12 September 2005
South Africa’s Energy Development Corporation (EDC), a division of the state-owned Central Energy Fund, is to buy a 25.1% stake in Ethanol Africa, a company set up by commercial farmers to turn surplus maize into environment-friendly biofuel.
The deal, announced by Ethanol Africa on the weekend, will add impetus to an initiative to soak up the large maize surplus, which has hit farmers’ profits hard, produce cleaner-burning fuel, reduce South Africa’s dependence on imported oil products, and boost rural development.
“I think the EDC realises the importance of renewable and cleaner-burning fuels,” Johan Hoffman of Ethanol Africa told AgriTV. “We need to make fuel more environmentally friendly. Adding ethanol to petrol is one way of doing that.”
The EDC’s mandate is to invest in commercially viable sustainable energy initiatives such as solar, wind and hydro energy. It targets market sectors with insufficient private sector activity as well as where the South African government, for strategic reasons, believes state investment is required.
Farmers’ organisation Grain SA estimates South Africa will have a 4.5-million-ton surplus of maize by April 2006. The country’s farmers have been struggling for a number of years with low grain prices, drought and high input costs – a result of the strong rand.
The price of maize has slumped from over R1 000 a ton in November 2004 to about R700 a ton. Some farmers will struggle to recover the cost of growing their crops.
Ethanol, a good source of octane in petrol, is an alcohol-based alternative fuel produced by fermenting and distilling starch crops such as grains and sugar. Ethanol Africa plans to set up eight ethanol plants in the traditional maize-producing provinces of Free State and North West.
Demand for shares
In addition to the EDC’s 25.1% stake, other shareholders will include a black economic empowerment group, Belgian biofuels company Alco, and Grain Alcohol Investments, a consortium of about 400 maize farmers. The farmers are to receive financial backing from commercial banks and agricultural companies providing funding.
“So many companies want to buy shares in the venture,” Hoffman says. “The project will continue once the shareholder’s interest has been finalised. Financing is in the final stages, as are the impact studies. We’ll start building as soon as these activities have been taken care of.”
The plants will cost some R630-million each to build and should be in operation by April 2007. Local labour from rural areas will be used in their construction.
Grain Alcohol Investments is made up of some 400 farmers who have pledged between 160 000 and
200 000 tons of maize a year to pay for their shareholding – about half the annual 370 000 to
400 000 tons of maize required for the Bothaville plant.
“Anyone can buy shares through Grain Alcohol Investments,” says Hoffman. “The shares are currently being sold at R1 each. As I see it Ethanol Africa will probably be listed [on the Johannesburg Securities Exchange] at some stage.”
Oil and the environment
With the oil price rocketing and the Kyoto protocol setting limits for countries’ carbon emissions, ethanol is increasingly gaining favour across the world.
In the US up to 60-million tons of maize are annually turned into ethanol. South Africa is looking at two to three million tons a year as a start.
“At current oil prices, one can produce ethanol far more cheaply than one can produce petrol from crude oil,” says Hoffman. “I can’t commit myself to saying that the production of ethanol will always be cheaper than that of petrol, but that’s certainly the case at the moment.”
A large amount of South Africa’s fuel consumption could be supplied through maize as soon as the Ethanol Africa plants are up and running.
“If we transfer 3-million tons of maize into ethanol, we will produce 1.26-billion litres of petrol – 12% of the local consumption,” says Hoffman.
In South Africa, leaded fuels are to be banned from 2006, raising concerns about fuel shortages. Lead is used to boost octane levels in fuels – as does ethanol.
At the moment, blending ethanol into petrol is voluntary. Proponents of biofuels want the Department of Minerals and Energy to make blending mandatory for oil companies, as is the case in several developed countries as well as in Brazil, which uses a portion of its sugar crop to make ethanol.
“There has to be a willingness to mix ethanol into petrol from ourselves, from government and from fuel companies,” says Hoffman “Fuel companies aren’t against it; they realise we need cleaner fuel, and they are positive.”
Ethanol Africa director Hannes Haasbroek says the company hopes its ethanol production will be bought by local oil companies for blending into fuel. Otherwise, the ethanol could be exported to Europe and Japan.
Grain South Africa believes that the manufacture of renewable fuels such as ethanol will not only stabilise the grain industry, but will also benefit new entrants and stimulate rural development.
“We feel that with the developments in the crude oil market and the energy markets in the world that South Africa can establish a viable renewable fuels sector,” John Purchase of Grain South Africa told SABC News.