presented at the economics association of zambia taj pamodzi hotel – baobab lodoge, lusaka

Presented at the

ECONOMICS ASSOCIATION OF ZAMBIATaj Pamodzi Hotel – Baobab Lodoge, Lusaka

September 30th, 2008

ByProf. Thomson Sinkala

CHAIRMAN, Biofuels Association of Zambia

www.biofuelszambia.org

LIQUID BIOFUELS AS A VIABLE ENERGY MIX IN ZAMBIA

Prof. Thomson Sinkala, CHAIRMAN of Biofuels Association of Zambia

2

CONTENT

1. Zambia’s compelling environment for engagement in biofuels

2. What have we done so far?

(a) Organizational(b) Research and development(c) Operational

3. Zambia’s preferred feedstocks

4. Opportunity for poverty alleviation

5. Brazilian Experience

4. Conclusions

COMPELLING ENVIRONMENT FOR ZAMBIA’s ENGAGEMENT IN

BIOFUELS

• Peak Oil “Fever”;

• Energy security;

• Increasing fuel expense

• Energy deficiency for industry and domestic needs (the ever increasing load shedding); and

• Poverty reduction opportunities.

Prof. Thomson Sinkala, CHAIRMAN of Biofuels Association of Zambia 3


4

http://www.energyandcapital.com/

Average replacement rate

of oil reserves

www.energyandcapital.com/

As of 3rd March 2008




New GAO Peak Oil Report Provides Urgent Call to Action: U.S. Vulnerable and the

Government Unprepared for Unacceptably High Risks of Oil Supply Shock

March 29, 2007

Congressman Roscoe Bartlett said,

“This GAO peak oil report is a clarion call for leadership at the highest level of our

country to avert an energy crisis unlike any the world has ever before experienced and

one that we know could happen at any time.

Only the President can rally the country to take the urgent steps necessary. Potential alternatives to oil are extremely limited.

Technology won’t save us without time and

money to develop and scale them up.”


6

A Chatham House (of UK) Report titled: “The Coming Oil Supply Crunch”

published in August 2008 warns that

“… unless there is a collapse in oil demand within the next 5 to 10 years,

there will be a serious oil ‘supply crunch’”.

The Accenture Report of September 2008 states that:

The global biofuels industry has a 10-year window of opportunity to evolve into a

global and efficient industry before new technologies competed with first- and

second-generation biofuels.

Developing countries like Zambia that do not own their biofuels industry NOW will

only be production grounds, and Zambians to remain only as workers.


USAShell Oil Co., BP America Inc., Chevron Corp. and ConocoPhillips together have invested

$3.5 billion in:solar, wind, biofuels projects

ISRAELLabor Party fixture Binyamin (Fouad) Ben-Eliezer the

National Infrastructures Minister says……………… with worldwide oil supplies squeezed to the point where

even friendly suppliers won't have much left to send to Israel.

Therefore,……… southern desert known as the Negev, where the world's most highly concentrated solar

radiation levels could turn sparsely inhabited areas into a renewable energy gold mine.

Year BiodieselNr of family

farmers2007 B2 205.0002008 244.6682009 292.0112010 B5 348.515

1.5472.100

Million liters of biodiesel

8401.140

BRAZIL


NAMIBIA(Desert)

EGYPT(Desert)

MOZAMBIQUE


Maputo, June 21, 2006

In all his visits to provinces, this year, President Guebuza asks the population to cultivate jatropha and other oil producing

plants.

He had a branch of a jatropha with some fruits and showed the population how the

plant and its fruits look like.

He also showed them a jatropha oil-lamp and told them how easily it can replace

the current fossil-fuel lamps used in many households, in urban areas as well as in

the rural areas.

7 million hectares earmarked for biofuels


ZAMBIA

Workshops ? Meetings ?

Planning how to beg ?Sharpening begging skils ?

CHINA13 million hectares to

be under Jatropha

INDIA39 million hectares (13.5% of

landmass) to be under Jatropha

LACK OF TEAMWORK

1. 2.

What have we done so far?

(i) Organizational

17th – 18th August 2006: National stakeholder‘s consultative workshop for biofuels in Zambia held at Mulungushi International Conference Centre, Lusaka.

25th September 2006: Biofuels Association of Zambia (BAZ) registered to promote biofuels industry in the country.

25th January 2007: 1st Release of Information to the Public (JATROPHA CURCAS – What we know).

29th January 2007: Minister of Energy challenges BAZ to develop a quantitative understanding of the biofuels industry to be the basis for decision making.

20th April 2007: Draft Biofuels Development Framework formulated jointly by Government and BAZ.


(i) Organizational (continued)

29th April 2007: TEN (10) Action Points from the Draft Biofuels Development Framework developed by the National Technical Committee (composed of Govt and BAZ).

