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Wednesday, 24 September 2008

A new fuel policy..

The government has reduced the petrol and diesel pump prices in an effort to move Zambia from being the most expensive country in Africa to somewhere more modest. Apparently "the reduction was necessitated by the reduction in international prices of crude oil and further reduction of excise duty by the Government". The duty on petrol is now at 36 per cent from 60 per cent before June this year, diesel tax is now at seven per cent from 30 per cent while kerosene is now excise duty-free from 15 per cent.

Unfortunately, but perhaps unsurprising, the prices of heavy fuel and jet products remain the same as those would be determined by suppliers at costs negotiated with the industry. I say unsurprisingly because it is quite obvious this a fuel policy designed to woo voters. But what Zambia really needs is a transport policy, of which fuel policy would simply be a subset to delivering some of those goals, depending on the realignment of incentives within the transport framework.

The other thing that worries me about the latest move is that its unclear what impact all of this is going to have on goverment short to medium term fiscal position. This is yet another unplanned "expenditure" outside Budget 2008. How this going to be funded on top of election excesses? These are questions of course that no politician in their right mind will ask, not when populism is what gets you votes!

Full ERB statement below:


16 comments:

  1. Wow, I did not know that the taxes were so high!

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  2. Interesting news out of Montana State University, where the isolation of fungus genes responsible for the creation of Myco-diesel may bring the bio-fuels sector into greater prominence sooner than previously thought possible.

    A reliable domestic source of transportation fuel could be crucial if commodity prices continue to fluctuate with such volatility. The Zambian economy and transport sector in particular is simply too small to withstand several such shocks in rapid succession.

    For the next few decades at least, diesel is going to be the backbone of the industrial transport economy. Serious thought should be given to choosing to invest in domestic bio-diesel production in preference to improved oil import and refining capabilities.

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  3. Ethanol from sugarcane is also a very good and efficient fuel source as Brazil has shown.

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  4. Kafue,

    Very true, however it is unclear whether or not Zambia can afford to devote actual food yields such as sugar or maize to the production of ethyl alcohol. Indeed there are already concerns that adoption of such methods by agricultural giants such as Brazil and the US are contributing to worldwide food shortages.

    What is encouraging about the isolation of the myco-diesel genes is twofold:

    Firstly, the organic process involved transforms the common cellulose of the plant rather than the fruit or grain alone. This makes the raw material what is currently classified as organic debris rather than food.

    Secondly, the myco-diesel hydrocarbons are smaller and less complex than most second-stage bio-diesel inputs currently being employed. This is leading engineers already to speculate how entire steps of the conventional process might be bypassed via bio-filtration of organic material.

    This is far from practical application on an industrial scale, however it is not too early question whether any upgrades to the domestic refinery capacity should emphasize fossil fuels, bio-fuels, or both. It is also not too early to interface Zambian university biologists with those in Montana to see if there isn't a local fungus which might just be better at making fuel than the Patagonian one, now that they know what to look for. The ecosystems are after all not that dissimilar from each other. Above all it is not too early for the nation to look for any and every way to produce energy domestically, between transport and power infrastructure deficits it is a wonder the economy continues to grow at all.

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  5. Yakima,

    Very true, however it is unclear whether or not Zambia can afford to devote actual food yields such as sugar or maize to the production of ethyl alcohol.

    Without expanding the hectares of land under cultivation, I would agree with you. However, with only about 20% of arable land under cultivation, and only 3% under permanent irrigation, there is a lot of room for expansion, although food should have the priority until prices come down.

    However, has anyone checked out this technology. If you can put his on rooftops, cars, parking lots, you could produce more electricity than you consume.
    Nanosolar Powersheet
    The New Dawn of Solar

    " Imagine a solar panel without the panel. Just a coating, thin as a layer of paint, that takes light and converts it to electricity. From there, you can picture roof shingles with solar cells built inside and window coatings that seem to suck power from the air. Consider solar-powered buildings stretching not just across sunny Southern California, but through China and India and Kenya as well, because even in those countries, going solar will be cheaper than burning coal. That’s the promise of thin-film solar cells: solar power that’s ubiquitous because it’s cheap. The basic technology has been around for decades, but this year, Silicon Valley–based Nanosolar created the manufacturing technology that could make that promise a reality. "

