Feasibility Analysis for Commercial Biofuels Business in Uganda

Presented to:!Ambassador (Ret.) Reno Harnish III!President Doug Faulkner, Leatherstocking, LLC!Mr. Gerry Hartis, Director, Global Development Enterprise!!Presented by:!Andrew Cleary, David Jung, Nicole Noyes!

!Global Development Enterprise! ! April 14th, 2014

Executive Summary

! This report outlines the findings from socioeconomic and environmental research to discover the feasibility of a sustainable biofuel business in Uganda. The objective of this project is to discern whether implementing a strategy for the production, refinement and distribution of biofuels in Uganda would encourage the nation’s development by generating social, economic, and environmental benefits. This report is based on both primary and secondary research as well as analysis of each stage of the value chain:!• Biomass Production!• Biofuel Refining!• Biofuel Transportation!• Biofuel Marketing!! Biomass production will examine the geographical and agricultural profile of Uganda, the production of major food corps, and productivity of the chosen district. It mainly focuses on analyzing the reasons for the significantly low yield of crops and formulating potential solutions to increase the yield for greater production.!! For biofuel refining, it will discuss various feedstocks for producing biofuels, present research on building a refinery, and suggest locations for the refineries. Specifically, it will analyze the cost of the refining process and explore all eighty districts in terms of their food production, productivity, transportation infrastructure, markets, and the suitability of chosen crops.!! The distribution section will review the supply chain as well as transportation costs and storage details. Possible points of entry into the transportation fuel supply chain will be investigated. Analysis of the cookstove fuel supply chain will also be presented. Road accessibility and quality will be assessed, specifically in the Mukono region.!! The biofuels marketing section will present market and competitor analysis of the primary market of transport fuel, as well as the secondary markets of cookstove and generator fuel. Transportation fuel demand currently outpaces supply, but foreign companies investing in domestic fossil fuel production could alter the status quo. Ethanol for use in cookstoves is a small, but growing market. The market for diesel fuel to power generators is small and fragmented.!! In this report, we have also utilized a select number of the Global Bioenergy Partnership sustainability indicators to measure the potential environmental, social, and economic benefits of a sustainable biofuels industry in Uganda. !Environmental: The report analyzed the exceptional soil quality in Uganda. However, soil quality is threatened by some issues such as soil erosion and mudslides.

April 14, 2014

Introducing more modern agricultural tools such as fertilizers can significantly improve the soil quality and increase agricultural production. Likewise, the water quality is also abundant, but faces similar challenges from increasing population and urbanization. The filling in of wetlands for construction or factories and the running off of industrial waste into Lake Victoria are some of the most pressing environmental issues related to water quality. Uganda boasts a rich biodiversity, with an abundance of forests and rainforests, but this is threatened by widespread deforestation to fuel a booming charcoal industry. The report also found that there is no significant tension between land used to produce food crops versus that designated to fuel crops.!Social: The report explored the state of land tenure, outlining the four most common forms including customary tenure, mailo tenure, freehold tenure and leasehold tenure, with customary tenure being the most prevalent form in Mukono. The report also looked at the social impact of biofuels on women and children, whether it reduces the time spent gathering biomass or the threat of indoor air pollution. !Economic: Due to a lack of agricultural technology, the agricultural productivity in Uganda is extremely low. Implementing blended ethanol or biodiesel and ethanol cookstoves would help reduce Uganda’s depending on imported fossil fuels. Encouraging the dissemination of technology and improving infrastructure would encourage the sale and distribution of biofuels. !! Through careful analysis of each segment of the value chain and the economic, environmental and social impacts, this report will present an informed position on whether a biofuel business would be beneficial or detrimental to Uganda. Additionally, suggested areas for further research and focus will also be included.

Table of Contents

BIOMASS PRODUCTION.……………………….……..…..5 BIOFUEL REFINING………………………..……………...20 BIOFUEL DISTRIBUTION…….………………….………..28 BIOFUEL MARKET……………………………….………..33 GBEP INDICATORS………………………………………..40 PROPOSED BUSINESS MODELS………….……..…….50 SUGGESTIONS AND FURTHER QUESTIONS……..….65

Biomass Production The Uganda Census of Agriculture (UCA) 2008/2009 by Uganda Bureau of

Statistics provides a meticulous and comprehensive picture of the agricultural sector in Uganda. It focuses on two major areas of Uganda’s agriculture: individual agricultural households and the usage of land for agricultural purposes. In relation to agricultural households, it describes individuals’ access to cash and water, ability to generate goods and services, access to information and ability to sell their products. For delineating the usage of land, UCA categorizes the country into four main regions and compares the agricultural variety and quantity of each region. This will provides a thorough framework by which to understand the agricultural sector of Uganda, which is indeed “the most important sector of the economy, employing over 80% of the work force”. 1

Agricultural Households (Ag HHs)

According to UCA, about 31 million people, or 86% of the population, rely on agriculture. A vast majority of individuals are involved in either producing agricultural products or in transacting them. Uganda’s Ambassador Oliver Wonekha mentioned that the majority of workers on the farms are women, and they do not necessarily have any modernized agricultural equipment to ease their labors and to maximize their productivity. In farming communities, the primary sources of agricultural information are radios and word of mouth, with popular topics of information being husbandry groups, weather, credit facilities, and farm machinery. This demonstrates that the Ugandan farmers are keenly interested in improving their capabilities to make their work more profitable and efficient, despite the many difficulties facing them such as poverty, lack of capital, and outdated or unavailable technology.

Food Security

Food security in Uganda is one of the most significant issues of this feasibility analysis. More than half (56.7%) of Ag HHs cannot afford to enjoy a proper diet (Food insecurity). Especially in the northern region, this issue is the particularly severe: three out of four people (74.1%) of people do not receive a sufficient food supply, while about 50% of individuals in other regions suffer from similar food insecurity. The predominant reason for this food shortage is a loss of crops or insufficient production of crops, which is at 71.4%. We will discuss in greater detail the poor productivity of agricultural products in Uganda. The two remaining reasons are inadequate capital and land, which

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http://www.countrywatch.com/country_profile.aspx?vcountry=1781

comprise 19.3% and 10%. This demonstrates a severe deprivation of the agricultural capability levels in Uganda.

Capabilities of Agricultural Population

! There are six types of capabilities that affect the agricultural sector, of which directly impact individuals’ quality of life and their ability to surpass their current economic status. The first factor is the availability of food storage. About 56.7% of agricultural households reported that they store food in their homes, and 18.5% said they have a specific house or room for food storage. This evidences that less than one out of five households have actual designated storage space. !! Secondly, the statistics show that a vast majority of individuals are vulnerable to natural disasters such as drought and pests. A lack of irrigation and agronomical advancement resulted in 91.5% of households suffering from drought and two out of three Ugandans suffering from pests and diseases. !! Third, the state of water supply and quality in Uganda indicates the need for drastic improvement in clean water resources. One third of Ugandan people lack safe water and one half of the population has no access to sanitation services. Although water is imperative for a flourishing human life, many Ugandan people do not have access to the clean water that sustains their agricultural and economic activities. !! Fourth, UCA demonstrates that 71.0% of agricultural households use axes, or hand-held hoes, which are the most basic tool of farming. It also reports that 29% of households have no equipment to use but their own hands. This is clearly another cause for Uganda’s low overall productivity of agricultural goods. In addition, only 0.8% of households own tractors, which also contribute to the low productivity in spite of Uganda’s fertile farmland. !! Fifth, only 10% of agricultural households had accessed credit in a period of five years. Availability of cash and capital is a must for any entrepreneurial efforts or business activities. This is an exceptionally low number, evidencing inactive business behaviors in Uganda. The reasons given by those who did not access credit were: high interest rates (27.1%), lack of collateral/security (20.9%), no need for credit (16.4%), and ignorance of the existence of facilities (15.1%). !

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Map of Uganda

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Land Use of Uganda The second portion of the Uganda Census of Agriculture reports the land use and

agricultural production of four regions: western, eastern, central, and northern. According to Table 1.1.1, cultivated land had increased from 1990 to 2005 by 18% from 84,000 square kilometers to 99,000 square kilometers, while tropical forest and woodlands had substantially decreased by 25%. This indicates a serious environmental issue (deforestation) for the sake of increasing more farming land.

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Food Crops of Uganda In Uganda, major food crops include banana, cassava, maize, sweet potatoes,

and beans. Although it produces millions of these products, they are still in some cases insufficient to feed everyone in the country. Moreover, the yield (MT/Ha) of these crops is substantially lower than the average yield of other developed nations. This report will further discuss the causes of this low productivity of these crops and the potential for improving it.

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Crop Area and Production by Region Table 3.1.1(below) demonstrates the crop area and production of agricultural

goods by four different regions. The data highlighted in pink are significantly high numbers whereas those in yellow are relatively high numbers. The western region is known for its excellent production of plantain bananas along with relatively good production of potatoes and corn. The eastern region boasts a very high production of maize, sweet potatoes, and cassava, and in fact, appears to produce the most significant amount of crops compared to other regions. In the central region, we can infer that crop production is the lowest despite its exceptional soil fertility because of increased industrialization. Lastly, the northern region maintains a relatively low production of all crops but plantain bananas; this region produces a lower yield despite its larger land area.

