new dimension that is likely to challenge most of the stakeholders and roleplayers in South Africa and the region. The production of biofuels is not a new technology. However, in the recent past since the advent of climate control, greenhouse gases and unwanted noxious emissions took centre stage, there has been enormous hype around the merits of biofuels. Along with the ubiquitous predictions of crude oil peaking out, road vehicles – those dependent on liquid fuel – have been singled out for particularly harsh criticism and a disproportionate blame for the foul air. 

The green lobby, in creating an unsustainable and unrealistic expectation for the contribution biofuels can make to alleviate these difficult problems, aroused the entrepreneurial instincts of genuine investors who see an opportunity to make a good return. Along with them came a large band of carpetbaggers and “fast-talking, get rich quick charlatans” with no real interest in the weather, the poor or food security. Fortunately, there has been a very responsible response by these genuine investors, world class scientists and informed politicians to assess and evaluate some of the lavish claims that have been made in the past two years or so. 

• Capital investments in distribution systems such as additional storage and receiving facilities 

• Fire fighting 

• Quality control

• Drying distribution system, fitting tank domes and a lot more. 

• The overall cost implication for taking up ethanol in petrol based on estimates of capital spent on overseas manufacturing and supply chains amount to an additional 10 to 15 cpl on national petrol and diesel sales. 

Arguably the most informative and valuable presentation at this conference was by Anton Moldan, the environment advisor to the South African Petroleum Industry Association (SAPIA) on the practical implications of introducing biofuels into the country’s liquid fuels markets. This presentation points out that the national biofuels strategy does not address the practical and economic issues of integrating biofuels into the supply chain. It is clear that careful thought must be given as to how best these fuels should be introduced to ensure the best interests of the country as a whole. 

Few problems in taking up biodiesel as a road transport fuel and for use in industrial applications are foreseen provided the blend is 5% into normal diesel and complies with the SANS 1935 specification. In this scenario, no modifications at refineries are envisaged to accommodate quality biodiesel. However, there are potential concerns in maintaining biodiesel quality when many small producers are involved. 

When biodiesel meets SANS 1935 spec, there should be few problems with “mixability” throughout the supply chain. However, there is a need to understand that performance and fungibility varies with blend components such as soya, sunflower, etc. Introducing ethanol is apparently a much more complicated and expensive procedure. Depending on the degree of blend even for dedicated markets, the national fuel volumes will increase. Blending into the existing petrol pool at the level of E10 will not increase overall fuel volumes but will require high capital costs at refineries to ensure constant volatility of petrol ethanol blends. These costs include: 

• Process changes for taking out certain light components. 

• Additional storage tanks that will be required. 

• Capital investments in distribution systems such as additional storage and receiving facilities. 

• Fire fighting. 

• Quality control. 

• Drying distribution system, fitting tank domes and a lot more.

The overall cost implication for taking up ethanol in petrol based on estimates of capital spent on overseas manufacturing and supply chains amount to an additional 10 to 15 cpl on national petrol and diesel sales. “Biofuels introduction in the rest of the world has been dependent on large government subsidies,” Moldan explained.

Registration & Licensing 

Mark McLoughlin, the national fuel specialist at the South African Revenue Services (SARS), recapped the DME’s motivation for the introduction of cleaner fuels and renewable energy as well as its strategic objectives aimed at ensuring food security, efficient use of arable land, job creation and a minimum penetration of biofuels over a five year pilot period set at 2% for biodiesel and 8% for Ethanol of the national liquid fuels demand. 

On the question of fiscal incentives, McLoughlin reiterated the previously announced 50% for biodiesel and 100% for Ethanol fuel levy exemption. SARS proposes an increase from 300 000 litres a year to 1 200 000 litres a year to qualify for a total tax exemption. SARS sees the signing of contracts between biofuels producers and oil companies as a fundamental to the strategy. Quality control over biodiesel will be a requirement to keep sub-standard products out of the fuel distribution system. SARS and the DME require consistent compliance with SANS 1935. 

All developers must comply with the required legal and regulatory framework. No person may manufacture petroleum products without a valid manufacturer’s licence issued by the Controller of Petroleum Products at the DME. All details of this requirement is on the DME website www.dme.za. Look for and select “About Energy” then find Doc 2 of 2. All biodiesel producers, regardless of output, are required to register with SARS. Producers of more than 300 000 litres a year must apply for a commercial manufacturer’s licence which also requires their premises to be registered. Details and application forms DA185.49A and DA185.4B2 are available on the SARS website.

McLoughlin emphasised the consequences that will follow from non-compliance. In such cases, offenders can expect fines, imprisonment or both. False declarations will result in licenses being revoked, deregistration and forfeiture under certain circumstances. Producers will be required to pay all duties on products produced before registration. 

Hopefully the DME will now formulate the necessary working groups to finalise national policy and strategy that takes into account the interests of the country, producers, distributors, the oil industry and most important the end users. 

IMPORTANT

THERE are many aspects that need to be determined and agreed before biofuels can be taken up in the national fuels pool. These include:  Rules for biofuel blends and pricing policy.  Determining biofuels component transport cost.  Agree a fair margin on blend components.  DME to develop a pump price model aligned to current pricing regulations and should take note of useful energy content.  Revised regulations from farmer to consumer to be clarified ensuring consumers are not financially compromised.  Licensing of depots and manufacturing facilities.  Consider regional coordination.  An expert working group is recommended to address the key issues that need to be considered before biofuels can be successfully introduced into the South African liquid fuels market. It is imperative all relevant stakeholders are involved and government be ready to provide the regulatory framework to enable the smooth and successful introduction.

 

 

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