Biofuels for Transportation in Tanzania · 2012-01-10 · 1 Biofuels for Transportation in Tanzania...

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Biofuels for Transportation in Tanzania

Expert Workshop and Political Discussion

28 September 2005, Dar es Salaam

Biofuels – Policy Issues

Dr. Rainer JanssenWIP – Renewable Energies, Germany


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Expert Workshop and Political Discussion

28 September 2005Kilimanjaro Hotel Kempinski, Dar es Salaam

Workshop organised by WIP (Germany), Themba Technology (UK), TaTEDO (Tanzania), Integration (Germany)

Supported by GTZ


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Key Drivers for Biofuel Programmes

• Agricultural/rural development –Creation of new jobs and income opportunities

• Reduction of oil imports – Foreign exchange savings

• Improved energy security

• Creation of new industries

• Reduction of GHG emissions – Opportunities for CDM and carbon trading

• Reduction of air pollution (lead, PM, SO2, CO2)

• Improved vehicle performance (ethanol as octane enhancer)


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Pre-requisites of Biofuel Programmes

• Long-term, stable and clear policies, regulations and incentives

– Legislation on mandatory blending –low blends to avoid vehicle changes

– Initial price guarantee for biofuels –secure return on investment

– Initial protection of local manufacturers

• Broad involvement of stakeholders

• Revenue sharing mechanism to ensure that small-scale farmers benefit from revenues


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Case Study 1: The Brazilian Ethanol Program

References: Jose Goldemberg, USP; Suani Coelho, CENBIO; Emilio Lebre la Rovere, UFRJ; Julio Maria Martins Borges, JOB Ltd.

• Launched in 1975 as response to 1st oil crisis (petroleum bill burden, low international sugar price)

• Largest commercial application of biomass for energy production in the world

• Succeeded in demonstrating the technical feasibility of large-scale ethanol production from sugarcane and its use as transport fuel

• Brazil uses gasohol (22-26% blend of ethanol in gasoline, 1975) and hydrated ethanol (100% in dedicated vehicles, since 1979)


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The Brazilian Ethanol Program - Objectives

• Main objective: Reduction of oil imports

• Protection of sugarcane plantation industry

• Increased use of domestic renewable resources

• Development of the alcohol sector (e.g. process technology for industrial alcohols)

• Greater socio-economic and regional equality through the expansion of cultivable lands

• Generation of employment


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The Brazilian Ethanol Program - Policies

Intricate and politically difficult combination of technology and economic policy in the agricultural and industrial sectors

Government established several support mechanisms• State-owned oil company Petrobras to purchase a guaranteed amount of

ethanol

• Financial incentives for private innovation and investment(such as low interest rates and $US 2 billion in loans to ethanol producers)

• Price policy to ensure an effective remuneration to alcohol producers

• Consumer Encouragement by selling ethanol at 60-80% of gasoline price

Public investment in agricultural research


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ProAlcool Operating Aspects - ProductionProduction of fuel alcohol in Brazil is exclusively conducted by

private initiative (from sugarcane planting to alcohol distillation)

Governmental control through annual planning of the production (estimated ethanol demand for each year)

• Alcohol and Sugar Department, Ministry of Industry, Commerce and Tourism stipulates amount of alcohol to be produced

• Distribution of volumes between producing units (based on past record, current plant capacities, area planted with sugarcane)

• Improvement of agricultural and indust. efficiencies incorporated in ‘crop plan’

Government establishes prices within the global pricing policy for the fuel sector


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ProAlcool Operating Aspects - Marketing

• Alcohol production only during sugarcane crop season

• Marketing of alcohol throughout the year (ethanol stocks)

• Only producers are allowed to sell the alcohol to the distributing companies and to Petrobras

• Government coordinates ensuring monthly sales according to demand and equitable distribution among producers

• Anhydrous alcohol is sold to Petrobras, which resells it to distributing companies

• Blending of alcohol and gasoline is done by distributing companies


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ProAlcool Operating Aspects – Price FrameworkRegulated Fuel Market• Fixed ethanol prices are derived from actual costs of ethanol production• Government fixes price of hydrated alcohol to final consumer as ratio

(60-80%) of the gasoline price (incentives for consumers!)• Anhydrous alcohol is sold by Petrobras to distributors at same price as

gasoline• Difference in price is covered through system of cross-subsidies between

petroleum products and alcohol

Free Price Regime• Differential taxes to cover cost difference between alcohol and gasoline• Ethanol production in Brazil is competitive at ‘high’ oil prices

(> US$ 35-40 per barrel)



The Brazilian Ethanol Program - Problems

1989: ProAlcool received severe economic criticism

• Sharp drop in oil prices and steady growth in domestic petroleum production (est. costs of ethanol of US$ 45 per barrelversus oil prices of 20 US$)

• Increase of sugar price, low alcohol price (Govt. policy) discouraged ethanol production

• Ethanol supply shortage discouraged consumers (1988: 100% new ethanol cars; 1998: 0%)

• Vulnerability of program to short-term market fluctuations



The Brazilian Ethanol Program - Results

• Creation of 720,000 direct and 3.5 million indirect jobs (production of 350 million tonnes of cane)

• Establishment of a strong sugar and ethanol sector

• Ethanol production (2002): 11.6 billion litres

• Production costs: 0.23 US$ cents/l (0.34 cents per gasoline equ.)

