INDUSTRIAL STRATEGY UPDATE ON THE BIOFUELS
Presented by Mr. Muzi Mkhize
Chief Director: Hydrocarbons Policy
13 August 2013
1
PRESENTATION OUTLINE
1.
INTRODUCTION
2.
SOUTH AFRICAN BIOFUELS ASPIRATIONS
3.
UPDATE ON LICENSING OF BIOFUELS MANUFACTURING FACILITIES
4.
BIOFUELS REGULATORY FRAMEWORK
5.
SOME ON-GOING AND OUTSTANDING BTT ACTIVITIES
6.
CABINET RESOLUTIONS OF 26 OCTOBER 2011
7.
CLOSING REMARKS
Brief historical overview of biofuels industry in SA - Evolution of policy, legislative and regulatory development for the biofuels
sector in SA. Status quo – what is government doing, how far has business invested, investment prospects, etc.
What are the challenges in the biofuels sector e.g. food security. Socio-economic benefits from bio fuels e.g. jobs,
Potential contribution to supply of energy - % contribution of bio energy to total supply
GHG emissions of bio-energy sources
2
INTRODUCTION
•
In the South African context, a specific requirement of the Biofuels
Industrial Strategy was to create a link between the first and second
economies, a requirement that entails creating jobs in underdeveloped areas.
•
Government recognizes that clear government policy, regulations and
incentives are a pre-requisite for the development of the biofuels
industry.
•
Even though biofuels, like most renewable fuels, require incentives in
order to be cost-competitive with conventional fuels, their upside is
that such incentives also account for benefits such as jobs creation,
balance of payments savings, energy supply security, and economic
growth that is fairly stable.
The Biofuels Industrial Strategy of the Republic of South Africa was
approved by Cabinet on 05-Dec-07. Five-year pilot phase envisaged.
3
INTRODUCTION (contd.)
•
All these benefits contribute to supporting a better life for all both
now and in the future.
•
Most importantly, the estimates as per the 2006 feasibility study
(conducted by the then DME) revealed that the targeted 2% biofuels
scenario can create about 25 000 jobs.
•
Government’s intention is to only allocate the producer (investor)
incentive to projects that involve expansion that assist in achieving the
2% target.
•
Commendable ground has been covered in pursuit of realising South
Africa’s biofuels aspirations.
The 2% target was revised downward from a 4.5% target that was initially proposed in the draft Strategy document.
Revision considered, inter alia, a new industry that would require subsidies & unintended consequences – incl. possible
negative impacts on food security, water resources & the environment - for a penetration > 2%.
Mabele Fuels has indicated that its R2.2 billion, 158 million litre per annum, sorghum-based bioethanol project will deliver 15,000 to 18,000 direct and indirect jobs to the Free State province.
4
SOUTH AFRICAN BIOFUELS ASPIRATIONS
•
2013 target: 2% biofuels penetration (about 400 million liters
per annum) into the national liquid fuels pool.
•
South Africa’s biofuels objectives :
o
Contribute towards the achievement of the national renewable energy
policy targets;
o
Contribute towards improving energy security in the country
o
Contribute towards the reduction of greenhouse gas emissions;
o
Facilitate rural economic development through job creation, SMME
development, etc.;
o
Stimulate agricultural production in the under-utilised agricultural areas
of the country; and
o
Integrate historically disadvantaged farmers, especially in the former
homelands, into the mainstream agricultural and energy economies.
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UPDATE ON LICENSING OF BIOFUELS MANUFACTURING FACILITIES
No.
Company Name
Plant Type
(bioethanol/biodiesel)
Capacity (million
liters per annum)
Location
License status
1
Arengo 316 (Pty)
Ltd.
Mabele Fuels
Sorghum-based
Bioethanol
Sorghum-based
Bioethanol
Sugarcane-based
Bioethanol
90
Cradock, Eastern
Cape
Granted
158
Bothaville, Free
State
Issued
50
Jozini, KZN
Granted
Soybean-based
Biodiesel
288
Port Elizabeth,
Eastern Cape
Issued
Waste Vegetable Oilbased Biodiesel
Canola-based
Biodiesel
12
Krugersdorp,
Gauteng
Port Elizabeth,
Eastern Cape
Granted
2
3
Ubuhle Renewable
Energy
4
5
Rainbow Nation
Renewable Fuels
Ltd.
Exol Oil Refinery
6
Phyto Energy
7
Basfour 3528 (Pty)
Ltd
Waste Vegetable Oilbased Biodiesel
50
Berlin, Eastern
Cape
Granted
8
E10 Petroleum
Africa CC
Bioethanol
4.2
Gauteng ,
Germiston
Granted
TOTAL
> 500
Initial stages of
license
application
> 1,000
Granted means the applicant has not met all the requirements but is now in possession of a conditional manufacturing
license.
Issued means the applicant has met all the requirements and is now in possession of a manufacturing license.