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Production and Disposition of Major Food Crops Based on Table 4, banana has the highest production (about 4mil MT) followed

by cassava (about 2.9mil MT) and maize (about 2.4mil MT). A majority of crops are consumed by their producers, in a state of subsistence farming, and about 20-40% of them are sold at local markets. As this demonstrates, in most instances the Ugandan people are not producing sufficient amounts of agricultural goods to participate in economic activities other than subsistence farming. In addition, the rate of stored production seems incredibly low, as previously discussed, due to the lack of storage facilities (only 18.5% have specific storages).

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Imports and Exports of Commodities in 2011 2

According to the Food and Agricultural Organization (FAO)’s statistics included below, Uganda’s top imports are palm oil, wheat, sugar, beer, and cigarettes. Although one might assume that Uganda need not import any agricultural commodities because of its incredible soil productivity and abundant precipitation, this set of data shows that much of Uganda still lacks food. Even corn is ranked as the 13th import, despite the fact that it is the third most-produced crop in Uganda.

<Top Imports of Commodities 2011>

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http://faostat.fao.org/desktopdefault.aspx?pageid=342&lang=en&country=226 2

Imports and Exports of Commodities in 2011 As FAO’s top exports table shows below, Uganda’s primary exports include

coffee, cotton, and tea. These are the staple exports of Uganda in addition to other forms of goods and services, such as electronics, manufactured products, and technology-based goods. It is interesting to note that some of the top exports are also top imports. This demonstrates an inefficiency of transacting goods within the country, ultimately resulting in greater costs to acquiring goods as well as investing valuable cash in the economics of other countries.

Top Exports of Commodities 2011

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Soil Productivity and Precipitation As we have emphasized several times, the soil productivity and precipitation of

Uganda is almost too good to be true. Lake Victoria provides an incredible source of fresh water, in addition to well many smaller lakes and rivers throughout the country. A majority of Uganda’s land also receives more than 1,000mm up to 2,100mm of rainfall. This abundance of rainfall makes much of Uganda a tropical climate. The maps below portray the soil productivity and precipitation of Uganda. According to a interview with the native Ugandan, Mr. Jinga, “they can grow almost anything anywhere. It is a blessed land.”

Soil Productivity of Uganda

! Source: UNEP/GRID-Arendal and Hugo Ahlenius, Nordpil.

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Precipitation of Uganda

!Source: UNEP/GRID-Arendal and Hugo Ahlenius, Nordpil.

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Mukono Biomass Production After careful analysis of the initial findings, our group chose to select Uganda’s

Mukono district to conduct further research on this specific region as the most competitive location for a biofuels business. There are three primary reasons that we chose Mukono. First, we enjoyed access to a reliable and direct contact from Uganda Christian University in Mukono. Second, this district boasts some of the most productive and fertile farmlands in the entire nation. Lastly, Mukono is strategically located in proximity to Kampala, Uganda’s capital city and largest market. The main highway connects Mukono with Kampala and Jinja, another prosperous market center. Although Uganda’s infrastructure faces serious challenges, Mukono seems to have comparatively goods roads to transport assets and resources.

Mukono District Profile Mukono is located in the central region of Uganda, 21 kilometers (about 13 miles)

east of Kampala along Kampala-Jinja highway. It takes roughly 30 minutes to reach the center of Kampala from Mukono. It also includes the shore of Lake Victoria and takes about 20 minutes to 1 hour to the center of Mukono depending on which lake area you are departing from. With this excellent location in close proximity to Kampala and to nearby roads, Mukono truly is an ideal place to start a business.

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Just as the majority of Ugandans are involved in agricultural activities, Mukono is likewise a predominantly agricultural district. The population of Mukono has been increasing pretty rapidly since the 1990s. According to the Uganda Bureau of Statistics, Mukono was home to about 320,000 people in 1991, and this number increased to 423,000 in 2002, a nearly 30% increase. In addition, in 2010, the population rose even further to 583,000, which is another 40% increase from the year of 2002. This demonstrates Mukono’s incredible population growth in recent decades, driven largely factors such as its prime location and increasing industrialization.

Source: Uganda Bureau of Statistics !As mentioned in introduction, Mukono has extremely high soil productivity and

precipitation, allowing for a wide range of crops. Its sandy-loam soils are not only fertile, but a steady water supply from frequent rainfalls protect the land from severe droughts or other harmful environmental trends. Mukono enjoys two rainy ranging between 1250mm to 2000mm annually. According to our discussion with members of Uganda Christian University, Mukono does not suffer from flooding because the land is fairly flat and protected by many forests.

Source: UNEP/GRID-Arendal and Hugo Ahlenius, Nordpil. !The arable land in Mukono is about 2600 square kilometers. However, currently

only 30% of this arable land ( about 800 km2) is being utilized. This reveals an excellent opportunity to develop and use the un-utilized land for the sake of fostering increased economic activities. 3

Name StatusPopulation

census 1991-01-12

Population census

2002-09-13

Population census

2010-01-01

Mukono District 319,434 423,052 583,000

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http://www.mukono.go.ug/ 3

Agricultural Production

!According to Uganda Census of Agriculture (UCA) 2008/2009, the production of

cassava was the highest of all agriculture crops (41,669MT), followed by sweet potatoes (37,501MT), plantain banana (33,663 MT), and maize (18,882 MT). Although the level of production may seem sufficient to feed the people of Mukono and to market the crops, the yields (MT/ha) of these crops seem drastically lower than average on-farm yields. For example, farmers in Nigeria, working in conjunction with the USAID-funded Cassava Enterprise Development Project (CEDP) achieved an average yield of cassava of around 25 MT per hectare, which is almost 10 times higher than that of cassava in Mukono. The advancement of agronomical support and fertilizer seems to tremendously amplify this productivity of crops.

In addition, if Mukono invests in cultivating about 1500 square kilometers of un-utilized arable land, which is twice of currently utilized land, it will likely generate 20 times more agricultural production. Even if this 20 times increase may sound too optimistic, Mukono can easily achieve an astronomical growth in its production. In fact, 4

this is one of the most significant findings of this study. Although Uganda is known as an agricultural country, its productivity is incredibly low. If we can reach this suggested yield level in Africa (25 MT/Ha) or even that of Europe (35 MT/Ha) by investing in fertilizer,

Mukono - 2008F/2009S Production (MT) Area (ha) Yield (MT/ha)

Cassava 41,669 15,430 2.7

Sweet Potatoes 37,501 14,817 2.53

Plantain Banana 33,663 17,048 1.97

Maize 18,882 16,776 1.12

Beans 4,202 9,667 0.43

Rice 837 1,065 0.79

Groundnuts 727 2,012 0.36

Soya Beans 22 98 0.22

Sorghum 15 104 0.14

Simsim 11 44 0.25

Total 137,529 77,061 (770.61km

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http://www.nigeriamarkets.org/files/Cassava%20fact%20sheet_FINAL.pdf 4

research centers, technology and equipment, we will achieve only increased production of adequate and affordable biomass for ethanol/biodiesel, but also significant advancements in the fight against poverty in Uganda. Indeed, Uganda has the incredible potential to transform into an economically-leading country in East Africa.

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Biofuel Refining In the previous two chapters, we discussed the biomass production and

productivity of agricultural products in Uganda. It is a positive sign that there is a favorable condition to grow and harvest biofuel feedstock, which is the main ingredient of biofuels. In this part of the report, we will focus on characteristics of biofuels, comparison between ethanol and biodiesel, feedstock assessment, basic steps to build a refinery and potential locations for biofuel refineries.

Advantages & Disadvantages of Biofuels 5

There has been a lot of research and publications regarding biofuel as a replacement of petroleum and other source of energy. In fact, this issue has developed especially over the last decade. Many people are aware of this concept and pros and cons that are involved in this activity. In light of the purpose of this report, there are a few relevant advantages and disadvantages that are useful to consider. In terms of advantages, there are three main elements: energy independence, economic growth, and environmental benefit. Firstly, generating biofuels and replacing them with petroleum would make the economy more stable and less risky. In most countries, besides large oil nations, are directly impacted by the price of petroleum as almost all industries rely on fossil fuel as well as transportation. Secondly, there might be economic growth at a community level. More jobs will be created and those farmers and manufacturers will be able to grow their own supply of affordable and reliable energy. Thirdly, there is a huge environmental benefit in using biofuels instead of fossil fuel. The CO2 emission will decrease by 80% if you use biodiesel and about 40% if you use ethanol. It will foster cleaner air and less climate change (global warming). In terms of disadvantages, on the other hand, there is potential competition with food crops. Especially in countries like Uganda where there is food insecurity, using food crops as the ingredient of biofuel will take food away from people who really need it to sustain their lives. It requires appropriate policy support and availability of alternative plans for sustainable development. There are numerous factors in both ends, however, these 6

are more significant things to consider according to the purpose of this project.

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http://www.jatrophabiodiesel.org/bioDiesel.php?_divid=menu65

http://nordpil.com/go/news/uganda-biofuels/6

Comparison Between Ethanol and Biodiesel The table below compares ethanol and biodiesel by three different aspects:

production, transportation fuel use, and environmental impacts. The major difference is the kind of crops are being used. For Ethanol, food crops such as corn, cassava, and sugar are used whereas for biodiesel, generally non-food crops like Jatropha, sunflower, and Switchgrass are used as primary materials for fuel production. Although many regard these two biofuels as the replacement of petroleum, they each have secondary markets where there is great potential and demand. Ethanol can be sued as cooking fuel for cookstoves, and biodiesel can be sued for producing electricity. They both cause greater environmental performance than petroleum but biodiesel seems to be more eco-friendly than ethanol.

