Central Energy Fund division discusses buying part of Ethanol Africa
Ethanol talks hint at shift to biofuels
August 19, 2005
By Ingrid Salgado
Cape Town - Energy Development Corporation (EDC), a division of the state-owned Central Energy Fund, is in talks to buy 30 percent of maize-to-fuel company Ethanol Africa in a deal potentially worth R180 million.
Ethanol Africa aims to start production in 2007.
The investment signals a possible shift in the government's biofuels policy, which makes the blending of bioethanol into petrol and of biodiesel into diesel voluntary.
Proponents of biofuels want the department of minerals and energy to make blending mandatory for oil companies, as is the case in several developed countries as well as in Brazil, which uses a portion of its sugar crop to make ethanol.
EDC general manager Manny Singh said yesterday that EDC was conducting a due diligence into Ethanol Africa, and the parties would sign a memorandum of understanding within weeks.
The Central Energy Fund, whose mandate includes energy-saving interventions, recently completed an in-depth study on bioethanol and would meet the department of minerals and energy soon to discuss its findings, he said.
The fund believed ethanol was a "very good intervention" given the challenges faced by South African farmers struggling with low prices and a 6 million ton maize surplus, Singh said. Ethanol also provided a good source of octane in petrol.
There is a concern that the banning of leaded fuels from 2006 could lead to shortages of high-octane petrol as lead has traditionally been used to boost octane levels.
Ethanol Africa director Hannes Haasbroek said construction of the group's first ethanol plant in Bothaville was expected to start by the end of the year, with first production due early in 2007.
Other investors included ethanol companies and financial institutions in the US and Europe, and about 400 South African maize farmers under the umbrella of Grain Alcohol Investments.
The 400 farmers had jointly pledged between 160 000 and 200 000 tons of maize a year to pay for their shareholding - representing about half of the 370 000 to 400 000 tons of maize required annually for the Bothaville plant, he said.
Ethanol Africa eventually plans to construct eight ethanol plants, the by-products of which will include bioethanol gel, a substitute for paraffin, and DDGS, which has a high protein content suited to stockfeed that can replace imported soyabean cake.
Haasbroek said the company hoped its ethanol production would be taken up by local oil companies for blending into fuel, but in the absence of a clear policy from the government, the ethanol could be exported to Europe and Japan.
World demand for ethanol is growing as cleaner-burning blended fuels will help countries meet commitments to reduce emissions under the Kyoto protocol.
Singh, responding to concerns that maize could be diverted from ethanol production to food should maize prices rise, said farmers would be locked into supply contracts. In the worst case, maize could be imported for ethanol production.
EDC was also keen to promote the conversion of sugar into ethanol, and had signed a confidential agreement with a sugar company to investigate a number of initiatives. Singh would not confirm if the company was Illovo Sugar, which has a small ethanol plant to manufacture alcohol beverages.
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