Biofuel strategy remains hush-hush

Government’s biofuels task team presented its final strategy document to a ministerial committee on 13 June amid fears that proposed state support would be insufficient to lure substantial investment needed to establish the industry in SA.

Depending on ministerial feedback, the task team expects to submit the strategy, which includes an incentive package, to Cabinet by the end of June.  Industry insiders believe government has moved closer to the private sector position, but it remains unclear how much, and whether the task team has budged on key sticking points. These include fuel levy rebates, requiring the biofuels ­industry to pay into an equalisation fund when oil prices peak, low mandatory blending requirements, a short incentives period, and conditions of a licencing regime. “We’ve come up with something ­better,” said task team leader Sandile Tyatya, a senior minerals and energy department official, but he declined to elaborate.  

Government’s incentive proposal package was put on the table last December, ­following a study conducted by the task team into the viability of establishing an industry in SA. It concluded only moderate support was needed for five years with mandatory blending of 2% biodiesel and 8% bioethanol in the national road fuel supply, which translates into one billion litres of biofuel, and an average oil price of $55 a barrel.

Moderate support translates into a 45% taxable rebate for commercial biodiesel producers and 70% of this for ­bioethanol makers, and an equalisation fund that subsidises producers when the oil price drops below $45, with a clawback mechanism that requires them to pay $0,35 for every dollar it goes above $65.

The SA Biofuels Association (Saba), whose members include major banks, biofuel ­makers, technology suppliers and agricultural commodity groups, disagrees strongly. It wants incentives in place for 15 years, a 100% rebate for all biofuel makers, and no clawback until capital costs are recouped.

Meanwhile the Treasury-commissioned Windfall Tax Report released in February contains recommendations on biofuels more appealing to Saba. It argues state support for biofuels should take ­precedence over new synthetic fuel plants and ­refineries construction, and that incentives should be in place within 10 to 15 years. 

Tyatya said he regarded the windfall tax recommendations “very favourably”. He declined to be drawn on the licencing system favoured by government, except to say the special needs of the industry would be catered for while taking into account viability, reliability of supply, food security and job creation in rural areas. Licencing criteria are likely to be a deciding factor in private sector interest. Saba argues investors will need incentives restricted to a limited group of producers licenced to supply the mandatory blends.

But it fears licences could be made conditional on investing in or near former homelands to stimulate the secondary economy. Poor transport infrastructure, large distances from refineries and chaotic land tenure arrangements make these areas unattractive for investors.

The fuel industry meanwhile believes task team recommendations are based on superficial data that don’t take into account a 3% to 4% loss of petrol volumes during biofuel blending, and billions needed to upgrade transport and storage infrastructure. Anton Moldan of the SA Petroleum Industry Association wants ­specialist working groups that include motor and fuel industry representatives set up to calculate real costs and how they should be shared. – Stephan Hofstätter