VZCZCXRO7273
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #5043/01 3520424
ZNR UUUUU ZZH
R 180424Z DEC 06
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 7331
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHOS/AMCONSUL LAGOS 1047
RUEHAR/AMEMBASSY ACCRA 0906
RUEHLG/AMEMBASSY LILONGWE 2072

UNCLAS SECTION 01 OF 04 PRETORIA 005043 
 
SIPDIS 
 
DEPT FOR OES/PCI; AF/S 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EAGR SENV ECON EINV SF
SUBJECT:  AFRICAN BIOFUEL INDUSTRY SHOWS MIXED RESULTS ACROSS THE 
CONTINENT 
 
¶1.  SUMMARY.  An inaugural Biofuels Markets Africa conference took 
place in Cape Town on November 30 - December 1, 2006.  Several case 
studies on Africa biofuels industries highlighted the status of the 
industry on the continent.  Individual countries have created 
biofuel industries, but the lack of any regional agreements or 
frameworks hampers development of the industry.  END SUMMARY 
 
-------------------------------------- 
CAN AFRICA SUSTAIN A BIOFUEL INDUSTRY? 
-------------------------------------- 
 
¶2.  Suid Afrikaanse Steenkool en Olie - South African Coal and Oil 
(SASOL) Managing Director for Alternative Energy Brian Tait noted 
that Africa has many favorable characteristics needed for a 
successful biofuel industry.  These include large tracts of land, 
excellent climate, cheap energy, basic farm skills, and better soil 
than that found in Europe for fuel crops.  He remarked that biofuel 
plants could easily be located in several countries. 
 
¶3.  Tait offered an overview of several countries.  Angola is a huge 
country with a five and a half-million-member labor force.  Tanzania 
is also large with the possibility of producing 40,000 tons per 
year.  Zambia is self-sufficient in maize, with fields producing 13 
tons per hectare compared to four tons per hectare in South Africa. 
Zimbabwe could be an excellent location once stability returns.  The 
biggest obstacle to the industry in Africa is that there are no 
markets, according to Tait. 
 
¶4.  D1 Oils Chief Executive Officer Demetri Pappadopoulos described 
his company's entry into the African industry.  D1 Oils, a 
successful UK-based biofuel producer, moved into Africa in 2002, 
establishing projects in Madagascar, Swaziland, Zambia and South 
Africa.  The company recently signed a 50,000 hectare project 
agreement with the Swazi government.  The Swazi project involves an 
MOU with the government and World Vision to establish a model farm. 
Approximately 200 people will be employed on the farm itself, with 
many more to be employed in spin-off industries.  The company has 
another 174,000 hectare project expected to employ 700 people with 
the government of Zambia.  D1 Oils expects to have a biodiesel plant 
in South Africa by 2007. 
 
-------------------------------------- 
SOUTH AFRICA IS CAUTIOUS ABOUT BIOFUELS 
-------------------------------------- 
 
¶5.  Frost and Sullivan Research Analyst Ulrich Taylor summarized the 
South Africa's advantages as a biofuel center.  It has a favorable 
regulatory environment and fiscal support.  The geographic location 
and climate permits excellent harvests. Fuel stock is readily 
available.  There is growing diesel consumption within the country. 
 
 
¶6.  Engen Petroleum Refinery Strategic Planner Ian Baxter listed 
South Africa's disadvantages.  First, the government, not the oil 
companies, sets the prices, and they are too low.  The tax in Europe 
is higher than the total pump price in South Africa.  Second, the 
current tax rates on extremely low.  The South African tax is only 
one rand per liter.  Baxter concluded that even if the government 
adopted tax incentives similar to those found in Germany, the market 
would still not be viable.  Third, Baxter noted that South Africa is 
a net importer of vegetable oils.  The price of those oils is more 
than the cost of diesel in South Africa.  Fourth, South Africa, a 
coal-based economy, has never had to develop a successful 
petrochemical industry.  The existing petroleum industry in South 
Africa cannot use the biofuel residual byproducts as is done in the 
US or Europe. 
 
¶7.  SASOL Managing Director Brian Tait noted that large scale 
production might be feasible with proper economies of scale in South 
Africa.  South Africa has three inherent advantages.  First the 
plants could be located inland.  This would foster rural development 
and resolve rural fuel shortages.  Second, a biofuel industry would 
help dispose of South African surplus grains.  Third, the industry 
would provide a platform for expanding biofuel into other SADC 
countries.  Tait noted that obstacles remain, including the 
availability of fuel stocks, i.e., vegetable oil.  Tait concluded 
that until crude oil reaches a minimum of USD 89 per barrel, there 
will be no profit in the biofuel market.  He noted that even at that 
price, SASOL would need high tax incentives to make the market work. 
 