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  6. MrK,

    The Nanosolar technology is very impressive, and I agree that it is likely to vastly grow the solar market share in coming years, though penetration into transport markets is likely to be much slower than other areas of energy. Even if we are optimistic about the auto industry's ability to push new electric drive-train designs to the world marketplace in a timely fashion, Zambia's bulk transport network is likely to depend on diesel for several decades. This technology could really accelerate rural electrification though, allowing for creation of local micro-grids for residential and commercial use which could later be integrated into the national grid as it grows. It could also provide cost effective means for heavy industry to ease its pressure on the national hydropower infrastructure by generating more of their own needs on-site. Taking the silicon out of solar panels is genius.

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  7. Yakima,

    Check out these electric trucks though.

    The air quality of urban areas would greatly improved if we could replace the thousands of diesel delivery trucks currently in use with zero-emission vehicles. In this vein, a company called Smith Electric Vehicles will be introducing their electric trucks to the U.S. Their Newton truck (pictured above) can be recharged via an regular electric socket. They have some pretty impressive features, including a range of up to 150 miles when fully charged. The battery system is rated at 120 kilowatts, and trucks have a maximum speed of 50 mph. The trucks also use regenerative braking to recover energy from the braking process.

    Combined with these nanosolar powersheets, they would use even less electricity, or can run using the surplus electricity collected from people's homes.

    Both are products that are already on the market.

    I'll admit that not a lot of energy in Germany comes from solar yet. Zambia would have an insolation of about 240 (?), which would be about three times that of Germany (80-90 W/m2).

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  8. There may be hope for leveling the playing field on jet fuel after all, Continental Airlines has successfully completed "a 90-minute test flight, a Continental Boeing 737-800 used a 50-50 blend of biofuel (algae mixed with jatropha, a weed that bears oil-producing seeds) and normal fuel to power its number two engine. The aircraft's number one engine operated on 100 percent traditional jet fuel, allowing Continental to compare performance between the biofuel blend and traditional fuel. The biofuel blend is a "drop-in" fuel -- no modifications to the aircraft or engine are necessary for the flight to operate. There were no passengers on board," according to Saabira Chaudhuri of fastcompany.com. All the more reason to get biofuel precursor production up and running.

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  9. The Zimbabwe Herald is reporting on ambitious jatropha cultivation efforts being planned for this year:

    Noczim steps up jatropha production

    Business Reporter

    THE National Oil Company of Zimbabwe has intensified efforts to boost jatropha production by targeting to plant at least 65 000 hectares and engaging more contract farmers.

    In a statement, the national fuel procurer said it intends to put 65 000ha under jatropha in the 2008-2009 season.

    Noczim has produced jatropha seedlings for planting in a number of strategic nurseries across Zimbabwe as part of Government efforts to encourage farmers to join hands in growing the crop to augment fuel supplies.

    The Government mandated Noczim, through the Ministry of Energy and Power Development, to spearhead the National Bio-diesel (Jatropha) Feedstock Programme.

    Feasibility studies conducted at the University of Zimbabwe have shown that bio-diesel could be the long-term answer to perennial fuel shortages in the country.

    Zimbabwe is a non-oil-producing nation and as a result spends millions of United States dollars in scarce foreign currency every year for petroleum imports.

    Noczim is understood to be providing extension services and technical advice to farmers who enter into contractual agreements in the bio-diesel scheme.

    Farmers and institutions that qualify as outgrowers receive ready-to-plant seedlings once their land is prepared to establish jatropha plantations for the planting season.

    "All farmers interested in growing the crop this season can access seedlings from farmers at the designated locations across the country," said Noczim.

    The bio-diesel project has attracted a lot of interest among farmers since its launch in 2005 and has since spread to all the 10 provinces.

    Jatropha is a drought-tolerant plant, which produces seed with oil content between 30 percent and 40 percent.

    The oil has great potential for making biodiesel while the cake left over could be used as organic fertilizer.

    Another by-product is glycerol, which is used in soap manufacturing.

    Several countries, including France, Germany, South Africa and Egypt, are already powering motor vehicles with biodiesel, which is not only cheaper but also more environmentally friendly than fossil fuels.