• Hard currency savings (1975 to 2002): US$ 52.1 billion versus Subsidies: US$ 4.92 billion

• 10% reduction of Brazil’s total carbon emissions

• Reductions of CO, PM and SOx emissions (e.g. in Sao Paulo)



The Brazilian Ethanol Program – Success Factors• Government support and clear policy for ethanol production• Economic and financial incentives• Direct involvement of the private sector• Technological capability of the ethanol production sector,

adequate labour force• Cooperation between Government, sugarcane and ethanol

producers, oil refineries and the automobile industry• Plentiful, low-priced sugarcane crop

with suitable climate and agricultural land• Well established and developed sugarcane industry

(low investment costs for new distilleries)



Case Study 2: Cogeneration in Mauritius

Reference: Stephen Karekezi, AFREPREN

• Bagasse based co-generation in sugar industry provides 40% of country‘s electricity needs (20% from bagasse)

• Key features

– Extensive documentation with in-depth research at local University, within the industry and in Government

– Robust and well-managed sugar sector

– Started small (1 or 2MW investment and then grew incrementally to 70MW installations) which lowered initial risks and facilitated local participation



Cogeneration in Mauritius - Incentives

• Grid Access

– Almost traditional right as some of earliest mini-grids were supplied by bagasse co-generation plants

• Price of co-generated electricity

– Based on avoided investment cost of fossil fuel power plant

• Equity

– Equitable distribution of benefits - small, medium and large scale farmers receive a share of revenue from co-generation



Cogeneration in Mauritius - Incentives

• Duties & depreciation– Performance-linked rebates on export duty payable by sugar

cane millers for bagasse sold to co-generation plants– Accelerated depreciation allowance on 50% to 80%

of co-generation-related equipment

• Taxes– Tax-free debt bonds for co-generation investment and

associated equipment– No income tax on 75% of bagasse sales from sugar cane millers

to co-generation plants– No income tax on 60% of electricity sales to utility



Cogeneration in Mauritius

• Government through Mauritius Sugar Authority provided balanced and equitable regulation

• Incentive measures and policies added in incremental fashion which allowed careful assessment of effectiveness of each incentive

• Long-term policies and incentives applied for at least one complete investment cycle



Case Study 3: Biofuel Programmes in Africa –Malawi and Zimbabwe

Common characteristics

• Objectives: rising oil prices, foreign exchange savings, development of domestic resources

• Public-private partnerships and market coordination were critical (for blending, distribution and transportation)

• Ethanol distilleries built adjacent to existing sugar factories (availability of molasses as feedstock)

• Price of ethanol pegged to gasoline, plus incentive of about 5%



Biofuel Programme Zimbabwe• Triangle Ltd. began ethanol production in 1980

• Domestic labour and local construction reduced construction costs by 60% compared with turnkey plant

• All key aspects of price, distribution, marketing and related infrastructure had been finalised before plant was built

• 8-13% targeted blending ratio through national oil company

• Annual production during 1980s: 30-40 million litres

• Drought in 1991-1993 resulted in almost no ethanol production; arrangements to begin blending again were unsuccessful

• Triangle found international buyers for potable alcohol (30 million litres per year)



Biofuel Programme Malawi

• ETHCO Ltd. has operated since 1982

• Annual production: 15-20 million litres

• 15-22% blending ratio

• ETHCO owned separately from adjacent Dwangwa sugar factory

• Need for price negotiations, additional costs and increasing uncertainty of feedstock supply

• Additional molasses supply (40%) from Sucoma sugar factory (diesel trucks to transport molasses over several 100 km reduce environmental and economic benefits)



Key Lessons for Developing Countries

1. Public-private coordination among oil companies, government and biofuel entrepreneurs is critical to establishing and sustaining biofuel programs

2. Feedstock availability must be assessed including long-term climatic and market conditions

3. Consistency in Government policies and support

4. Careful planning of inputs (e.g. molasses) and waste streams (e.g. stillage) is needed for overall economic and environmental benefits



Recommendations - Biofuel Task ForceThe Cabinet of the Government of Tanzania commits to establish

a multi-sectoral stakeholder group (senior members of Govt. agencies, oil industry, civil society, consumer groups)

• Prepare stable and clear policies and regulations for the introduction of biofuels in Tanzania (e.g. blending mandates)

• Elaborate suitable incentives to ensure return of investment (e.g. tax reductions)

• Provide feedback and advice for implementing agencies

• Implement public awareness activities

• Establish linkages with new international activities (ADB, G8)



Multi-sectoral Stakeholder Group

• Ministry of Energy and Minerals (MEM) (Lead actor)

• Ministry of Agriculture and Food Security (MAFS)

• Ministry of Transport and Communication (MTC)

• Ministry of Industries and Trade (MIT)• Vice President Office (VPO)• National Environment Management

Council (NEMC)• Ministry of Finance (MoF)• Tanzania Revenue Authority (TRA)• Energy and Water Utility Regulatory

Authority (EWURA)

• Tanzania Petroleum Development Corporation (TPDC)

• Tanzania Association of Oil Marketing Companies (TAOMC)

• Oil Marketing companies• Tanzania Sugar Board• Sugar producing companies• Car manufacturers• Tanzania Driver Association• NGOs• Other stakeholders• Development Partners



Recommendations – Implementation schemeDemonstration facilities for biofuel production in Tanzania

Feasibility study• Selection of interested stakeholders (NGOs, biofuel producers,

oil companies, emission traders, banking institutes etc.) • Consensus between Government and stakeholders• Support from interested EU countries

Definition of business plan• Process and technology definition, equipment selection,

cost price calculation including investment, financing, partners

Development and installation of demonstration plant• Policies and regulations in place (e.g. blending ratio)• Government incentives in place (e.g. tax reductions)



THANK YOU VERY MUCH!

Dr. Rainer JanssenWIP – Renewable Energies

Munich, Germany

Tel.: +49 89 720 12743Fax: +49 89720 12791

Email: [email protected]: www.wip-munich.de


Biofuels for Transportation in Tanzania · 2012-01-10 · 1 Biofuels for Transportation in Tanzania...

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