 
¶8.  Tait touched briefly on other issues affecting the market, 
including the possibility that the rising cost of fuel stocks would 
distort the local economy and increase domestic food costs. 
Indigenous non-food stocks such as jatropha might be feasible, but 
they are currently too labor-intensive.  Sugar cane is not a South 
African option, according to Tait, but it would work well in other 
 
PRETORIA 00005043  002 OF 004 
 
 
African countries.  (Comment.  Sugar is a protected domestic 
industry and prices are set by the government, not the market.  End 
Comment.)  South Africa's maize potential is enormous; there are 
approximately 4.5 million hectares available for maize production. 
 
 
¶9.  Barclay's Agribusiness Specialist Fazel Moosa explained that 
agribusiness in South Africa is a R15 billion (USD 2 billion) 
business.  Fuel stock and feed stock lending issues are similar. 
Supply is determined by gross farm income.  Farm income is affected 
by climate as there are various climatic zones in South Africa, 
ranging from semi-arid to sub-tropical.   According to Moosa, Eskom 
will not pay the government-regulated sugar prices.  Maize tonnage 
has increased to the point where too many farmers are engaging in 
maize farming. 
 
¶10.  Moosa said that biodiesel has a small footprint in South 
Africa.  Sunflower and soybean oil are the most important fuel 
stocks.  South Africa could expand into canola if there was a price 
incentive.  Moosa says the banks are concerned about potential 
surpluses and byproducts.  She provided a Barclay's price analysis 
showing that even when crude oil is at USD 60 per barrel, the 
biodiesel industry would operate at a loss, unless the government 
provides support.  According to Moosa, the University of Pretoria, 
in conjunction with the University of Missouri, modeled the biofuel 
industry in South Africa.  The results showed that a large-scale 
industry would need 45 percent import tariffs and rebates on fuel to 
become profitable. It might be possible to create a viable industry 
using a "massification" scheme linking small-scale farmers to ensure 
a steady supply chain. 
 
¶11.  The South African Cabinet recently approved a plan to establish 
a biofuel industry.  This plan, which will be financed by the 
government and private investors, consists of a task force that will 
meet and draw up a more detailed proposal to be submitted to the 
Cabinet in May 2007.  The task force will talk with industry prior 
to submitting any final recommendations.  South African NGOs 
Sustainable Energy and Climate Change Project (SECCP) and Citizens 
United for Renewable Energy (CURES) both expressed disappointment 
that the plan as drafted made no provisions for small-scale 
producers.  The South African Industrial Development Corporation 
(IDC) previously said that it would consider spending approximately 
USD 800 million to develop ethanol plants.  Ethanol Africa of South 
Africa announced that it will spend R7 Million (USD 1 million) on 
building maize-to-ethanol plants. 
 
---------------------------------- 
GHANA: PUSHING AHEAD WITH BIOFUELS 
---------------------------------- 
¶12.  Ghanaian Energy Commission Principal Program Officer Christine 
Asser described the development of the biofuel industry in Ghana. 
Rising fuel prices, not environmental concerns, led to the increased 
use of biofuel.  Petroleum products currently marketed in Ghana 
include premium gasoline, kerosene, gas oil, residual fuel oil, LPG, 
and premix.  Seventy percent of all products are produced by the 
Tema Oil Refinery (TOR) which is completely owned by the Ghanaian 
government.  The remaining thirty percent comes from imports.  TOR's 
production capacity is approximately 45,000 barrels per day. 
Consumption of petroleum products was 1.787 million tons in 2005. 
Overall consumption of petroleum products increased by about 17.4 
percent between 2000 and 2005. Quality control is governed by the 
Standards Board which must certify all samples before the product 
can go to the Energy Commission for approval. 
 
¶13.  Asser noted that biofuels include both ethanol and biodiesel. 
The government has discussed various fuel stocks but is 
concentrating on developing ethanol from cassava, jatropha, oil palm 
and soybeans.  One biofuel activist has about 500 hectares of 
jatropha in cultivation.  The government prefers ethanol because its 
characteristics allow it to be used in cars currently in use in 
Ghana. 
 
¶14.  Asser commented that the lessons learned in Ghana could be 
useful for other African countries.  One major mistake was for the 
government to wait for the private sector to get organized, and not 
stimulate the industry.  When the government finally got involved, 
it conducted product demonstrations to prove the reliability of the 
fuel.  Asser noted that the original timetable called for 
legislation to be in place by the end of December, but this has not 
been feasible.  The framework is ready but policy decisions need to 
be made.  She anticipates that the government will decide to waive 
taxes completely. 
 