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EXISTENT BIOFUELS INCENTIVES
•
Biofuels Pricing Mechanism being finalised:
o Biodiesel falls within the fuel tax net, and biodiesel manufacturers receives
a rebate of 50% on the general fuel levy.
o Bio-ethanol falls outside the fuel tax net and therefore does not qualify for
a rebate.
•
All renewable energy projects (including biofuels) qualify for an
Accelerated Depreciation Allowance of 50:30:20 over three
years.
•
Over the year, these incentives have proven not be sufficient to
lure investments in the biofuels sector, hence the need to
establish a more enabling and supportive regulatory framework.
7
BIOFUELS REGULATORY FRAMEWORK (contd.)
Regulations regarding the Mandatory Blending of
Biofuels with Petrol and Diesel (the “Mandatory
Blending Regulations”) :
•
Promulgated on 23-Aug-12, in the Government Gazette (Gazette No.
9808 Vol.566 of 23 August 2012, Reg No. 35623)
•
Not effective as regulation 6 thereof states that “they shall come into
operation on a date to be determined by the Minister of Energy by
notice in the Gazette”
o
Draft Regulations were published for public comment on 16-Sep-11 until 18-Nov11
o
A stakeholders’ workshop was held on 24-Feb-12
8
BIOFUELS REGULATORY FRAMEWORK (contd.)
Regulations regarding the Mandatory Blending of
Biofuels with Petrol and Diesel (the “Mandatory
Blending Regulations”) :
•
Imminent Announcement: the effective date in view of delays in
finalising the Pricing Framework, while taking due regard of the need
to enable projects being developed
o
Implementing Committee to work on the practical aspects of ensuring that
blending does take place by the effective date
o
Inaugural meeting scheduled to take place on 30-Aug-13
o
Cabinet-mandated Biofuels Task Team (BTT) will proceed with its work
9
BIOFUELS REGULATORY FRAMEWORK (contd.)
Regulations regarding Petroleum Products Specifications and
Standards of 23rd June 2006 and amendments thereto
supportive of Biofuels Production:
•
Bio-ethanol’s concentration in blended petrol may range from 2% to
about 10% on a volumetric basis.
o
•
derived from the oxygenate volatility specifications for (blended) petrol;
Biodiesel may be blended with conventional (mineral) diesel at conc.
of 5% (B5), 10% (B10), 20% (B20), 30% (B30), 50% (B50) up to 100%
(B100) biodiesel
•
Removal of MON (motor octane number) penalty on and waiver on
volatility spec for petrol blended with bio-ethanol
10
BIOFUELS RELATED FRAMEWORK (contd.)
Biofuels Pricing Framework (cont’):
•
Biofuels Projects on their own are not financially attractive
•
Initiated pricing studies (Bio-ethanol Blending Value & BreakEven price determination) in February 2011 & completed in
December 2011;
•
Hosted a stakeholders’ workshop on 16 March 2012;
•
Convened a number of incentives discussions with National
Treasury (NT) and the dti under the auspices of the Biofuels Task
Team (BTT);
11
BIOFUELS RELATED FRAMEWORK (contd.)
Biofuels Pricing Framework (cont’):
o
Delivered bio-ethanol price
= Mogas 95 BFP
+ zone differential
+ fuel tax rebates
+ Blending Value
+ VAT
o
Bio-ethanol currently falls outside the fuel tax net and
therefore no fuel tax rebates apply to ethanol for fuel
blending purposes.
o Further engagements with NT and SARS et al for the development of an
appropriate pricing mechanism
Hydrocarbon Blending Value is the value of bio-ethanol as a petrol blend component to a
blender (uptaker). It is dependent on the basic petrol price and can be expressed as a
percentage of the unleaded petrol BFP
SORGHUM TOPPED OTHER CROPS THEN
12
BIOFUELS RELATED FRAMEWORK (contd.)
Bio-ethanol Plant Feedstock:
o Most common feedstocks worldwide are sugarcane and maize
• Food security challenges and exclusion of maize in the Strategy
o In South Africa, grain sorghum and sugarcane are the most
appropriate commercial crops
• Technical exclusion of others for support???
o Large quantities of these potential feedstocks are grown locally
and experience exists to expand production
o Sugarbeet has not been grown on a large scale in South Africa
and no information exists in the public domain on costs, prices,
etc.
• Economically sugarbeet would be valued on its intrinsic sugar content and
hence the pricing analysis would be similar to sugar cane.
FOOD SECURITY, ENVIRONMENTAL ISSUE, ETC. AS SELECTION CRITERIA
13
BIOFUELS RELATED FRAMEWORK (contd.)
Biofuels Pricing Framework (cont’):
•
Delivered biodiesel price
= Gasoil 50 ppm Sulphur BFP
+ zone differential
+ fuel tax rebates
•
Fuel tax rebate on biodiesel is 50% general fuel levy
14
BIOFUELS RELATED FRAMEWORK (contd.)