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  10. MrK,

    The Smith Electric vehicles do look impressive, however I am concerned that the price point is currently quite out of range for most Zambian operators. For example, at the height of fuel price spikes, even DHL bought only a single truck to use primarily as greenwashing in London, while the real emission and cost reductions they achieved were through distributed warehousing.

    Other important elements in determining a heavy transport fuel policy for Zambia over the next couple of decades are the lack of sufficient electrical generation and transmission infrastructure to support widespread plug-in electric usage, as well as the probable need for a diesel supply chain to support agricultural mechanization. Of course, if the agricultural sector can produce enough jatropha, palm, and other oils to support its own fuel consumption costs via exports then this would not be such a constraint. The nanosolar sheets are very cool, but I am not enough of an electrical engineer to know how much additional onboard equipment would be required to match loads with the engine system. I do know that Toyota has Prius models that include solar panels to run air conditioning and other ancillary systems, but on a separate switchable system from the drive chain. Chances are for the time being it would be cheaper to put photovoltaics on your house and recharge from sockets.

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  11. This jatropha thing is a non-starter because you require vast hectarage just for a few litres of oil. I see it also as just a backdoor entry of GMOs; looking at how long the plants take to start giving seeds (3 t0 4yrs), one of the nice words will be that fast-growing varieties will ensure that we harvest the seed quicker. Zambia is not yet ready because while the reason for growing jatropha has been fuel poverty or energy security, most of it will just end up being exported because we do not have control over the manufacturers of vehicles (especially that most of the vehicles are second hand imports) so as to dictate for flexi ones. In addition, which refinery are we going to use to enusre constant supply-forget about indeni because it will need a complete overhaul to do that, which they have not done even for the readily available fossil fuel. While it is good to keep on dreaming that they are eco-friendly, but since commercial cultivation uses a lot of fertilisers and water, there have been findings that the nitrates thereof are converted into nitrous oxide which is a GHG. In Zambia we need to learn from the time when farmers fell for castor oil or even paprica and abondoned cultivation of food crops. Many outgrower schemes only have limited acreage from which they cannot diversify or else they perish.

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  12. Anonymous,

    I am not often this blunt, but in my opinion you are simply wrong on all points.

    First, you are confusing ethanol and methanol blended with petrol (which requires flex-fuel), with biodiesel (which works on existing equipment).

    Second, jatropha requires no genetic modification to grow in Southern Africa, nor is there any evidence of it spreading in an uncontrolled or invasive fashion even when left unattended for decades.

    Third, there are a ton of discussions elsewhere on this blog which discuss a wide variety of alternatives to high nitrate fertilizers derived from fossil gases, the problems associated with which are not limited by any means to vegetable oil producing crops.

    Fourth, Zambia currently exports zero energy, due to massive increases in electricity use over the last several years, with disastrous results for balance of trade, economic growth, and development of a long term energy strategy. Since the EU alone is preparing to spend ten of billions of euros more per year to import biofuels and their precursors (such as jatropha, palm, or rapeseed oils) than fossil fuels, domestic refining is not required to use agricultural exports to offset fossil imports. If they are not grown in a fashion which meets the ideological "sustainability" test which justifies the higher price (like Indonesian palm oil), then they won't buy from Zambia.

    Fifth, three to four years is short for any type of orchard or perennial yield to develop, and jatropha is considered preferable to palm oil in Southern and Eastern Africa not because they grow fast or produce more but because they use less water.

    Sixth, if the outgrower scheme is itself a part of rural farm diversification to reduce dependence of monocropping maize, then I fail to understand how this then results in lack of diversification. A few hedges of jatropha alongside a farmer's maize or cassava fields is the model being pursued by Zambian start-ups like Biomass Plc., not total conversion from food crops to oil crops.

    It is not a dream, I encourage you to wake up from your nightmare of perpetual dependence on imported fuel.