!ETHONOL BIODIESEL

Combustion Danger Flammable/combustible Non-Flammable/combustible

Estimated Production Cost More Less

Secondary Market Cookstoves Electricity

Transportation Fuel UseFossil Fuel Sector Demand 450M liters/year 600M liters/year

Increase/Decrease Increasing Drastically Decreasing Slightly

Recommended Blend with Petrol

10/90 (E10); 85/15 (E85) 5/95 (B5); 20/80 (B20)

MPG/Power Reduction 3-4% (E10); 20-30% (E85) Negligable (B5); 2% (B20)

Environmental StatisticsNet Energy Balance 25% 93%

CO2 Petrol

72% 40%

Overall Emissions Comparison

More Fewer

ProductionFeedstocks Corn, Sugar, beets, wheat,

cassava (food crops)Rapeseed, sunflower, soybean, palm, coconut, jatropha, animal

fat

Made with Isobutylene Methanol

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Ethanol and Biodiesel Feedstock Assessment One of the main challenges of this project is garnering the right information from

the right source. In spite of researching this topic of feedstock assessment for many hours, we were not able to acquire the source that compares all the energy crops with the same measures. Instead, through the extensive research and use of intuition, we came up with two sets of feedstock assessment: one for ethanol and the other for biodiesel.

Ethanol Feedstock Assessment

!For the ethanol feedstock assessment, we ranked the energy crops based on oil productivity, variation of production, land use, maintenance, resilience, and suitability to the Ugandan land. We decided that Switchgrass, Miscanthus, and sugar cane are the top three feedstocks for generating ethanol. On the other hand, we regard cassava, maize and sweet sorghum as lower ranks because of their low oil yield.

Biodiesel Feedstock Assessment 7

Energy Crops

Oil Yield Variation of production

Land Use

Maintenance Resilience Suitability

Switchgrass High Low Medium Low High Medium

Miscanthus High Low High Low Medium Medium

Sugar Cane High Low High Low Medium Medium

Sweet Sorghum

Medium Medium Medium Low High Medium

Maize Low Low High Low Medium High

Cassava Low Low High High High Medium

Energy Crops

Oil Yield Variation of production

Land Use

Maintenance Resilience Suitability

Jatropha Medium High Medium Low High Very High

Giant King Grass

Very High Medium High Medium High Unknown

Palm Oil High Low High Medium Medium Medium

Soybeans Medium Low High Medium High High

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http://www.recrops.com/miscanthus/miscanthus-growing-cycle, http://7

www.biofuelstp.eu/crops.html

For the feedstocks for producing biodiesel, we chose four candidates: jatropha, giant king grass, palm oil, and soybeans. They are some of the most well known feedstock candidates because of their oil yield, familiarity, and suitability to various climates. As can be seen, Jatropha is ranked the highest because of its fantastic suitability with the Ugandan soil (See Nordpil’s map) and numerous research and publications have proven its productivity and feasibility especially in India. While palm oil and soybeans are also preferred feedstocks, we discovered that giant king grass was recently introduced by Viaspace and it has an incredibly productivity/oil yield rate (100T/ha), which is 10times higher than corn. Another reason that many welcome biodiesel is the fact that they are cash crops instead of food crops. They do not directly impact the food security issue as long as there is enough land for food crop production.

Steps to Building a Sustainable Refinery 8

According to the website of SRS Biodiesel, it provides a framework of planning and installing a biofuel refinery. At this stage of our project, we have been focusing on the first two steps, which are about business planning. Later in the report, we will present our budget plans, available land, feedstock, plant size, and appropriate sites. It is a very good model to establish our strategic business model in Uganda.

Step 1: Plant Size Determination

• Budget/Available land/Feedstock availability/Government incentives

Step 2: Selecting an Appropriate Site

• Plant Size/Distance from suppliers & customers/Utilities/Infrastructure

Step 3: Permitting Step 4: Biodiesel Plant Engineering Step 5: Determining Your Biodiesel Equipment Needs Step 6: Assistance in Plant Installation Step 7: Quality and BQ-9000 Considerations Step 8: Plant Start Up and Training Step 9: Plant Management Step 10: Planning for the Future

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http://www.srsbiodiesel.com/our-services/turnkey-biodiesel-refineries/8

Potential Locations for Refineries In terms of selecting potential locations, we took advantage of the second step of

SRS Biodiesel’s framework, Nordpil’s recommended area of Jatropha, and the Uganda road map. In addition, according to Dalberg analysis, it suggests three factors for the ideal agriculture-based biorefinery. First, it needs to be integrated into a relevant industrial cluster. Second, it should be located next to an agricultural area with existing residues collection infrastructure. Lastly, it should be close to clients and biotech knowledge, such as active industries in the area, research centers and universities. Overall, we chose six locations, Iganga and Soroti from eastern region, Kabale and north western Mbarara from western region, and northern and southern Apac from northern region.

Eastern Region • Iganga

o Great transportation (Rail Road, roads) o Suitable for Jatropha o Major Market (City): Iganga o No. 1 Maize Production District (303,262tons)

• Soroti o Lake Kyoga o Great transportation (Roads, Rail Road) o Suitable for Jatropha o Major Market (City): Soroti o No. 3 Maize Production District(137,657tons)

Western Region • Kabale & Kisoro

o Most suitable for Jatropha o Closer to Rwanda and Congo o Three roads that intersect the capital o Small lake and river o Major Market (City): Kabale

• North Western Mbarara o Highly suitable for Jatropha o Great transportation (Rail Road, River, Road) o Major Market (City): Ibanda

Northern Region • Northern Apac

o Suitable for Jatropha o Great Transportation (Railroad and Road)

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o No. 1 Cassava Production (239,932 tons) o Close City (Market): Lima

• Southern Apac o Suitable for Jatropha o Great Transportation (Lake Kwania) o No. 1 Cassava Production (239,932 tons) !

Recommended Area of Jatropha Production

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Recommended Area of Palm Oil Production

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Recommended Area of Sugar Cane Production

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Source: UNEP/GRID-Arendal and Hugo Ahlenius, Nordpil.

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Biofuel Distribution Transportation Fuel Supply Chain 9

Retailer

Wholesaler

Corporate Customer

Wholesalers

The first step in transporting refined fuels to market is the import of large volumes of fuel by distributors. Currently, all distributors in Uganda import refined petroleum that was produced in other nations, with Kenya being the main supplier. Distributors then either sell fuel through their own retail outlets, to corporate customers in high volume, or through third party owned fueling stations. Multinational distributors store imported fuel in depots before redistribution because of the regulations imposed by their home countries. Ugandan distributors are able to bypass depot storage and store large volumes of petroleum at retail outlets because of the lack of local regulation, which reduces overhead. Wholesale prices are estimated to be 92% of retail prices minus sales taxes based on the supply chain in the United States. 10

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Local Distributors Multinational DistributorsRegulations Low (Ugandan) High (Parent Country)

Capital Low High

Area Served Urban Rural and Urban

http://cit.mak.ac.ug/iccir/downloads/ICCIR_11/K.%20Byangwa1%20and%20J.9

%20Ngubiri2_11.pdf

http://newsroom.aaa.com/2014/01/aaa-monthly-gas-price-report-january-2014-trends-10

and-february-outlook/

http://www.api.org/oil-and-natural-gas-overview/industry-economics/~/media/Files/

Statistics/state-motor-fuel-taxes-report-summary.pdf

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?

n=PET&s=EMA_EPMR_PWG_NUS_DPG&f=M

http://auto.howstuffworks.com/fuel-efficiency/fuel-consumption/gas-price1.htm

Transportation

The wholesaler generally sets the regulations and safety standards for transportation. The three types of firms responsible for managing transportation are wholesalers, retailers and third party contractors. Rural areas with low fuel demand have extremely limited access to fuel because of high transportation costs and poor road systems.

Retailers

There is a wide range of affiliation between retailers and wholesalers. Owned by wholesaler, operated by an individual (Company Owned Retailer Operated) and branded by the wholesaler. Owned and operated by an individual, but exclusively resells a certain wholesaler’s products (Retailer Owned Retailer Operated) and is branded by the wholesaler. Owned and operated by an individual with no wholesaler affiliation (Retailer Owned Retailer Operated) and branded by the retailer.

Corporate Customers

Some large organizations that consume high volumes of fuel buy in bulk, either directly from wholesalers or through CORO’s. They are able to negotiate lower prices because of their high volume of business. A biofuel refinery that wishes to purchase transportation fuel for blending would fall under this category as a buyer in large volume from a distributor.

Major Corporations 11

• Threeways Shipping

• Spedag Interfreight

• SDV Transami

• Quantum Associates Oil & Gas Logistics

• DHL

• Habib Oil - Based in Kampala - Customer base includes Total Uganda, Delta Petroleum, Electro-Maxx, African

Power Initiatives and Rwenzori Commodities - Connects suppliers with end users

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http://www.oilinuganda.org/categories/oil-industry-2/transport-and-logistics11

Storage 12

Biodiesel is considered non-flammable and non-combustible, making it safer to store than ethanol, which is flammable. Acceptable storage tank materials include aluminum, carbon steel and stainless steel, as well as fluorinated polypropylene, fluorinated polyethylene, teflon and most fiberglass materials. Ugandan regulations permit excessively large storage facilities at pumping stations compared with the regulations that govern multinational corporations and require storage in separate locations. 13

Transportation Methods

Aluminum, carbon steel, or stainless steel containers are recommended. Trucks can haul up to 30,000 liter capacity semi-trailers and attain about 6 MPG. Railroad 14

transportation is more fuel efficient and can transport higher volumes at a time. 15

Railcars can carry up to 100,000 liters and attain 18 MPG (for comparison purposes, trains are 3X more fuel efficient than trucks).

