Large-scale production of biofuels in South Africa could create at least 15 000 jobs.
The projects, which will usher in the first large-scale production of bioethanol in South Africa after many years of preparation, will follow expected government announcements of the date from which admixture of biofuels to "normal fuels" will become law, as well as the regulated prices for those biofuels.
One of the bioethanol factories will be at Bothaville in North West province, the other at Cradock in the Eastern Cape.
Also expected this year is the announcement that two large plants to produce biodiesel from canola and soya will be constructed at Coega. The canola plant is projected to cost R4.2-billion and the soya plant R2.3-billion. The canola plant will produce biodiesel initially for export to the European Union, although it is later likely to be expanded to supplying fuel to South Africa. The soya plant will be fully directed at supplying the South African fuel market.
At least 15 000 new jobs are likely to be created by each of the new plants, resulting in a total of about 60 000 jobs, primarily because of the consequent major expansion of South African sorghum, canola and soya crop production. Unlike previous plans for biofuels production, the feedstock crops planned will obviate concerns about food security. In fact, the projects will increase South Africa's production of food commodities. High volumes of sorghum, soya and canola will be produced. In sorghum's case, at least, it will be from largely dry ground, which is currently fallow.
And in all three cases, a big by-product will be oilcake, used for protein animal feed, which is largely imported currently. Arguably, in the case of soya, this by-product will be the primary product and oil for biodiesel will be the by-product.
But in all cases, the oilcake will increase food security because less will have to be imported and there will be more animal feed.
In August last year, after years of delay, the energy department announced the minimum levels of bioethanol and biodiesel fuel suppliers will in future be obliged to buy along with their "normal" fuel — 2% for bioethanol blending in petrol and 5% for biodiesel blending in diesel. But the August announcement was half of what was required by the nascent South African biofuels industry to go ahead with projects.
Still required, especially by financiers, is the "effective date" from which mandatory blending of bioethanol and biodiesel will be legally required and the regulated price formula applicable. The big fuel refiners will not do the blending voluntarily.
The biofuels industry has been waiting for years for government certainty on these aspects and because of the delay a number of projects that would have created many jobs have been abandoned.
Only the two large bioethanol projects (in Bothaville and Cradock) and the two large biodiesel projects (both at Coega) apparently survive. Some observers say that the government is now in a hurry to go ahead with the biofuels programme because it is a good way to promise substantial job creation ahead of an election. Accordingly, they expect the announcement of the "effective date" and the final price and return-on-asset formula arrangements to be made within the next month. Throughout the world, biofuels projects are supported by governments through subsidies, tariff protection or otherwise. Government involvement in the South African industry would therefore not be unusual.
In the national budget in February, it was revealed that the government would institute a return on assets price-support model for biofuel plants to ameliorate variations in input costs (for instance of sorghum) and revenues. In this model, hypothetical bioethanol and biodiesel plants are used for reference and subsidies are provided to actual producers whether they underperform or outperform the hypothetical plants' returns. This is a similar system to that used to create Sasol and goes a long way to "de-risking" the industry, according to some observers.
The $250-million (R2.3-billion) soya project at Coega, by Rainbow Nation Renewable Fuels (RNRF), an offshoot of National Biofuels Group of Australia, was well ahead of the rest in 2008, having already achieved its environmental impact assessment approval and a production/manufacture licence for its 40-hectare site in Coega. But the global financial crisis resulted in the withdrawal of the major shareholder, AIG insurance company of the United States, after it was bailed out by the US government. Thereafter, regulatory uncertainty in South Africa was a further delay and the project was put into "hibernation" last year, according to Ian Armstrong, the chair of both the Australian and South African companies.
But the project is still approved and it is likely that it will be revived rapidly if regulatory certainty is achieved. Said Armstrong: "The fund-raising for the RNRF project at Coega was put on hold in late 2012. RNRF has a commercial biodiesel licence to produce more than 280-million litres of soya biodiesel. The project was at an advanced stage in terms of capital funding, plant design, black economic empowerment participation, land tenure and offtake agreements.
"However, given the ongoing uncertainty of support by the government for the biofuels industry, the major shareholder of RNRF decided to cease capital-raising activities until greater clarity was available. This was also something about which potential investors expressed concern. We have continued to monitor announcements made by the government and are encouraged by the support mentioned in the recent budget speech. We are expecting further announcements in the near future, at which stage, all being well, we will be in a position to re-engage those funders who previously expressed interest in RNRF."