Biodiesel Plant Feedstock:
•
Most common feedstocks worldwide for biodiesel are soya beans,
rapeseed and, to a lesser extent, palm oil
•
In South Africa, soya beans and sunflower seed are the most
appropriate commercial crops
•
Large volumes of these potential feedstocks are grown locally and
experience exists to expand production
SOYA BEANS TOPS OTHERS. The exclusion of Jatropha is due to biodiversity concerns
and the need to protect local bird and animal species from poisoning. - Jatropha is an
alien plant with leaves and pods that are toxic.
15
BIOFUELS RELATED FRAMEWORK (contd.)
Bioethanol-Biodiesel Comparison
16
BIOFUELS RELATED FRAMEWORK (contd.)
Biofuels Pricing Framework (cont’):
Extract of Budget Review Chapter 4 - Revenue trends and tax proposals
“Biofuels production incentive
The South African biofuels strategy proposes to establish eight biofuels
manufacturing plants. As in other countries, a fiscal incentive is required to
overcome the initial capital cost hurdles and offset risks. The proposed incentive is
based on benchmark costs of hypothetical world-scale plants in South Africa, and
will compensate for monthly movements in benchmark feedstock and output prices.
It will serve as an “infant industry” support mechanism and will be phased out over
an assumed 20-year lifetime of a benchmark plant. The initial cost of the incentive
will be 3.5c/l to 4c/l of petrol or diesel, recovered through a levy included in the
monthly price determination.”
17
BIOFUELS RELATED FRAMEWORK (contd.)
Cause of delay in the development of a Biofuels Pricing
Framework:
•
In recent engagements with the sugar industry it became very clear that potential users
of crops other than sorghum as feedstock would not invest in a biofuels venture that
has a subsidy that is based on sorghum as a reference feedstock / crop and vice versa.
Hence the Department and National Treasury have to consider alternative means of
accommodate other crops whilst taking into cognizance not to put the fiscus under
pressure. Large volumes of these potential feedstocks are grown locally and experience
exists to expand production.
Meanwhile other related documents are still being developed:
•
The use of the General Fuel Levy instead of an Equalisation Fund levy to collect the
money;
•
the Criteria for Manufacturers of Biofuels to be eligible for the subsidy scheme;
•
Inclusion of other “comparable” feedstocks
SOYA BEANS TOPS OTHERS
18
SOME ON-GOING & OUTSTANDING BTT ACTIVITIES
ACTIVITY
RESPONSIBILITY
DEADLINE
Provide an update on research
findings or status quo of 2nd
generation biofuels as well as an
argument or counter-argument on
the inclusion or continued
exclusion of 2nd generation biofuels.
DST
31 March 2013
Support emerging farmers in
negotiating contracts with biofuels manufacturers as well as
financial assistance
DAFF
31 December 2013
Provide argument
argument on the
continued exclusion
Jatropha on the list
feed stocks
DAFF
31 March 2013
or counterinclusion or
of maize &
of permitted
BTT – A Cabinet mandated Inter-departmental
Biofuels Task team established in 2005
19
SOME ON-GOING & OUTSTANDING BTT ACTIVITIES
ACTIVITY
RESPONSIBILITY
DEADLINE
Broaden the general public’s
knowledge as well as acceptance
of biofuels
BTT & GCIS
On-going
Provide technical support to
emerging and aspirant farmers.
DAFF & SOCs
On-going
20
CABINET RESOLUTIONS OF 26 OCTOBER 2011
Purpose: To brief Cabinet on the steps to be taken to implement the
Cabinet Lekgotla decision on action Plan 7 to unblock investments in
the biofuels industry.
•
Noted the imminent publication of the mandatory blending
regulations by the Department of Energy;
•
Requested the urgent finalisation of the financial incentive
measures taking into account economic costs and benefits;
•
Agreed that the Minister of Trade and Industry reviews the
previous list of approved allowable feedstock to include,
amongst others, sugar and sorghum and the potential of
importing such feedstock in future;
21
CABINET RESOLUTIONS OF 26 OCTOBER 2011
•
Agreed that explicit conditionalities be linked to subsidies and
licensing, especially as it relates to the promotion of small scale
farming and job creation, amongst others;
•
Requested the Department of Water and Environmental Affairs
to convene a meeting of the Directors General of the
Department of Energy, of Economic Development, of Rural
Development and Land Reform, of Agriculture, Forestry and
Fisheries , of Science and Technology , of Higher Education and
Training and of trade and Industry within a period of two weeks
to develop a biofuels water policy position for biofuel feedstock
farmers; and
22
CABINET RESOLUTIONS OF 26 OCTOBER 2011 (contd.)
•
Requested the Department of Science and Technology to
develop a national priority strategic research thrust to place
South Africa at the forefront of 2nd and 3rd generation biofuel
research.
23
CLOSING REMARKS
•
A number of outstanding issues/deliverables are still work-inprogress due to the required technical investigations.
•
Even though the 2013 target will be missed, the country is set to
produce biofuels in excess of the originally set annual target
when the overall enabling & supporting framework (mandatory
blending regulations, pricing framework) takes effect.
•
As much as the local biofuel industry is currently in its infancy
stage, it does posses long term potential for growth.
•
Both the upside and downside issues need to be considered.
24
THANK YOU
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