June 2007: BAZ communicates to the President of Zambia on issues affecting development of biofuels industry.

22nd – 24th July 2007: The President elevates the biofuels agenda by inviting BAZ to the Business Advisory Council.

5th September 2007: The Ministry of Commerce, Trade and Industry begins facilitating dialogue on financing of the energy sector.

November 2007: Government approves the Energy Policy (comprising biofuels).


(i) Organizational (continued)

Since December 2007: Development of the DRAFT National Energy Strategy for the 2008 – 2030 period by Government jointly with stakeholders.

16th April 2007: Government issued a Statutory Instrument (SI 42) which legalizes

biofuels.

May 2008: The Energy Regulations Board issued liquid biofuels standards.

• Government is considering a statutory instrument to make biofuels a priority sector;

and

• Government is working on National Energy Strategy 2008 – 2030. The strategy comprises

biofuels.


(ii) Research and Development

•Research is being carried out on sweet sorghum by University of Zambia;

•Significant research was carried out on Jatropha by the then National Council for Scientific Research (now National Institute of Scientific and Industrial Research).

•The private sector is carrying out various tests and developments on feedstocks and vegetable oils.

•Since April 2008: Ministry of Science and Technology formulating R & D programme for Jatropha.

In October 2007 we completed a study on Jatropha Value Chain

Supported by Sida of Sweden through the International Labor Organization

3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%

Seed Producion -23% 3% 29% 55% 80% 106% 132% 158%

Biodiesel Production 170% 107% 67% 41% 21% 6% -5% -14%

-50%

0%

50%

100%

150%

200%

Re

turn

on

In

ve

stm

en

t

Price of Seed as Percentage of Diesel Pump Price

Seed Price Impact on Returns on Investments of Two Value Chain Components

3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%

Seed Producion -23% 3% 29% 55% 80% 106% 132% 158%

Biodiesel Production 170% 107% 67% 41% 21% 6% -5% -14%

-50%

0%

50%

100%

150%

200%

Re

turn

on

In

ve

stm

en

t

Price of Seed as Percentage of Diesel Pump Price

Seed Price Impact on Returns on Investments of Two Value Chain Components


•March – May 2008: Country wide survey of biofuels related activity. MEWD / UNDP Funded

Report of the

Tour of Liquid Biofuels Industry in BrazilWith proposal for a trilateral cooperation

involving Zambia, Brazil and UNIDO

May 2008


18

ZAMBIA’s PREFERRED FEEDSTOCKS


The opportunity for Zambia’s participation and ownership

of the biofuels industry is now less than 5 years!!

PARAMETERS USED FOR ANALYSIS OF FEEDSTOCKS

1. Scope of wealth ownership at all levels;

2. Production technology;

3. Job creation;

4. Resilience against external disturbances;

5. Diversity of products;

6. Size of investment;

7. Market scope;

8. Land requirements;

9. Water requirements;

10. Food security;

11. Geographical coverage of wealth ownership in the country; and

12. Environmental protection

FUELFeed C R I T E R I A

SCORE

stock Etc

Biodiesel Jatropha 3000 3 3 3 3 3 3 Etc 33

Oil palm 5000 3 2 3 2 2 2 Etc 24

Etc

Etc

B/ethanol S/cane 10000 3 3 2 1 1 2 Etc 21

S Sorghum 3000 3 3 3 2 2 3 Etc 27

Cassava 3800 3 3 3 2 3 3 Etc 27

Etc

Etc

21Prof. Thomson Sinkala, CHAIRMAN of Biofuels Association of Zambia

In general, the best feedstock should be one that NET empowers all players across the board, from small to large.

MONOPOLISTIC feedstocks are a possible breeding ground for UNSUSTAINABLE biofuels industry.

FEEDSTOCKS FAVOURABLE TO ZAMBIA’s SITUATION

OIL / BIODIESEL

1. Jatropha curcas (first choice and country-wide participation)

2. Palm (mainly viable on large scale and in selected parts of Zambia)

BIOETHANOL

1. Sweet sorghum (country-wide participation)

2. Sugarcane (already existing)



23

YIELD ASSUMPTIONS:

Oil/Biodiesel•Jatropha (2000 liters/ha)•Palm (3000 liters/ha)

Bioethanol•Sweet sorghum (4200 liters/ha)•Sugarcane (7500 liters/ha)

Taking Jatropha and Sweet sorghum as lower ends for 100% substitution, the land requirements for local consumption would be: BIODIESEL & KEROSENE would require:420m l/yr would need 210,000 ha BIOETHANOL would require: 200m l/yr would need 48,000 ha.