As a benchmark for transportation costs in Uganda, transporting 20,000 liters of fuel across the distance of 20 kilometers costs about $100. Purchasing a used semi truck in Uganda would cost about $12,000 - $20,000.

Quality of Roads 16

The quality of roads in Uganda is poor overall. However, the main highway running through Kampala and the Mukono region is well maintained. Congestion is an issue in the area surrounding Kampala. Potholes are found on on every road besides the major highways. Nearly all Northern region roads and many others throughout the country require 4x4 vehicles to transverse, and only 3,500 kilometers of Uganda’s 20,000 kilometers of roads are paved.

!!!

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http://www.rimlifegreentech.com/biodiesel_production_logistics.htm12

http://cit.mak.ac.ug/iccir/downloads/ICCIR_11/K.%20Byangwa1%20and%20J.13

%20Ngubiri2_11.pdf

http://business.tenntom.org/why-use-the-waterway/shipping-comparisons/14

http://www.istc.illinois.edu/about/SeminarPresentations/20091118.pdf15

http://www.theforeignreport.com/2012/12/23/uganda-a-bumpy-road-ahead/16

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Distribution Summary and Analysis

Transportation costs in Uganda are very reasonable. Doing business in regions with good access to highways reduces risk in transportation. Analysis of the supply chain reveals that blending biofuel with diesel or petroleum must be an intermediary step between the distributor and the retailer. The biofuels refiner and blender could either sell the biofuel to a distributor to be blended, or purchase fuel and blend it themselves. Refining biofuels in the Mukono region would save on transportation costs because of the proximity to wholesalers, retailers, and corporate customers in Kampala.

Although refining biofuels and selling them to distributors to be blended is a viable option, the current state of affairs in Uganda with large multinational distributors focusing on petroleum and diesel only suggests that they would not wish to install the capability to blend biofuels. Perhaps a smaller, local distributor would be open to installing the necessary equipment to blend fuels.

!*The supply chain for pure ethanol to fuel cookstoves goes from the refiner to either a retailer or a distributor to eventually be sold in supermarkets in urban areas or other local markets in rural areas.

!!Transportation fuel supply chain including biofuels:

!!

! !!

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Wholesale Biofuel RefinerFossil Fuel!Biofuel Blend!

Retailer

Biofuel Blend!Corporate!Customer

Biofuel Market The largest biofuel market is transportation fuels, and there is no current use of biofuels for transportation reported. Uganda relies completely on imported petroleum and diesel, which causes high and fluctuating prices. This is a high visibility problem 17

for the Ugandan people with multiple news outlets consistently reporting on the issue. 18

Transportation fuel costs are also closely linked with food and commodity prices. 19

There are smaller, secondary biofuel markets in ethanol fueled cookstoves and diesel powered electricity generators.

Transportation Fuel Market

! Conditions in neighboring countries from which fuel is imported, as well as inconsistent government regulations concerning border security mean that the supply of transportation fuel is constantly fluctuating. These factors drive up prices, causing 20

speculators to purchase and hoard large quantities of fuel to sell on the black market.

Diesel PetroleumPrice/liter $1.22 $1.42

Tax rate $0.24 $0.37

Consumption/year 600M liters 450M liters

Blend options 5%, 20% 10%

Uses Commercial trucking, public transportation, farm equipment and other machinery, consumer SUV’s and trucks

Passenger vehicles, motorcycles

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http://www.eia.gov/countries/country-data.cfm?fips=ug17

http://www.observer.ug/index.php?option=com_content&view=article&id=30265:-fuel-18

crisis-speculators-blamed-for-price-hike&catid=79:businesstopstories&Itemid=68, http://www.redpepper.co.ug/crisis-as-kabale-runs-out-of-fuel/

Jones Ahabwe, Ugandan Studies Program19

http://www.ubos.org/onlinefiles/uploads/ubos/newsletter/2011_June_newsletter.pdf20

Additionally, the fuel brands that operate in Uganda often keep fuel prices high and do not adjust to increases in supply as quickly as they could in order to maximize profits. 21

Prices at the pump for petroleum and diesel are $1.42 and $1.22, respectively as of 4/4/2014. Petroleum retailed for up to $1.49 in early 2014 and is sold on the black market for up to $2.75/liter. The cost of diesel fuel is projected to rise to $1.29 by the end of 2014. Petroleum is taxed at a rate of $0.37/liter and diesel fuel is taxed at $0.24/

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Petroleum Prices 5/2013 - 3/2014!

https://www.bou.or.ug/export/sites/default/bou/bou-downloads/research/21

BouWorkingPapers/2011/All/A_Case_of_the_Feathers_and_Rockets_Phenomenon_in_Ugandaxs_Retail_Oil_Pricing_BOUWP1011.pdf

Diesel Prices 5/2013 - 3/2014!

liter. The Ugandan government has reportedly stepped in to mitigate these fluctuations 22

by keeping a 30M liter reserve (20M diesel and 10M petroleum) to offset supply fluctuations. There are mixed reports as to whether this has actually been 23

implemented and prices continue to fluctuate.

Diesel consumption has nearly doubled that of petroleum over the last five years. Diesel fuel is mainly used in the commercial sector to power semi trucks, public transportation and farm equipment. However, the demand for petroleum has been steadily and drastically increasing. Since 2010, the increase in demand for gasoline has far outpaced that for diesel, increasing 41% from 2008 to 2012. Diesel consumption has declined for the first time from 2011 to 2012, an 8% decline. In total, Uganda consumes approximately 1.05B liters of transportation fuel per year with 600M liters of diesel and 450M of petroleum as of 2012. The demand outpaces the consumption, indicated by 24

the skyrocketing prices during shortages.

Citing concerns over durability, efficiency and performance, most automakers do not recommend using biofuels as complete replacements for oil-based fuels, but instead suggest blending the two fuel types. Blends mitigate some of these concerns, but 25

there are still performance and efficiency losses because engines, especially those manufactured before the mid 1990’s, are not made to run on biofuels. Manufacturers suggest limiting the amount of ethanol mixed with petroleum to 10% and the amount of biodiesel mixed with diesel to 5%, although most engines manufactured after 1994 can run on up to 20% biodiesel. , Given the lax regulations and most diesel vehicles in 26 27

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E10 B5 B20Power/efficiency reduction

3-4% Negligable 2%

Approved for use in all engines

Yes Yes No

https://www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/Documents/22

KPMGUgBudgetBrief2013.pdf

http://www.theeastafrican.co.ke/business/Uganda-stocks-up-on-fuel-reserves/-/23

2560/2093892/-/2ijhl0/-/index.html

http://www.ubos.org/onlinefiles/uploads/ubos/pdf%20documents/abstracts/Statistical24

%20Abstract%202013.pdf

http://www.fueleconomy.gov/feg/biodiesel.shtml25

http://www.fueleconomy.gov/feg/ethanol.shtml26

http://www.afdc.energy.gov/fuels/biodiesel_blends.html27

Uganda having been manufactured in the late 1990’s or sooner, a 20% blend is feasible for distribution to fuel stations in Uganda. 28

Secondary Markets

Biodiesel Powered Generators Because of the unsatisfied demand for electricity and the high costs associated with being located far from the main electric grid, some rural areas in Uganda opt to create local mini-grids with diesel powered generators. This amounts to about 1% of 29

the total electricity production, which mainly relies on hydro-electric generators. The UN implemented a project in which diesel generators were used to generate small amounts of electricity and power basic household tools. These generators could be used to fill 30

the electricity needs of rural areas by powering electric stoves and other tools that would improve quality of life in rural households. Most households in rural areas do not have the money to invest in generators or the diesel/biodiesel fuel to run them. The 31

market for generators is therefore limited to commercial operations, which is extremely small at this point.

Although there is a large potential market for biodiesel to power generators in rural areas, the Mukono region is extremely well connected to the main power grid because of its proximity to Kampala. There are concerns over cost that keep some households 32

on the edge of the grid from connecting, but the connection is available. The Mukono area does not have a high enough demand for electricity alternatives to the main grid to make this a market worth pursuing at this time.

Ethanol Powered Cookstoves Ethanol can be used as an alternative cookstove fuel to LPG (Liquid Petroleum Gas) and kerosene. There are an estimated 400,000 to 500,000 households in Kampala and the surrounding areas, so theoretically 400,000 to 500,000 consumers of cooking fuel near the Mukono region. Cooking fuel is currently distributed through 33

supermarkets in urban areas and local markets in rural Uganda. Ethanol for use in cookstoves faces a variety of competition.

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http://www.cars.co.ug/cars-for-sale-uganda/28

http://www.indexmundi.com/uganda/electricity_production_by_source.html29

http://www.energia.org/fileadmin/files/media/pubs/biofuelsbook_uganda.pdf30

Jones Ahabwe, Ugandan Studies Program31

Jones Ahabwe, Ugandan Studies Program32

http://www.cleancookstoves.org/resources_files/uganda-market-assessment-33

mapping.pdf

There is LPG currently for sale in Ugandan markets as cooking fuel, however most consumers do not realize the health benefits of the cleaner oil and opt for the lowest price instead. A 25 kilogram cylinder contains 12.75 liters of LPG, costs about $40 and lasts over eight months when cooking one meal per day. Competition in this market 34

would also come from electric, solar, and charcoal stoves. Charcoal stoves are currently the most popular, but the increasing cost of charcoal in urban areas is making alternative cooking fuels more attractive to many consumers. The main reason they do 35

not switch is the cost of a new stove that would be able to run on ethanol, LPG, or kerosene.