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  13. Yakima, I agree with you about the wrong application of the term flexi to biodiesel. Nevertheless I would like to believe that the push for Jatropha growing stemmed from the high oil prices and the need for energy security, while eco-friendliness is debatable.
    "Since the EU alone is preparing to spend tens of billions of Euros more per year to import biofuels and their precursors (such as Jatropha, palm, or rapeseed oils) than fossil fuels, domestic refining is not required to use agricultural exports to offset fossil imports"
    By the way they were very ready even for castor oil and paprika, but where are with it? And if your target is primarily for export then whose energy security are addressing?
    “A few hedges of Jatropha alongside a farmer's maize or cassava fields is the model being pursued by Zambian start-ups like Biomass Plc., not total conversion from food crops to oil crops"
    A few hedges you said; and we hope to have mass production from a few hedges? Won't that be miraculous! Unlike hedges, I see it inducing a huge competition for land through commercial interventions, and inevitably total conversion by out-grower schemes given the proclaimed expected income from there.
    You have confused me because in trying not to commit yourself to answer the question of refining you say;
    "Since the EU alone is preparing to spend ten of billions of Euros more per year to import biofuels and their precursors (such as Jatropha, palm, or rapeseed oils) than fossil fuels, domestic refining is not required to use agricultural exports to offset fossil imports".
    Now because your target is EU -meaning that you will not have any to use in your country - how will you make me "to wake up from your nightmare of perpetual dependence on imported fuel"? What you are saying is that we export everything but we still have seeds and crude oil which we will use in our vehicles. Well, may be!
    In view of the reduced fossil oil prices, what is your view especially that bio-fuel production may be expensive without use of fertilisers?

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  14. Anonymous,

    I agree with you about jatropha (like all biomass energy sources) not being a panacea for the environmental problems associated with energy use by modern populations. While I do consider myself to be an environmentalist, as I have intimated to Cho elsewhere, Zambia needs economic development one way or another, I tend to prefer "greener" options because they have lower operating costs which largely offset the lower gross return they offer. I agree that the primary focus on biofuels in Zambia is about high oil prices and energy security. The primary focus is Europe is perceived eco-friendliness, and while of course it is possible to assume that no-one in the world will ever do what they say they are going to do, I hardly see what castor oil or paprika have to do with EU energy demand in coming decades.

    Refining of biodiesel does not yet take place on a large scale anywhere, and the primary focus of most biomass to energy technologies is to start small and modular in order to reduce bulk transport costs where possible. Part of why this is possible is because the inputs tend to be relatively pure to begin with, however there are still major hurdles in the Zambian context with regard to other biodiesel inputs such as methanol production and transport, and of course the ever present lack of available investment capital. If carbon credits eventually materialize, such a mechanism could be used to offset capital requirements for biodiesel refining where otherwise unavailable for Indeni or other traditional refining options. There is certainly a greater potential for competitive production of biofuels in a landlocked, single-point importation, single-point refining of fossil fuel circumstance such as Zambia's, therefore your intense skepticism leads me to believe that you simply have no belief in biofuels in any circumstance.

    I was not attempting to duck the refinery issue, rather to acknowledge that even though it is a problem which may not avail itself of swift solution, EU policy as currently written indicates that there would still be a potentially lucrative market for biodiesel precursors if produced without massive deforestation or irresponsible use of nitrate fertilizers. The EU is not "my target", it is my guarantee to investors that they will not be captive to the sort of policy which has brought the nation Indeni and all its woes. What I am saying is that to the limited extent that all energy is fungible, so is biomass derived energy, and yes, export everything that the country can get a decent price for, especially if it is sustainably produced, because the balance of trade is preventing development and prolonging poverty.

    Fossil oil prices are projected (by the IMF) to average at US$50/barrel for 2009, and US$60/barrel for 2010. This may be less than half what it was six months ago, but it is more than double what it was ten years ago. I am not certain that we should really be thinking in terms of reduced oil prices, given that metals and food prices have fallen back to around 10-20% higher than they were in 2000. Furthermore, the IMF is projecting nonfuel consumer prices to rebound by 7.3% going in to 2010, while fuel prices grow at 20%. Clearly if there is to a bet to be made in commodities, the fuel sector would have to be near the top of the list, no?

    As for a few hedges, yes, exactly that, replicated on tens of thousands of the small farms that make up the bulk of the nation's rural economy. The research conducted by the JCTR and others on poverty reduction and food security indicates a strong correlation with diversification into small quantities of cash crops and/or cottage industries (Such as soap, which can also be derived from jatropha and is one of the highest inflation items in the standard market basket tracked for the CPI.). The move to include jatropha oil as a precursor for alternatives to kerosene jet fuel is another indication that future demand may be strong. I say may be, because that is the nature of investing, it is all forward-looking, and investment products are slapped with all kinds of warnings about how past performance is not indicative of future results and you may lose some or all of your capital. That said, I am still expressing my opinion that jatropha cultivation is very much a "starter", quite literally, for the agricultural and energy diversification of the nation.

