Ethanol blend: Govt’s policy failure exposed

via Ethanol blend: Govt’s policy failure exposed – The Zimbabwe Independent January 9, 2015 by Herbert Moyo

FOR the third year running since it was re-opened in 2013 ethanol producer Green Fuel is clearly out of its depth blaming heavy rains for its failure to ensure there is sufficient ethanol to meet blending requirements. This is despite government’s unilateral decision to enforce mandatory blending of petroleum with 15% ethanol (E15).

The heavy rains that have caused serious flooding and displacement of urban and rural communities countrywide have affected the Chisumbanje region which has clay soils that clog quickly and become impermeable in wet conditions, making it impossible for the company to harvest the sugarcane critical for ethanol production.

Not unexpectedly, some service stations recently ran dry in many parts of the country. The perennial shortcomings of Green Fuel — a joint venture between the Agricultural and Rural Development Authority (Arda) and Billy Rautenbach’s Macdom and Rating — despite massive hand-holding by government in the form of a monopoly in the fuel sector, naturally raises questions about the country’s fuel policy.

Many have once again asked whose interests are being served by maintaining the mandatory blending, suggesting it would be prudent for government to re-consider its policy. Would it not be proper to allow the public the freedom of choice in terms of the quality of fuel they purchase for their vehicles, they argue.

Green Fuel has attempted to deflect blame by stating that the situation (of seasonal shortages of ethanol used for blending) is not unique to Zimbabwe as other countries are also affected by water-logging during rainy seasons.

While this may be true as other major producers like India (particularly in the Bihar and West Bengal regions) sugarcane harvesting suffers due to floods and water logging during monsoon months, it has been argued that Green Fuel should stock adequate supplies to offset the problem, and the public should have the freedom to choose whether or not to use ethanol blend as in other countries producing the blend.

The supposed benefits of mandatory blending, however, are yet to be realised by the public in a country where there is nothing to show for the recent substantial reduction in world oil prices.

Green Fuel has always maintained that its investment is a significant national project of strategic importance, saying it has ploughed in US$600 million that will eventually create about 8 000 jobs at its peak.

The project will enable Zimbabwe, which has no oilfields, to produce its own fuel and reduce its fuel import bill at a time when the country is reeling from a serious liquidity crunch, Green Fuel says.

It also claims the project has created jobs for hundreds of people and will help boos government’s revenues as the company will pay considerable taxes when it starts operating at full throttle.
There is a further assertion that there will be plenty of downstream industries and benefits, for instance, support for new black sugarcane farmers who have ventured into the area following the land reform programme.

All told, the project would boost the economic prospects of the country which desperately needs sustainable investment.

But it is three years since the resumption of operations and most of these benefits are still to materialise. Clearly, the motorist’s interests are yet to be served as instead of adequate and cheaper fuel, they have to contend with expensive fuel as well as erratic supplies every rainy season.

If anything, the current phenomenon of declining world fuel prices seems to be passing Zimbabwe by. Last week Brent crude oil fell to US$55,81 (R652) a barrel, the lowest level for oil since 2009, prompting a R1,27 a litre decline in neighbouring South Africa’s petrol prices to R11,02 a litre from R12, 29 a litre in December.

According to South Africa’s Energy Department last Friday, the fuel price decreased “because of the continued drop in the price of crude oil which had resulted in a decrease in the prices of petroleum products such as petrol, diesel and paraffin”.

Likewise, diesel will decrease by either R1,04 or R1,05 per litre depending on the grade. Illuminating paraffin would see its price fall by R1,44 per litre.

Zimbabwe’s fuel, with the ethanol component, is hardly any cheaper. Zimbabwe Energy Regulatory Authority (Zera) prices show a marginal decline of US$0,03 in December to US$1,40 and US$1,51 per litre for diesel and petrol respectively, but this is still higher than the South African prices.

Without admitting the failure or weaknesses of its policy, government has had to beat a hasty retreat from the compulsory blending of petroleum with 15% ethanol, reducing the amount to just 5% ethanol despite Green Fuel targeting April 2015 for the introduction of E20 fuel blending.

As was the case last year, Green Fuel’s woes at Chisumbanje have opened a window of opportunity for Triangle Limited to resume ethanol production — a sign that monopoly is unproductive, if not a failure.

“It is in the public interest that the government must serve,” said Godwin Phiri, a social commentator adding, “and that public good cannot be served by enacting laws to create a captive market tailored to benefit one private company. Basic economic reasoning warns against creating monopolies and prescribes freedom of choice for the public.”

Apart from the generality of Zimbabweans, even the locals, who are supposed to be the immediate beneficiaries of having the project in their midst, are crying foul alleging that the company has reneged on promises to provide job opportunities. Instead there have been disputes over pollution of rivers, arbitrary impounding of livestock and land disputes which have resulted in some locals being arrested by police for allegedly trespassing on company land.

“We are considering suing some of the arresting officers for this insensitive and unlawful arrest of innocent villagers due to police overzealousness especially as this land dispute is well recorded and can only be settled through dialogue rather than arrests,” said Claris Madhuku, a Chisumbanje local who is also director of Platform for Youth Development, a pressure group advocating the rights of the community.

Green Fuel also promised to invest in electricity generation to produce enough electricity to power the entire Manicaland province. But only when it makes good on its promises can the company and government justify the controversial mandatory blending policy.