Promotion

On the transportation fuel side, promotion to consumers is not necessary because the demand already outpaces the supply. Promotion to retailers could include joining or collaborating with the Association of Uganda Oil and Gas Service Providers, which empowers local companies to be more involved in the support of transportation fuel providers. Presence at industry events such as the Uganda Mining, Energy Oil 36

and Gas Conference and Exhibition is also advised to gain insights into the future of the industry and make connections with potential partners. Biofuels could be marketed 37

directly to corporate customers who seek to reduce emissions or secure a steady fuel supply.

Education and awareness about ethanol for cookstoves is necessary to break the buying habits of the Ugandan people who have been buying charcoal or a familiar brand of LPG (liquid petroleum gas) for an extended period of time. Forging partnerships 38

with cookstove manufacturers to include cylinders containing ethanol rather than LPG would be a way to penetrate the gas cookstove fuel market. Collaborating with government agencies or NGO’s that focus on the health risks of dirty cooking fuel would be beneficial for increasing demand for ethanol fuel as a clean alternative to charcoal. There is NGO promotional activity on the issue, mainly by door to door education on the issue.

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Jones Ahabwe, Ugandan Studies Program34

http://www.cleancookstoves.org/resources_files/uganda-market-assessment-35

mapping.pdf

http://augos.org36

http://www.umec-uganda.com/37

Jones Ahabwe, Ugandan Studies Program38

Institutions Involved in Transportation Fuel

There are many current players in the Ugandan transportation fuel market. Retail brands in the Mukono region are Total, Shell, Petro City, and Hass. They currently 39

distribute imported fuel that has been produced abroad. However, there are domestic extraction and refinery capabilities that are planned to be operational by 2016. , The 40 41

Ugandan government has awarded a $2B contract to extract the estimated 1.7B barrels of recoverable oil in Uganda and refine it primarily to use as transportation fuel. The refinery is to be located in Kampala and extraction will begin in the Albertine region. The three companies that are part of the contract are Britain's Tullow Oil, France's Total and the state-owned China National Offshore Oil Corporation, which is furthest along in their production capabilities. Once established, these companies will be able to extract 30,000-40,000 barrels of crude oil per day and refine 30,000 barrels per day. There is also talk of constructing a pipeline to connect Uganda with the Kenyan port of Lamb.

Another fuel venture is the African Power Initiative, which is an initiative by the Obama administration. This venture began a small scale production of biofuel in 2013. 42

Currently, API produces about 4000 liters of biodiesel per day. The biomass feedstock consists of jatropha, castor nut, and croton and is produced on 20,000 acres (8,100 hectares) in the Karamoja region. Their production capacity is far greater than their current output. With an increased biomass supply, API could produce up to 60,000 liters of biodiesel per day. This would amount to 1.8M liters per month and satisfy approximately 3.6% of the country’s demand for diesel transportation fuel. However, the biodiesel could alternatively be used to power generators to keep up with the increasing electricity demand.

Market Summary and Analysis

Diesel fuel is currently the largest transportation energy market, but gasoline is quickly closing the gap. There are no current biofuel blends being sold to consumers at the pump and no reported consumption as a transportation fuel. Significant domestic oil production capacity could be operational by 2016, providing competition for domestically produced transportation fuel. The demand for energy clearly exceeds the supply as evidenced by shortages and price fluctuations. Automakers suggest blending biofuels with petroleum. The most popular ethanol blends are E10, which can be used in any

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Jones Ahabwe, Ugandan Studies Program39

http://www.bloomberg.com/news/2013-09-25/cnooc-of-china-wins-uganda-s-first-oil-40

production-license.html

http://news.yahoo.com/uganda-signs-roadmap-commercial-oil-41

production-112037414--finance.html

http://allafrica.com/stories/201304020406.html?viewall=142

petrol engine, and E85, which requires a Flex Fuel equipped engine that is rare in Uganda. Although it is possible to run any diesel engine on B100, most automakers suggest a B20 max blend in vehicles produced in the late 1990’s or later because of concerns over engine durability and performance.

The secondary markets for biofuels are diesel for electricity production in rural areas and ethanol for use in cookstoves. The Mukono region is too well connected to the main grid to require diesel generators. The main grid is powered nearly exclusively by hydro-electric power. Ethanol fueled cookstoves are expensive, but the fuel production prices could be low enough to be competitive with other cooking fuels.

Uganda’s reliance on imported fuel that produces high, fluctuating prices makes a reliable supply of domestic fuel attractive to retailers. Production costs must be able to compete with costs of importing petroleum to sell at a marketable price. Higher energy demand than supply indicates room in the market for biofuels without having to try to compete with petroleum sales. The new contracts for domestic petroleum production could make the transportation fuel market more competitive by stabilizing the market and mitigating some of the fluctuations caused by the current 100% import rate of petroleum and diesel. This would likely reduce the possibility for a high positive impact of domestically produced biofuels on market stability, although an impact would still be made. Secondary markets such as cookstoves and generators depend on the adoption of devices that consume biofuels. There is a strong perceived market for these devices, but the combination of the lack of affordability of the the equipment that would run on biofuels and distribution issues limits the size of the current market.

!

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GBEP Indicators Environmental Impact

2. Soil Quality ! As discussed in the production section, the quality of the soil is incredibly rich and fertile throughout Mukono. The soil can be categorized as “ferralitic,” and “ferrisols,” soil types made up of sandy loams and clay loams. Because of the heavy rainfall that the region regularly receives, the soil has high to medium levels of fertility as well as good porosity. !43

! However, one major environmental issue concerning Mukono’s soil is that of soil erosion. This is most commonly caused by overpopulation in certain areas of Mukono, 44

coupled with heavy rainfall and deforestation. In its most serious form, this soil erosion can lead to devastating mudslides that cause widespread destruction, injuries and even death.!! According to Jones Ahabwe, in the eastern region of Uganda, two instances of these mudslides recently took place. Occurring as a result of deforestation, the soil erosion and ensuing rainfall was so bad that massive mudslides took place, burying two entire villages and killing hundreds of people in the process. This is not only an example of poor stewardship of Mukono’s rich soil resources, but it is also a manifestation of how a lack of environmental care can lead to devastating impacts on Uganda’s people. !! Another environmental factor to take into consideration in relation to soil quality is the use, or lack of use, of fertilizers. Although Uganda’s soil is naturally very fertile and has high potential for agricultural productivity, the use of fertilizers can encourage increased productivity. According to a report on “Sustainability Indicators for Natural Resource Management & Policy” by the Economic Policy Research Centre:!!

Fertilizers should be promoted as a complement to appropriate land and crop husbandry practices such as water and soil conservation, organic fertilizer, proper tillage, and crop rotation. 45!Therefore, in order to encourage increased yields from Uganda’s already-fertile

and agriculturally productive land, the increased use of fertilizers is suggested as an extremely effective method of reaching this goal.

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ftp://ftp.fao.org/agl/agll/kageradocs/08case_studies/ug_nrm_overview_paper.pdf\43

ibid.44

ibid45

6. Water Quality Uganda is home to an abundance of natural fresh water resources. In fact, “lakes

in Uganda cover one fifth of the total area of the country.” In Mukono’s rich, semi-46

tropical climate, there is typically no shortage of rainfall and fresh waters sources. In fact,

The district is endowed with enormous water resources, including Lake Victoria to the south of the district, River Nile to the east and Sezibwa River, which drains 90% of the district, and also ground aquifers. 47!

! Mukono is home to a total of 1,181.73 square kilometers of water bodies, with rivers and lakes making up 396.3 square kilometers of that and wetlands or swamps covering 151 square kilometers. !48

! In addition to these natural surface-level sources of fresh water, Mukono also has the blessing of experiencing two rainy seasons, which produce 1250 to 2000 millimeters of rainfall each year. The water level in Mukono is also extremely high, making it easy 49

for households to dig wells and have immediate access to a consistent supply of water. The area’s hilly terrain also contributes to this ease of access to water. Those individuals who choose not to drill wells often just collect the abundant availability of rainwater, particularly during Mukono’s two rainy seasons, and use that supply throughout the year. !! However, an environmental concern for many is the fact that even these plentiful sources of surface fresh water are often contaminated by pollution from industrial sources. Indeed, as Mukono becomes increasingly urbanized, the resulting industrial waste often is not discarded in an appropriate or responsible way, leading to contamination of Mukono’s essential water supply. !! Because of poor governance in Uganda’s urban centers, including Mukono, the water runoff from the cities is contaminated. Much of this water runs off into surrounding lakes, and in Mukono it flows into Lake Victoria. There is a high level of industrial waste in Lake Victoria from both Kampala and Mukono, with the majority of this pollution coming from industry and factories. !! Another issue surrounding the quality of Mukono’s water supply involves the wetland areas around Mukono. As urbanization has increased, a high degree of wetlands reclamation has taken place in Mukono, and as factories or industry increase

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ibid46

ibid47

ibid48

ibid49

in number, they will fill in wetlands areas to build their factories on that land. These wetlands, which had previously acted as a sort of “filter” to remove pollution and chemicals from water before it reached Lake Victoria, can no longer perform these necessary functions. Indeed, in Mukono:!!

Wetlands are facing encroachment from…rapid population growth, the need for more agricultural land, rapid urbanization, industrialization and the expansion of the construction industry. 50!

