A recent World Bank paper by Sinkala et al examines the economics of biofuels in Zambia. Here are their broad conclusions:
With increased global interest in biofuels, Zambia, a Sub- Saharan African country that entirely depends on imports for its petroleum supply, is planning to implement blending mandates for biofuels. But, a large number of issues—including production costs of biofuels, land requirements to meet the mandates, and environmental benefits—have not yet been explored.
This study aims to contribute in filling this gap. It finds that depending on feedstock type, costs of ethanol production range from US$0.360 a liter to US$0.680 a liter while the costs for biodiesel production range from US$0.612 a liter to US$0.952 a liter. Even if lower energy contents of biofuels are taken into account, the analysis shows that biofuels are cheaper than their petroleum counterparts.
Considering the cost advantage of these biofuels over petroleum products and the availability of surplus agricultural land, Zambia is likely to benefit from the development of a biofuel industry. Biofuels is expected to reduce Zambia’s petroleum import bill, which currently stands at more than US$700 million, enhance food security by providing incentives to increase yields, and increase affordability and accessibility to modern energy in the country where 77 percent of the population still lacks access to modern energy. It could also stimulate rural employment and development.
(Source: World Bank Policy Research, June 2013)
Essentially what they seem to be saying is that biofuels make economic sense in Zambia. According to the authors biofuels would be very competitive against the current GRZ strategy of procuring petroleum via current supply chain. With the current wholesale price around $1 per litre. Sinkala et al say biofuels would have a production cost less than $0.65 per litre. The wider economic benefits would also be huge in terms of employment.
The analysis can certainly be improved but it is broadly persuasive. But presumably not persuasive enough for the current government to do anything about it. What is clear is that GRZ do not seem to think biofuels are the solution towards energy independence. Although it has sounded off interest in encouraging biofuels there’s nothing on the table before 2016. It January Government signed an MoU with Zambia Sugar to facilitate the negotiations for an off-take contract for ethanol production in order to “reduce the escalating prices of fuel”. But crucially Zambia sugar does not this a plant can be constructed before 2017.
Most importantly the negotiations will be around how much ethanol the Zambia sugar produce and what sort of pricing it can expect before the construction of the plant begins. This will guarantee a market for future production of ethanol and improve chances of getting the necessary financing for the construction of the plant. Zambia sugar are wary of undertaking any investment which will not generate significant returns. As long as Government is bent on protecting its current inefficient supply chains it won't invest in biofuels.
Chola Mukanga | Economist Copyright © Zambian Economist 2013