About R100-million has been spent on the project so far and it is still apparently highly viable if there is regulatory certainty. National Biofuels Group started its two soya projects in Australia and South Africa at the same time. The Australian plant is now nearing completion and the company is already supplying high-quality soya biodiesel to the Australian market. It is now by far the largest supplier of biodiesel in Australia. New shareholders will be sought for the South African project. Once the go-ahead is given, construction of the plant could take less than two years.
The South African plant appears to have better profit prospects than the Australian project because of increasing domestic production of soya in South Africa. This is because soya is an increasingly popular rotation crop for maize in South Africa (whereas maize is not produced in great volume in Australia) and its production is already rising here. But it is expected that, with the RNRF project, domestic soya production could double to between three and to four million tonnes a year, both by commercial and emergent farmers.
Increased production and processing will replace imports and the fuel will be a by-product of the pressing of soya beans, with oil cake as the main product, thus boosting the food market, rather than competing with it. The other major biodiesel project is by Phyto Energy, a Swiss-German company. However, this project is not dependent on the South African market or on government announcements because it was always aimed at supplying the EU market primarily, where mandatory admixture is already in place.
Phyto Energy's Coega project is awaiting only environmental approval and a production/manufacture licence. It is expected that construction of the plant, budgeted to cost €350-million (R4.2-billion), will begin later this year. It should begin operating in early 2016, at a production capacity of 200 000 tonnes of biodiesel a year and double that a year later. Thereafter, the plant may be further expanded to produce for the South African market.
As with sorghum and soya, this is likely to result in a large increase in canola production, initially by commercial farmers, but later also by emergent farmers with government support.
The Bothaville project of Mabele Fuels is owned by foreign investors through a Mauritius-registered company, although the Industrial Development Corporation (IDC) also has some involvement in it.
It will be on the same site where commercial maize farmers previously wanted to erect a large plant producing bioethanol from maize. But that is where the similarity ends. The ground was bought by the new investors and their plant is of a different design, although it is based on proven and not "third-generation" technology, said Phil Bouwer, the chief executive of Mabele Fuels.
The maize farmers' project was abandoned when the government banned the use of maize and wheat as feedstocks for biofuels because of a possible threat to food security. Thereafter, sorghum gained favour because it is a drought-resistant, non-water-intensive crop and because it has previously been a crop produced extensively by black farmers. Whereas 10 years ago South Africa was producing about 700 000 tonnes of sorghum a year, because of the continuous decline in sorghum-beer consumption, that fell to about 80 000 tonnes last year.
The bioethanol plants will revive production on land that has been largely fallow. Although the initial base-load supply for Mabele Fuels is likely to come from commercial farmers, it will increasingly be derived from emerging black farmers.
Bouwer said his project was targeting 25%-35% production from emerging farmers within three to five years. The commercial grain farmers organisation, Grain SA, was assisting in encouraging production among emergent farmers.
Everything was in place, Bouwer said, in anticipation of the government's announcements — approvals for the plant, financing (primarily by a major South African bank) and the design. To get to the point of production — from gaining assessments of the environmental impact on the land used, equivalent to those required by an oil refinery, to applying for a production/manufacturing licence — took about five years, he said, and other companies would not be able to jump into the bioethanol industry overnight, He said R80-million had been spent on the project so far.
The plant will use 400 000 tonnes of sorghum to produce 150-million litres of bioethanol a year, which will be enough to supply 60% of the minimum 2% admixture to national petrol sales. The plant will cost R1.5-billion and take 24 months to build.
Bouwer hopes that the "effective date" will be 2015, which means there will be no delay in starting the project once the government's announcement is made.
The Cradock project is owned by the IDC. No information could be elicited from the IDC on its readiness to go ahead with the project once the government announcements are made. However, the Cradock project has been placed on a president's priority project list, which suggests it will go ahead as soon as possible. The cost of this factory has previously been stated as R1.7-billion.
In the past two months, there has been some action in Cradock, following seemingly interminable delays. Twenty-five farms acquired by the department of land reform have been handed over to new black tenants on a total of 2 500 hectares of irrigated land and 10 000 hectares of veld.
Ongoing transfer of land is envisaged, to reach 6 000 hectares of irrigated land and 15 000 hectares of veld. This is an empowerment step before the announcement of the factory.
The first phase of the factory envisages the use of 220 000 tonnes of sorghum a year to produce 90-million litres a year of bioethanol. In a later second phase, production will be lifted to 200-million litres a year of alcohol. Of the initial 225 000 tonnes of sorghum required, 30% is slated for production by black farmers in the former Ciskei and Transkei to be transported to Cradock; in other words, about 67 500 tonnes.
As farms there generally yield about two tonnes per hectare, this indicates 33 000 hectares of land and an estimated 17 000 farmers involved.