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Tuesday, 20 January 2015

Biofuel investment in Kawambwa

Sunbird Bioenergy Africa is investing US$150 million in the production of ethanol in Kawambwa (Luapula province). Production is expected to commence this year, with capacity of around 120 million litres of ethanol per annum. It is expected that the factory would employ 600 workers. (Source : Times of Zambia)

Chief Mukanta has allocated the investor 20,000 hectares of land in the Luena Farm bloc. The factory would be located between Sub-Chief Muyembe and Chief Chitambo. The investor wants to engage 20,000 out-grower farmers who would supply cassava to the factory once it starts production.

This is a great development. The only problem is that it may not survive the current global economic winds. Latest empirical work suggests that biofuels make economic sense in Zambia against the current GRZ strategy of procuring petroleum via current supply chain. However, they assumed a wholesale price of around $1 per litre. Sinkala et al say biofuels would have a production cost less than $0.65 per litre.

Unfortunately with falling oil prices the wholesale price is now less than $0.30 per litre. Therefore this project does not look immediately viable. The investors may need to wait and see which way oil prices move before they go ahead. No one knows how long the slump will last. Similarly, last year GRZ 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”. Presumably that project may now also not go ahead.

It is unfortunate that falling prices are eliminating any incentive towards greater energy independence. Though biofuels skeptics concerned about the environment and land grabs may see that as a good thing.

Chola Mukanga
Copyright © Zambian Economist 2014

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