7. Biological Diversity in the Landscape Uganda as a whole, and Mukono specifically, boasts a rich biodiversity. In the

district’s highlands, there are “unique ecosystems, well endowed with productive soils and favorable climate.” Because these areas are so attractive and fertile, they also 51

tend to be more heavily populated than others areas in Mukono.

Forests and tropical rain forests also compose a significant portion of the land area and contribute to its stunning biodiversity. Forests are not only a major source of natural resources such as firewood, but they also are home to a spectacular range of wildlife and vegetation. The forests constitute about 7% of Uganda’s total land area is categorized as gazetted (forest reserves), protected (national parks), or private or ungazetted public land. 52

Mukono is also home to incredible tropical rain forests, particularly close to Lake Victoria and Mt. Elgon. As with forests, these tropical rain forests are concentrations of biodiversity essential to maintaining Mukono’s rich ecosystem. However, as one report notes:

!Over the years, these forests have been cleared, and from a coverage of 12.7% of the country’s land area at the start of the century, tropical high forests now account for only 3% of Uganda’s land area. 53!Indeed, according to Jones Ahabwe, deforestation is perhaps one of the most

environmentally damaging practices in Mukono. For example, the largest forest in the Mukono region is the Mabira forest. Today, the deforestation that has taken place is so

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ibid50

ibid51

ibid52

ibid53

widespread that just a casual walk through the forest is enough to notice how many trees have been cut down and how drastic the deforestation is to this forest.

Deforestation is driven largely by a massive demand in Mukono for charcoal and firewood for use in stoves. What used to be a huge forest is now shrinking every year as individuals are cutting trees down for charcoal to sell in Mukono and Kampala.

Because this is such a serious environmental issue, there has been increased pressure from the government, NGOs and churches to encourage individuals to cut back on their charcoal use and to seek alternative fuel sources that do not have such devastating environmental impacts. However, these efforts have thus far achieved only minimal success. In part, this is due to a lack of effective enforcement at the local level, where the very government officials charged with protecting the Mabira forest are often themselves actively involved in the charcoal industry. The supply and affordability of cookstoves that run on cleaner fuels is also an issue.

8. Land use and land-use change related to bioenergy feedstock production As one report noted, “excluding lakes, swamps and forest reserves, more than

75% of the country is available for cultivation, pasture or both.” In Mukono specifically, 54

much of the land is arable and ready for cultivation for farming initiatives. Although purchasing land and developing it for the sake of growing biomass products does prevent it from being used for food crops, there is currently no shortage of availability of farmable land in Mukono. Thus the conflict of interest between food and fuel crops and the land devoted to growing them does not seem to be as pressing of a concern for Mukono as in other African countries.

There indeed is not substantial food-fuel tension in Mukono. Because the area receives such heavy rainfall, boasts such fertile soil, and has an abundance of agricultural crops, there is no shortage of food crops in Mukono. The area rarely experiences drought or floods, so the harvest typically comes on time every year.

Many of Mukono’s residents grow their own food through subsistence farming, and in these situations the residents typically enjoy a healthy range of food. But because the central area of Mukono is urbanized, there are a number of impoverished slums. Those living in the slums typically do not have the ability or resources to grow their own food. Instead, they will purchase street food from vendors or local markets; while accessibility is not an issue, healthy food is expensive. So although they still have access to nourishment, it is not as healthy or nutritious as the diets enjoyed by those living in rural areas. For example, they might eat two meals a day of chapatti, a flatbread-like food, instead of a diet balanced out also by vegetables, meat or diary products.

!

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ibid54

Social Impact

9. Allocation and tenure of land for new bioenergy production The issue of land tenure is Uganda is incredibly complex. As one report noted,

“Land is one of the most contested resources in Uganda.” However, land is of central 55

importance in Uganda. Indeed, “land is central to the shaping of community cultures and gender relationships” in Uganda. Once lakes, swamps and forest reserves are 56

excluded, over 75% of Uganda’s land area is arable for cultivation or pasture or both. Having a proper understanding of land tenure, which can be defined as “the way land is owned, occupied, used and disposed of within a community,” provides a thorough 57

framework to understand other issues in Uganda influencing everything from agriculture to food prices to energy. Indeed, “a properly defined and managed land tenure system is essential to ensure balanced and sustainable development.” 58

Historically, land in Uganda has been held by communities or families, rather than by individuals. The concept of individual private property rights is indeed a foreign concept in Uganda’s legal heritage. Throughout much of Uganda’s history, families or communities owned large tracts of land, and the land was simply passed down as time went on. This form of land tenure in Uganda is known as customary tenure.

This all changed four decades ago with the passage of Uganda’s 1975 Land Reform Decree. This legislation nationalized Uganda’s land in an attempt to:

!Improve tenurial arrangement for land. The decree substantially changed the legal basis of land tenure in Uganda by declaring all land a public land administered by Uganda Land Commission. !Under the decree, one cannot occupy public land by customary tenure except with the written permission of the prescribed authority. 59

!However, due to a lack of sufficient resources and consistent, effective

enforcement measures, clear land policy and a national development plan, the Land

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http://docs.mak.ac.ug/sites/default/files/55

WomensLandRightsLocalFaceCultureAfricana.pdf

ibid56

ibid57

ibid58

ftp://ftp.fao.org/agl/agll/kageradocs/08case_studies/ug_nrm_overview_paper.pdf\59

Reform Decree failed to be fully implemented as a successful policy. Other problems included: !

Land fragmentation and exclusion of women from land inheritance; open access to resources under communal land use; land degradation due to unsustainable methods of resource use; and demographic pressure leading to encroachment in gazetted areas. 60!As a result of these policy failures, the government has taken measures to

gradually decentralize Uganda’s land and provide for more private ownership. Today in Uganda, land tenure is takes four different forms.

Although found in nearly every region, the form of land tenure practiced predominantly in Uganda’s eastern and northern areas is customary tenure. In customary tenure, land is “owned and disposed of in accordance with customary regulations” according to local cultural customs. Consequently, the rules for land ownership “vary according to ethnic groups and regions.” Customary land tenure is heavily community-based; in fact, it does not even recognize individual land ownership. Indeed, customary tenure:

!Does not recognize individual ownership of land—only the rights of the individual to possess and use land subject to superintendency by his family, clan or community. 61!Another form of land tenure is mailo tenure, found mostly in the Buganda region.

In mailo tenure, the “basic unit of sub division [is] a square mile, hence the name mailo.” Mailo can take the form of private or official/public ownership. In private mailo 62

tenure, the individual owner possesses the right to use or sell the land as he desires. And in the case of official mailo, land was historically given specific individuals or offices of the local government in Buganda. According to one report, “The principle advantage of this system is that it provides security of tenure thus allowing long term developments including those related to conservatism.” 63

A third practice of land tenure in Uganda is freehold tenure. In Uganda’s freehold tenure, land is privately owned “in perpetuity and a certificate of title is issued.” This 64

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ibid61

ibid62

ibid63

ibid64

form of land ownership is centered primarily in eastern and western Uganda, and reflects certain similarities to mailo tenure. One potentially negative impact of freehold tenure is land fragmentation, in which land passed down through families is broken into smaller and smaller portions of land.

The final form of land tenure is leasehold tenure. As its name implies, leasehold tenure is “where land is held based on an agreement between lessor and lessee.” It is 65

a typical “rental” transaction of land.

In Mukono, the most common forms of land tenure are:

• Registered freehold: over 16,000 hectares • Leasehold: nearly 17,000 hectares • Customary: over 160,000 hectares • !

As demonstrated above, customary tenure, in which land is held by the community and individual property rights are virtually nonexistent, is the most prevalent form of land ownership in Mukono.

13. & 15. Change in unpaid time spent by women and children collecting biomass and change in mortality and burden of disease attributable to indoor smoke

A recent report from the Acton Institute highlighted the findings of the World Health Organization regarding indoor air pollution in the developing world. According to this WHO report, indoor air pollution is “now the world’s largest single environmental health risk, and the main cause is entirely preventable.”

!In cases of indoor air pollution, about 3 billion people around the world: !Cook and heart their homes using solid fuels (i.e. wood, crop wastes, charcoal, coal and dung) in open fires and leaky stoves…Such inefficient cooking fuels and technologies produce high levels of household air pollution with a range of health-damaging pollutants, including small soot particles that penetrate deep into the lungs. In poorly ventilated dwellings, indoor smoke can be 100 times higher than acceptable levels for small particles. Exposure is particularly high among women and young children, who spend the most time near the domestic hearth. 66!Indeed, this energy poverty afflicting much of the developing world is tragically

found in Uganda as well. According to Uganda’s Ambassador Oliver Wonekha, indoor air pollution affects much of Uganda’s population, especially the women and children living in the poorer or more rural communities. In fact, Ambassador Wonekha shared her

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http://blog.acton.org/archives/67445-deadly-environmental-problem-world-today.html66

belief that the very esophagus cancer of her own mother was caused by indoor air pollution.

What causes indoor air pollution, and why does it disproportionately impact Uganda’s poor individuals and female residents? Ugandan women spend a significant portion of their daily routine confined in small mud-thatched homes cooking for their families with their children gathered around them. The women spend hour upon hour bending over outdated stoves or even open fires burning firewood or charcoal. Because the homes lack proper ventilation, the small particles released in the smoke are inhaled repeatedly by the Ugandan women and their children.