Land RequirementsZambia currently consumes about

200 million litres/year petrol20 million litres /year kerosene400 million litres/year diesel


This land requirement of 260,000 ha is almost half that (about 450,000 ha) which Zambia looses as a forestry cover every year due to:

• Shifting cultivation;• Mining;• Charcoal burning;• Etc

Food Security

5 gmsD-compound

5 gms Jatropha cake

10 gms Jatropha cake

Jatropha organic fertilizer tests at Thomro Biofuels Farm, Zambia

25

Jatropha Nutrient Content (independent analyses)N 6.0%, P 2.75% and K 1.0% ( Chungu, in UNIDO paper on liquid biofuels).

N 3.2 – 4.44%, P 1.4 – 2.09%, and K 1.2 – 1.68% (Eijck, in UNIDO paper on liquid biofuels).

Own fuel by farmers will lead to mechanized

farming systems, and therefore increased

production

Reduced Deforestation

26

Biogas from Jatropha

Jatropha cake as charcoal

Use of Jatropha biogas and charcoal would significantly reduce deforestation due to wood charcoal fuel

Power Generation

27

SOURCE: Energiebaue of Germany

This opportunity will

(i) accelerate rural electrification and manufacturing.

(ii) improve services in areas such as Education (eLearning), Health, and eCommerce, Commerce.


WHAT IS BAZ NOW WORKING ON?

BAZ is now lobbying Government to:

(i)facilitate availability of funds to enable participation by citizens in the biofuels industry; and

(i)provide incentives to boost investment in the industry.

LESSONS FROM BRAZIL



33

CURRENT MATRIX OF VEHICLE FUELS – 2007 IN BRAZIL

The anhydrous ethanol is mixed with gasoline A where the compulsory present use is 25% in the blend (gasoline C).

The hydrated ethanol is used pure in ethanol vehicles or voluntarily in flex fuel vehicles (any blend to gasoline C).


34


35

COMMODITIESYEARS

1990 1995 2000 2005

Sugarcane 262,674 303,700 32,7705 420,121

Soybeans 19,898 25,683 32,735 50,195

Beans 2,234 2,946 3,038 3,076

Rice 7,421 11,226 11,090 13,141

Corn 21,348 36,267 31,879 34,860

Cassava 24,322 25,423 23,336 26,645

Potatoes 2,234 2,692 2,561 2,951

Poultry 2,356 4,051 5,981 8,669

Hen eggs 1,230 1,415 1,509 1,560

Beef 4,098 5,628 6,566 7,779

Pig meat 1,050 2,799 2,600 3,110

Tomatoes 2,261 2,715 2,983 3,304

Increasing trend in the energetic and food crops production in Brazil (x1000t)


COMMODITYWORLD RANK

PRODUCTION (Million tons)

Sugarcane 1 420.1Oranges 1 17.8Coffee 1 2.2Papaya 1 1.7Soybean 2 50.2Cassava 2 26.6Beef 2 7.8Bananas 2 6.7Poultry 2 8.7Corn 3 34.9Pineapples 4 1.4Pork 4 3.1

Source: FAO Statistical Database, 2005

Overall production and world ranking of some Brazilian commodities


Free market prices of fuels in Brazil (June 2008)

Bioethanol: B$1.779 (about US$1.11)

Petrol costs B$2.599 (about US$1.62)

38

TYPE OF COMPANY STATUSINTEREST

RATE

Micro, small and medium sized companies

Social Fuel Stamp TJLP + 1%

Micro, small and medium sized companies

No Social Fuel Stamp TJLP + 2%

Enterprises Social Fuel Stamp TJLP + 1%Enterprises No Social Fuel Stamp TJLP + 3%

Other segments No Social Fuel Stamp 1 to 4.5%)

FUNDING THE BIOFUELS INDUSTRY

The financing agencies include: BNDES (National Bank for Economic and Social Development);

PRONAF (National Program for the Strengthening of Family Farming);

Banco do Brazil – “BB – Biodiesel line of credit”; and

Other official or private banks.

Long Term Interest Rates (TJLP)

39

Oil Crops Financing Programs (BNDES)

Program Loan Participation

Interest Rate

Term

MODERFROTA

No limits 80 to 100% 12.75% 5 to 6 years

MODERAGRO

R$200,000 100% 8.75% 5 years

MODERINFRA

R$400,000 100% 8.75% 8 years

FRODECOOP

R$20,000,000 70 to 90% 10.75% 12 years

40

Social Fuel Certificate (Seal or Stamp) and how it works

To participate in the production and distribution of biodiesel, one must obtain a Social Fuels Certificate from ANP (an equivalent of the Energy Regulation Board of Zambia), the authorized Government agency.