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  15. Thanks Yakima,

    I am not against biofuels, but it is just the way in Zambia the issue has been hijacked by pseudo-pundits who do not want to hear any dissenting views, whether legitmate or not. At least in this your explanation there is a sense of doubt and not the way others want to express the usual (SBS) silver-bullet-syndrome that is usually, if not always, packaged in a parsimonious and fanatical manner whenever biofuels are discussed. You have not seemed to understand the castor-paprika thing; well it was just to remind you that the same hype we are seeing around jatropha is what was obtaining sometime back when our poor farmers were promised the great benefits they would get from planting those two crops, but it did not turn out to be so. But instead because our rural farmers have limited pieces of land whoever ventured in any of those crops could not cultivate the staple crop-guese what that meant! Thats what I was trying to get at. The only difference with the new surge is that "experts" have confused us on whether the biofuel is meant for Zambia or not.

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  16. Anonymous,

    Thank you for that clarification, and let me say that I find your skepticism wholly understandable in light of your explanation. I sympathize with farmers who got caught up in hype surrounding castor and paprika mono-cultivation schemes. Under no circumstances should small scale farmers be relying solely on a single crop, especially if it is not itself a food crop. It would be good if the smallest farms could be enlarged somehow, however in general it is lack of irrigation, fertilizer and mechanization which is restraining the amount of land under cultivation nationwide. I prefer to concentrate on advice and support programmes for the smaller farms, as I figure that the bigger farmers already have a plan of their own.

    You are absolutely right about SBS, treating biofuels or any other single commodity as the nation's ticket to everlasting wealth and prosperity is self-defeating, as we have seen with copper, macro-hydropower, and maize. I personally liken this approach to that of western pharmaceuticals, one pill, keep upping the dose until it works. I prefer an approach to development more akin to eastern pharmaceuticals, many ingredients, each applied in an amount just below the threshold for negative side effects, keep adding ingredients until it works.

    A good example of this sort of thing is the Chilli powered development around Mfuwe that Cho reported on in October. As long as it is kept small, with a reasonably secure market arranged in advance, then it won't overwhelm the ability of a poor farmer to cope if there is a drought or a price crash. In the case of the chilli it also keeps the elephants out of the fields without hurting them, just like in an eastern potion the ingredients are more powerful in combination than alone. If everyone in the country starts going chilli crazed and tries to turn it in to the number one export or something ridiculous, then the buyers will know the country has no other choice, and run the price down. Bee-keeping is another good example of an ingredient with multiplier effects for other aspects of agriculture, vermiculture another still.

    I personally am not terribly concerned over the actual physical security aspects of energy imports (though I realize that for people who are paid to worry about such things, it is significant), but rather the economic security aspects. Currently fuel and fertilizer combined are the trade imbalance, fluctuating with commodity prices in general, but in the realm of 15% of GDP. I honestly don't know whether import substitution or "non-traditional" export growth is the better answer, I suspect a combination of the two is best. Until the country is selling more than it is buying, it is effectively printing kwacha to make up the difference.

    Borrowing to procure equipment, premises, and skilled labour for a future enterprise is one thing. Borrowing to maintain a lifestyle beyond one's means is something else entirely. Either substitute for imports of fossil oil and gas using the local biomass (extracting CH4 from woody biomass via pyrolysis is increasingly efficient as companies like CPC move into commercialization and scale up their prototypes), or find enough sources of renewable exports to make up the trade shortfall. If it is cheaper to import fossil oil and export electricity and/or vegetable oils than producing enough domestic biodiesel to handle the needs of agriculture and heavy transport, so be it. If domestic synthetic or organic fertilizers are too expensive to manufacture, then import enough of the stuff to actually produce a surplus large enough to export agricultural product to equalize the expense. The important thing is to balance the equation somehow, right now the nation is bleeding with every liter of fuel and every bag of fertilizer.

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