Globally, indoor air pollution is responsible for causing one out of eight total deaths around the world. Indeed, more than a million children are killed every year as a result of these inefficient and potentially-lethal cookstoves. These numbers should be astonishing. In Uganda, it is estimated that indoor air pollution causes 19,700 deaths each year, as about 91% of the population still relies on traditional stoves and fires. Indeed:

!About 3.8 million households cook on open fires in an enclosed space and nearly 1 million additional households are exposed to carbon monoxide from traditional stoves. 67!One of the most popular and, thus far, effective solutions to indoor air pollution is

to use improved cookstoves. Already in Mukono, many households are transitioning from charcoal or firewood burning stoves to gas stoves. Not only do these cookstoves effectively cut down on the inconvenience, smell and smoke associated with charcoal or firewood burning stoves, but they also mitigate the devastating effects of indoor air pollution.

Economic Impact

17. Productivity Compared with neighboring countries, productivity in Uganda is extremely low. For example, the yield of cassava per hectare is about 10% of the yield on Nigeria. One consideration is the role that yield-enhancing seeds could play in increasing crop production. Additionally, most farmers do not have the means to invest in advanced tools, equipment, fertilizer or other technology. Since the majority of farmland is dedicated to growing only what Investment in agriculture to produce biofuels could present a model for other agricultural initiatives to observe and imitate.

These investments would allow more crops to be used for biofuel production per hectare, which is important considering the difficulty of attaining large plots of land. They

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ftp://ftp.fao.org/agl/agll/kageradocs/08case_studies/ug_nrm_overview_paper.pdf\67

would increase the efficient use of economic and land resources, and help to ease the tension between competing food and energy interests in the case of cassava. If superior agricultural techniques and a return on investment in advanced technologies could be proven, the increased productivity in the Mukono region would be exponential because of its fertile climate.

20. Change in consumption of fossil fuels and traditional use of biomass On a large scale, blending ethanol or biodiesel with fossil fuels would reduce the amount of fossil fuels that Uganda would have to import to keep up with transportation fuel demand. Because biodiesel contributes to a 20/80 blend with diesel and ethanol is blended at a 10/90 rate, the changes in fossil fuel consumption are doubled with B20 production compared with E10. On a smaller scale, its role would be to help stabilize prices by helping to meet the demand that currently outpaces supply. Blending biofuels for transportation fuel use would have a positive impact on the energy security and emissions in Uganda.

The replacement of charcoal stoves with ethanol fueled stoves would greatly reduce the amount of charcoal needed to be gathered and transported. This would help to reduce deforestation and free up time to engage in other activities for the people who currently gather charcoal, mainly women. However, an increased supply of stoves is not directly affected by an increased fuel supply. The issues with accessibility to charcoal stoves prevents a 1:1 impact on the gathering and use of charcoal and firewood merely by bringing ethanol cookstove fuel to market. A steady supply of cookstove fuel would create an environment where production and accessibility of compatible cookstoves could increase, thus contributing to long term improvement in this area.

21. Training and re-qualification of the workforce Related to productivity benefits, a biofuels operation in Uganda has the potential to serve as a model for improved agricultural techniques and test the implementation of new technologies in planting, fertilizing, and harvesting. The local workers employed in these capacities would receive training and be able to pass their new knowledge on to their families and neighbors. Exponential increase in the knowledge of advanced agricultural techniques is possible.

23. Infrastructure and logistics for distribution of bioenergy There is no large scale biofuel supply chain in Uganda. Although the African Power Initiative has been producing biodiesel from Jatropha since 2013, there is no information on their distribution channels or markets. A newly created biofuels operation would have to forge partnerships with fossil fuel companies to either blend its biofuel with petroleum or gasoline, or sell the raw biofuel to be blended by another company. In this initial stage, it appears that it would be more feasible for the biofuel refiner to purchase fossil fuels to blend with their biofuels and distribute B20 or E10 to either wholesalers or retailers. The infrastructure in the Mukono region is sufficient to support

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the transport of biofuels via semi truck or railroad, however the highways are of increasingly questionable quality further away from Kampala.

Ethanol produced to fuel cookstoves should use the same distribution channels as LPG and kerosene by partnering with stove makers and supermarkets to deliver the fuel to end users. Additionally, producers of ethanol cookstove fuel could look into partnering with charcoal distributors as the volume of charcoal to be distributed should decline as more alternative fuels are made available. These distributors may be looking for new business as their volume shrinks. Logistics for biodiesel distribution to power electricity generators in rural areas is complicated. Low demand and poor road quality suggest that it is not an economically feasible market.

As an early player in the biofuels industry in Uganda, this initiative could provide a model for future biofuel companies to imitate. Once a refinery is built, collaboration with biomass producers could be pursued to increase the production of biofuel. This could be attained by leasing out the use of equipment or by purchasing feedstock from other producers.

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Proposed Business Models With Mukono as the location for further research and assessment of whether a

biofuel business will flourish, there are three suggested bioifuel business models to explore that vary in the following ways: land acquisition/production of our own biomass, choice of feedstock, and type of biofuel. Based on primary and secondary research and informed projections and assumptions, these models compare and analyze the profitability and sustainability of these biofuel business models.

1. Cassava Model (A): Purchase Cassava, Refine Biomass, Produce E10

This model is relatively a small-scale model in terms of its capital requirement. It does not require purchasing land, which is the most expensive and complicated task, according to Jones Ahabwe of Ugandan Christian University. Also the owner of this model can simply focus on refining and distribution, instead of investing time and energy in biomass production. It will require a single facility where refining and blending are happening.

With Christianna Ogbonna and Eric Okoli’s research paper, Economic feasibility of on-farm fuel ethanol production from cassava tubers in rural communities, we garnered valuable information regarding refining process, equipment costs, operation costs, and ultimately production costs of ethanol from given amount of cassava. 68

In addition, we acquire the market price of cassava, which consists of wholesale value, market value in farms, and market value in Kampala from Cassava Market and Value Chain Analysis by Africa Innovations Institute in July 2012. 69

This model relies a few assumptions: there must be the constant price of cassava and petroleum, and the availability of these two major sources.

!!!!!!!

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http://www.academicjournals.org/article/article1380783331_Ogbonna%20and68

%20Okoli.pdf

http://cava.nri.org/documents/publications/UgandaCassavaMarketStudy-69

FinalJuly2012_anonymised-version2.pdf

Financial Analysis

*Based on current assumptions, this is not an economically sustainable business model.

SWOT Analysis

Strengths Weaknesses

• High Fuel Yield From Cassava • Low Starting Capital • No Land Acquisition • No Production Costs

• High Price Of Cassava • Low Blending Ratio With Petroleum • Negative Gross Margin

Opportunities Threats

• Find Cheaper Cassava In Bulk • Import Petroleum At A Cheaper Price • Increasing Cassava Yield Probable

• Established Petroleum Market May Be Hostile To A New Player Selling E10

• Sensitive To Fluctuating Petroleum Prices

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2. Cassava Model (B): Produce Cassava, Refine Biomass, Blend E10

This model is very similar to the Cassava Model (A) except it includes land acquisition and producing our own cassava. This will require a large investment for buying not only land, but also farming equipment, fertilizer and human labor. Although this model may seem unattractive because of a large investment and risks, we discovered that there is a great opportunity if we can increase the productivity (Yield) of cassava to the level of the USAID-funded Cassava Enterprise Development Project (CEDP) in Nigeria. Currently, the average yield of cassava in Mukono is 2.7T/Ha whereas CEDP’s yield is 25T/Ha, which is approximately ten times higher than Uganda.

According to Jones Ahabwe, the main reasons of such a low yield in Uganda are low-scale farming (non-commercial farming), and lack of basic equipment, fertilizer and technology. In fact, we found out how much it costs to generate Nigeria’s 25T/Ha from Integrated Cassava project. Considering rising demand for cassava in Uganda as well as neighboring countries, producing crops at the level of Nigeria will most definitely make the business profitable. In addition, Uganda’s fertile soil, great precipitation and other favorable weather conditions could allow the crop production to achieve even higher yield, like Europe’s 34T/Ha. 2M liters of E10 is 0.4% of Uganda’s petroleum market.

Financial Analysis

This is the most profitable model, but has the highest operating cost and highest required initial investment. Acquiring 10 hectares of land would be challenging.

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SWOT Analysis

!3. Cassava Model (C): Purchase Cassava, Refine Biomass into Ethanol

Similer to Model #1, this model is relatively small-scale in terms of its capital requirement. It does not require purchasing land, which is the most expensive and complicated task, according to Jones Ahabwe of Ugandan Christian University. Also the owner of this model can simply focus on refining and distribution, instead of investing time and energy in biomass production. It will require a single facility to refine cassava into ethanol to be sold for consumption as cookstove fuel.

With Christianna Ogbonna and Eric Okoli’s research paper, Economic feasibility of on-farm fuel ethanol production from cassava tubers in rural communities, we garnered valuable information regarding refining process, equipment costs, operation costs, and ultimately production costs of ethanol from given amount of cassava. 70

In addition, we acquire the market price of cassava, which consists of wholesale value, market value in farms, and market value in Kampala from Cassava Market and Value Chain Analysis by Africa Innovations Institute in July 2012. 71

This model relies on a few assumptions: there must be supply of cassava at a constant price, demand for 20,000 liters of cooking fuel per year, and a warehouse for lease around the price of $5,000 per month.