--------------------------------------------- 
NIGERIA: ANOTHER GIANT WAKING UP TO BIOFUELS 
--------------------------------------------- 
 
 
PRETORIA 00005043  003 OF 004 
 
 
¶15.  Nigerian Energy Commission Chief Science Officer Abdussalam 
Yusuf provided an overview of the biofuel industry in Nigeria. 
Nigeria has a population of approximately 130 million persons, and a 
land area of 923,768 square kilometers, of which about 56 percent is 
arable.  Vegetation ranges from the savanna in the extreme north, to 
swamp forest in the coastal south.  Most parts of Nigeria are 
suitable for the biofuel crops of cassava, sugarcane, and jatropha. 
Nigeria is currently the leading producer of cassava in the world, 
producing about 30 million tons annually.  The average yield is 15 
tons per hectare which can be doubled with improved varieties. 
Cassava is seen by most Nigerians as a food crop, not an industrial 
crop.  Sugar cane stocks represent one of the most 
photosynthetically efficient crops in the world.  Nigerian sugarcane 
production has declined due to poor performance of local sugar 
companies.  Potential sugar cane fields exist along the entire 
length of the Niger and Benue rivers. 
 
¶16.  The Nigerian government has decided to deliberately intervene 
to produce biofuels.  The government has begun developing policy and 
regulatory frameworks, selecting land for the biofuel crops, 
developing business plans for piloting biofuel plants, and engaging 
the financial community.  The government intends to jump-start the 
industry by initially importing fuel from Brazil.  The objective of 
the Nigerian ethanol program is to produce fuel grade ethanol that 
will be blended with petrol in proportions not exceeding 10 percent 
by volume.  Reducing domestic use of petrol and improving auto 
exhaust emissions are also key goals.  Two target crops have been 
identified for the fuel ethanol initiative - cassava and sugarcane. 
 
¶17.  According to Yusuf, Nigeria can provide sufficient markets to 
meet industry needs.  Current petroleum consumption is 9.5 billion 
liters per year.  The government projects demand will rise to 28 
billion liters in 2025.  The government hopes that bioethanol can 
replace a minimum of twenty percent of petroleum demand within five 
years.  To meet these goals, Nigeria has established a time table 
calling for the implementation of an ethanol import program and the 
creation of a domestic seeding program within five years.  The 
government also hopes to boost local production of cassava and sugar 
cane, to build two to four distillery plants by end of 2007, and to 
encourage public awareness and acceptance. 
 
¶18.  Nigeria has already established three sugarcane projects with 
total ethanol capacity of 225 million liters per year and a total 
cultivation area of 60,000 hectares.  It is now seeking a partner 
for a large biofuel project.  MOUs have been signed with Petrobras 
of Brazil and COIMEX of Mexico for both technology and supply 
exchanges.   A National Energy Policy that strongly supports 
biofuels is in place.  A draft Renewable Energy Master Plan contains 
targets for biofuel. Specific biofuel policy and incentives are 
being considered.  These include tax and financial incentives for 
agricultural and related industries, and land ownership incentives 
for cassava and sugar producers. 
 
¶19.  Yusuf admits that challenges remain.  Farming practices must be 
improved to enhance both quality and yield.  The power and road 
infrastructures needed to boost production need work. Distribution 
and retail facilities have not been arranged.  Quality control 
issues have not been implemented. 
 
------------------------------------------ 
MALAWI: ACHIEVING AS MUCH AS IT CAN ALONE 
------------------------------------------ 
 
¶20.  Daniel Liwimbi, CEO of a Malawian ethanol company, related the 
history of biofuel in Malawi.  The country began producing biofuel 
in 1982 with two companies.  They used molasses and sugar from local 
sugar mills.  Malawi opened its second ethanol plant approximately 
two or three years ago.  Malawi is currently producing all the 
biofuel it can use and is considering exporting it to Tanzania, 
Kenya, Uganda, Mozambique, Zambia, and Botswana. 
 
¶21.  According to Liwimbi, regionalism is key for Malawi.  To 
increase demand for biofuels, Malawi is attempting to introduce new 
flexible fuel cars.  Several flex cars have been ordered and are on 
their way across the Atlantic.  Liwimbi rightly notes that Malawi is 
too small to drive the region on any economic issue.  He commented 
that the countries "need to get South Africa involved." 
Seventy-five percent of all cars driven in Malawi are manufactured 
in South Africa.  Thus, if South Africa would make biofuels a 
priority, this would help the Malawi biofuels industry as well 
 
¶22.  COMMENT.  Conflicting information from a variety sources left 
the audience unclear as to the viability of the biofuel industry in 
Africa.  Some countries have proven they can create and maintain 
small scale industries, while others, notably South Africa, remain 
reluctant to commit to the industry without further study and 
analysis.  END COMMENT. 
 
PRETORIA 00005043  004 OF 004 
 
 
 
BOST