To obtain the Social Fuel Certificate, a company must:

1.Commit to buy regularly a minimum amount of raw material that comes from the household agriculture (small farmers);

2. Commit to provide the appropriate technical assistance including certified seeds, rural technicians and best practices; and

3. Sign a contract with each small farmer in terms that must be regarded as proper by a rural workers’ union.

Agricultural Chain

Crops Crusher/Extractor

Seeds Veget. oil or Seed

Supplier

Service

Station or

RetailerRefinery

Consumer

Consumer

B1

00

B100 ONLY FOR CASES WITH ANP

AUTHORIZATION

EthanolProducer

B100

B100

Sugar cane

E100

B2/E100GASOHOL

BiodieselProducer

Regulated by ANPRegulated by ANP

B2/E100GASOHOL

The Biofuels Industry Profile

Not Regulated by ANPNot Regulated by ANP

Chain of industry, supply and retailChain of industry, supply and retail

Where are we in Zambia?


INFRASTRUCTURECOMMENTS

Existing in Brazil Existing in Zambia

Biofuels policy and regulations

Energy policy & standards

Inter-Ministerial Biodiesel Programme (PNPB)

Urgent and necessary to minimize inter-ministerial tensions due to mandates.

Social Fuel StampRequired immediately to effectively empower small growers.

Biofuels Credit LineRequired immediately to effectively engage Zambians in the biofuels industry.

Mandatory blending ratios

DraftImportant and urgent to set the liquid biofuels business volumes.

General incentivesRequired immediately to effectively engage Zambians in the biofuels industry.

Preferred feedstocks

Oil (Jatro & palm), Bioethanol

(Sugar & sweet sorghum), as

preferred

Land identification/allocation required immediately.

Plantations (various)Jatropha, sugarcane

Ground verification of existing plantations urgently required.



INFRASTRUCTURECOMMENTSExisting in Brazil Existing in

ZambiaBiodiesel processing plants

Small scale

Bioethanol processing plants

Incentives immediately required for existing sugar companies to start processing.

Filling stationsSpecifications/regulations required immediately.

Flexi fuel vehiclesIncentives to populate these vehicles required immediately.

Biofuels clusters (Piracicaba Regional Ethanol Cluster, Biodiesel feedstock small grower associations)

Biofuels Association of

Zambia

Immediate need to financially beef-up BAZ with resources to enable the association produce data/information and reach out to members.

Research and development fund

Urgent to start localizing experience and technology in biofuels industry.

Support to biofuels industry cluster organizations

Immediately required to beef up organizational capacity and awareness in the biofuels industry.



INFRASTRUCTURECOMMENTSExisting in Brazil Existing in

Zambia

Brazilian Agricultural Research Corporation (EMBRAPA)

Urgent to start localizing experience and technology in biofuels energy-agroindustry.

National Agency for Petroleum, Natural Gas and Biofuels

Energy Regulations

Board

Development of capacity urgently required in readiness for its role in monitoring and evaluations.

The National Institute of Metrology, Standardization and Industrial Quality (INMETRO)

Zambia Bureau of Standards

Development of capacity urgently required in readiness for its role in setting references for monitoring and evaluations.

Research institutions

Universities, research

institutions, colleges, R&D

trusts

Urgently need to develop MAINSTREAM educational as well as R & D programmes.


EXAMPLE OF: Timely Action by Mozambique

From:"Generosa Cossa" <[email protected]> To: "Prof. Thomson Sinkala" <[email protected]>, [email protected], [email protected], [email protected], [email protected], [email protected], [email protected], [email protected] Subject:Re: About the Jatropha ProjectDate:Fri, 2 Jun 2006 00:37:42 +0300 Dear Prof Sinkala, I am writing to thank you for the information you gave us about Jatropha. We managed to influence our government and now the jatropha plantation is part of the national policy. All the best for you. I hope to see you in Maputo. Best regards, Generosa

1. The threat of energy insecurity is real and the Government must elevate the urgency to catch-up with the FAST GROWING GAP (e.g. Brazil & Malawi);

2. Government and LEGAL FRAMEWORKS on biofuels should be completed urgently to build confidence and energize players.

3. The biofuels industry has room for all at all levels in society, and therefore has potential to address economic problems country-wide.

4. Land requirements for biofuels industry, are way less than feared.

CONCLUSIONS


6. Biofuels is a new industry and needs to be assisted through incentives and R & D because of its high potential to reduce poverty and address energy insecurity.

7. Research must run IN PARALLEL with production.

8. Government MUST facilitate availability of funds to enable participation by citizens in the biofuels industry.

CONCLUSIONS / RECOMMENDATIONS(continued)


Thank you for your attention

48

presented at the economics association of zambia taj pamodzi hotel – baobab lodoge, lusaka

Documents

thomson sinkala chairman

orgliquid biofuels

secondgeneration biofuels

global biofuels industry

usashell oil

oil demand

worldwide oil supplies

serious oil supply crunch