Strengths Weaknesses

• High Fuel Yield From Cassava • Highly Gross Margin • Benefit The Society By Showcasing New

Agricultural Technology • Control Over Cassava Supply

• High Operating Cost • HIgh Initial Investment • Complicated Land Acquisition Issue • No Example Of Expected Productivity In

Uganda

Opportunities Threats

• Increasing Cassava Yield Is Highly Probable • Success In Increasing Productivity Will

Encourage Other Business • Constant Growth In Demand For Petroleum

And Cassava

• Established Petroleum Market May Be Hostile To A New Player Selling E10

• Difficulty Of Acquiring Land • Political Risks (Bribery & Corruption)

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http://www.academicjournals.org/article/article1380783331_Ogbonna%20and70

%20Okoli.pdf

http://cava.nri.org/documents/publications/UgandaCassavaMarketStudy-71

FinalJuly2012_anonymised-version2.pdf

Financial Analysis

*Based on current assumptions, this is not an economically sustainable business model.

!SWOT Analysis

!

Strengths Weaknesses

• Low OperatIng Costs • Low Starting Capital • No Land Acquisition • No Involvement In Production

• HIgh Price Of Cassava • Cassava Is A Food Crop • Negative Gross Margin • Small Market

Opportunities Threats

• If The Price Of Cassava Decreases While The Price Of Cookstove Ethanol Remains, It Can Be Profitable

• Increasing Demand For Cookstove Ethanol Could Result In Higher Market Price And A Higher Volume Of Business

• Fluctuating Price Of Cassava

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4. Cassava Model (D): Produce Cassava, Refine Biomass into Ethanol

This model is very similar to Cassava Model (B) except the scale has been cut by 90% to reflect the small but emerging cooking fuel market compared with the large transportation fuel market. This will require a much smaller investment into land, farming equipment, fertilizer and human labor. This model is less risky than Model (B) because of the lower initial investment. Considering the rising demand for cooking fuel in the Kampala area, the scale of this enterprise should increase year by year. Uganda’s fertile soil, great precipitation and other favorable weather conditions could allow the crop production to achieve an even higher yield to keep up with increasing cooking fuel demand. The sale price is 65% of a competitive retail price with LPG and kerosene.

Financial Analysis

This is a model for the profitable production of cookstove ethanol. The initial investment is far lower than that of a profitable E10 production operation and has potential for sustained growth.

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SWOT Analysis

!5. Jatropha Model: Produce Jatropha, Refine Biomass, Blend B20 This model is similar in scale to the Cassava (B) model, the main difference is the production of biodiesel instead of ethanol. Also, Jatropha is not a food crop but a very popular energy crop. Jatropha’s yield per hector is According to National Agricultural Research Organisation (NARO)’s The Potential of Biofuel in Uganda, it recommends jatropha as the most sustainable and profitable feedstock after extensive analysis of other feedstocks, such as oil palm, sugar cane, and maize. We find this study very 72

valuable because it not only deals with the nature of feedstocks, but also deals with the suitability of feedstocks in the context of Uganda. In addition, there is already a US-initiated biodiesel business in Kampala, Africa Power Initiative. Currently API has a pilot refinery with a capacity of producing 1,300,000 liters of bio-diesel per year and an industrial refinery of 20million per year capacity stored on site, which will be set up upon establishing sufficient feedstock. For the financial projection of this model, we used the 73

ratio of API’s current productivity of biodeisel per hectare to measure the revenue, COGS, and other expenses. Further research should be conducted into the yield of jatropha, as API’s is extremely low.

Strengths Weaknesses

• Very Small Operating Costs • Low Initial Investment Required • Easy To Acquire 1 Ha • Bring Technology To Society • Producing Cassava Is Cheaper Than

Purchasing It

• Low Profitability • No Comparable Cassava Productivity In

Uganda, Must Estimate • Unsure About Market Size

Opportunities Threats

• Increase Cassava Yield • Refining Equipment Can Handle Far Greater

Input • Constant Growth In Demand For Cookstove

Ethanol

• Low Production Of Compatible Cookstoves

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http://www.nemaug.org/research_publications/bio_fuels.pdf72

http://www.api.co.ug/?page_id=1673

Financial Analysis

*Based on current assumptions, this is not an economically sustainable business model. The yield of jatropha calculated from API’s current operation is extremely low, and this model reflects the size of a plot of land that is reasonable to acquire in the Mukono region. On a larger scale, this model would be profitable.

SWOT Analysis

Strengths Weaknesses

• Jatropha Is Not A Food Crop; No Impact On Food Security

• Substantially Lower CoEthanol

• Highly Recognized By Numerous Organizations And Researchers

• Has To Be Large-Scale To Be Profitable, Which Is Challenging In The Mukono Region

• High Starting Cost • Land Acquisition Issue • Reliance On Diesel Price

Opportunities Threats

• Diesel Is The Largest Fuel Market • Potential For Government Aid Because Of Its

Favorable Public Opinion

• Slightly Decreasing Diesel Demand In 2013

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6. Cassava Hybrid Model: Produce Cassava, Refine Biomass, Blend E10 and Sell Leftover Cassava as Food

As previously discussed, the low yield of agricultural crops in Uganda is the main reason for its food shortage and slow economic growth. According to Jones, because of the low supply of food, the price of commodities has been inflated and many ordinary people are having one or two meals instead of having adequate diet. Although this feasibility analysis is mainly focused on a biofuel business, we tested if producing cassava at the higher yield (25T/Ha) at a bigger land and selling the surplus production to the market after producing the same amount of Ethanol as Cassava (B) Model. We planned to acquire 100Ha, which is quite large, as well as hiring about full-time 200 local employees. With the expected production of 2,500,000kg, we would keep 58,565kg of cassava for 20,000 liter of Ethanol then sell the rest (2,441,435kg) at the market price of $0.15/kg (Farm area: $0.12/kg, Kampala: $0.18/kg). Surprisingly, this business will generate $55,575 of annual net income, which means it will take about 2-3 years to pay off the investment cost except land. In fact, Jones mentioned that there is a possibility of food price increase due to the increasing demand from not only Uganda but also neighboring countries. The main assumptions of this business model are two: the yield of cassava must meet the expectation, and we must acquire 100ha of land.

!!!!!!!!!!!!!!!!!!!!!!!

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Financial Analysis

This is a profitable model as long as the farm maintains the expected yield (20 tons/Ha). Acquisition of 100 Ha of land is a massive challenge in Mukono.

SWOT Analysis

Strengths Weaknesses

• Potential To Be Highly Profitable • Creates 200 Jobs • Increases Food Supply Instead Of Decrease • Flexibility To Produce Ethanol And Cassava

• High Initial Investment Cost • Difficulty Of Acquiring 100Ha Of Land • Difficulty Of Guaranteeing The Expected Yield

Opportunities Threats

• Increase Of Food Price!• Partnering With Other Agricultural Businesses

• Natural Disaster Or Pests Could Decrease Productivity

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ROI Per Business Model

ROI Treemap (Area Of Model Indicates Size Of Initial Investment)

Cassava (A)

Cassava (B)

Cassava (C)

Cassava (D) Jatropha Cassava

Hybrid

Sales Revenue

$180,000 $1,800,000 $40,000 $40,000 $8,100 $546,215

COGS $(221,129) $(1,683,513) $(57,129) $(20,509) $(33,180) $(466,822)

EBIT $(41,129) $116,487 $(17,129) $19,491 $(25,080) $79,394

Net Income $(28,490) $81,541 $(11,990) $13,644 $(17,556) $55,575

Initial Investment

$55,870 $376,741 $55,870 $135,740 $150,000 $1,138,170

ROI -0.51 0.22 -0.21 0.10 -0.12 0.11

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Further Research Suggestions Production

1. Create an extensive feedstocks profile with the same standards and variables.

A. Ethanol vs. Biodiesel

B. Oil Yield, suitability, Variation of Production, Land Use, Maintenance, resilience,

C. Top Candidates: Jatropha, Giant King grass, Switchgrass, Palm Oil, Sugar Cane, Cassava, etc.

2. Find the availability of biomass leftovers in terms of the amount and the cost in the designated regions.

3. Research the use of leftover biomass from production of maize, bananas, coffee, etc. to use as a feedstock.

Refining

1. Define commercial institutions in the designated area and find ways in which you may collaborate with them

A. Ex) Sharing resources, facilities, infrastructure, leftovers, etc.

2. Find the precise operations of biodiesel/Ethanol refining process & cost

3. Find the precise operation of biodiesel/Ethanol blending process & cost

Distribution

1. Can petroleum or diesel be imported from Kenya at a lower price than 92% of retail minus sales tax?

2. Is there a potential buyer for non-blended biofuels in the transportation fuel supply chain?

Marketing

1. Are there any rural regions that produce their electricity from diesel generators in

need of a greater or more reliable fuel supply?

2. Are there any government initiatives pushing the use of cleaner transportation fuel?

3. Are there any groups or government programs aimed at promoting increased

awareness about the benefits of cleaner cooking fuels?

!

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GBEP Indicators

1. Because Mukono is an urban area, and households use primarily charcoal-burning

stoves, women and children do not spend a great deal of time gathering firewood. In

areas other than Mukono, particularly ones that are more rural, would the use of

ethanol-burning cookstoves have a greater benefit for women and children than

simply countering indoor air pollution?

2. Do ethanol-burning stoves release any non-GHG air pollutants or air toxics?

General Suggestions

1. Conduct risk analyses of Uganda’s politics, economy, climate, and social issues that

would influence the performance of a commercial biofuels business.

2. Consistently conduct validation sessions to confirm and strengthen the credibility

and reliability of the project.

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