Despite offering few incentives to excite private-sector interest in establishing a biofuels industry in SA, government still says it has an important role to play in diversifying fuel supply and alleviating poverty.
"Government views biofuels as an important contribution to the national energy mix and an important driver of economic development - particularly in rural areas that are, relatively speaking, economically depressed," said Sandile Tyatya, chief director at the department of minerals & energy, at the Shell energy dialogue on biofuels hosted by the Gordon Institute of Business Science in association with Summit TV and the FM. It's part of a national road show of dialogues, spearheaded by Shell, aimed at tackling issues that pertain to the energy challenge.
WHAT IT MEANS
 50% fuel levy rebate for biodiesel producers
100% rebate for bioethanol makers
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Tyatya, who heads government's biofuels task team, which drafted an industrial strategy document released in December, conceded private investment was crucial to the successful establishment of a viable industry. "We've urged a number of companies and potential developers to come forward with applications to the department for purposes of developing the biofuels industry."
But so far few have shown interest, partly because the incentive package on the table isn't that attractive.
The previous draft strategy, released in November 2006, proposed that 4,5% of SA's road transport fuel needs should be met by biofuels by 2013. This has been slashed to 2%, which could be supplied by only four average-size biofuel plants. The main investor incentive is a 50% fuel levy rebate for biodiesel producers and a 100% rebate for firms making bioethanol. But the strategy specifies that these perks will only be available for litres produced using fuel crops supplied from currently underutilised land in the former homelands.
Ensuring the biofuels industry helps bridge the gap between the first and second economy was a directive from cabinet to the task team. "This was one of the main issues that we were trying to balance," said Tyatya. "So we ended up coming up with a modest strategy [focusing] on former homeland areas that have been economically depressed, areas that are beneficiaries of the land restitution programme, where there's limited agricultural activity."
But these areas are also characterised by a lack of infrastructure and low agricultural productivity - only investors with strong nerves and deep pockets are interested, said Norman Ndaba, Ernst & Young's oil, gas & utilities industry director. "And at the moment that's either the oil industry or government."
Said Anton Moldan, environmental adviser at the SA Petroleum Industry Association: "The oil industry is supportive of government's strategy to implement a successful and rational biofuels strategy as it can increase octane numbers in ethanol and increase lubricity through diesel. But all the incentives mentioned in the strategy and the tax breaks relate to the producer - they don't look at the oil industry, which will take up the fuel."
Moldan said little consideration has been given to the considerable costs oil companies would have to bear in receiving, blending and distributing biofuels. "They will have a considerable effect on the economy as a whole," he said.
These issues are not insurmountable and have been resolved elsewhere in the world. "But I don't believe they have been properly considered. For example, one can't merely add ethanol to petrol and ensure drivability of that fuel. Components have to be taken out of the petrol. That involves huge costs in changing the refinery process, distribution, tankers... there are mega millions that need to be put in and this hasn't been considered."
For Cosatu, the issue revolves around job creation. "We measure the success of the biofuel strategy in terms of its success in creating more decent jobs and thus saving the majority of the working people from the jaws of poverty," said Cosatu industrial policy co-ordinator Jonas Mosia.
He cautioned that farm workers in SA and elsewhere faced harsh conditions and ill treatment, with some farmers resorting to exploiting vulnerable migrants from neighbouring countries for cheap labour. "Given this situation, we ask ourselves what guarantees are there that farm workers will not be exploited more in the mass production of agricultural feedstock for biofuels in SA."
But a fully fledged biofuels industry appears to be a distant prospect in SA. As Ndaba pointed out, rising oil prices support the viability of biofuels but incentive levels are low and government lacks clear and consistent policies. "We still have a long way to go."
