A Review of the Nigerian Energy Industry

Blended Fuel: Economy, Zimbabwe citizens worse off

Fuel dispencer17 January 2014, Harare – Reality has now sunk, perhaps much later for everyone else. Firstly that as Business Editor I now have a much greater responsibility of keeping everyone informed and bringing to the fore whatever will be happening in the business world (without fear and favour).

Secondly and most importantly is that we are on a tight leash with the liquidity situation getting more severe by the day. But this is not reality only to me; but rather is for everyone else.

The past couple of days have been dominated by news around petrol blend; the temporary relaxation of the ratio; the pending lawsuit and the views expressed on the monopoly of Green Fuel.

Resistance to the blending is not exactly a new story; neither is the issue around opening up the sector to competition. But herein lies where blending becomes a problem for the ordinary citizen who has to grapple with a liquidity crisis.

Simply put blended petrol is too expensive!

This is from my own simple calculation: a full tank of 40 litres unleaded would take me 571 kilometres, but with the same full tank of E15, I only travel for 460kms. This means I have lost just over 20 percent mileage on the fuel. The price has come down from US$1,51 to between US$1,46-US$1,49. But here is the rip off: To do the same distance, ie 571km I used to spend US$60,40 now I need US$72,79. This is because I still drive the same distance to work and nothing has changed.

But I actually need more money now to maintain the same level of travel.

Annualised I was spending US$1 812 on unleaded, now I need to fork out US$2 175, a 20 percent increase in fuel costs.

It’s worse for those who have Nissan vehicle models as it is going to cost them more to repair and service frequently because of the incompatibility with the fuel in use. If ethanol is US95c per litre, then fuel should not be more than US144c per litre. This means, there are issues which need to be addressed around pricing and around efficiency.

Of course Energy and Power Development Minister Dzikamai Mavhaire on Wednesday said the phenomenon is not new in Zimbabwe.

In 1965 the then Rhodesia, Government embarked on the production of sugar-cane based fuel grade ethanol from molasses and blended it with petrol up to 15 percent. As production increased its importance and use really became widespread in the late 1970s when it was commonly blended.

The blending programme was terminated in 1992 due to drought and the creation of export markets for potable ethanol (for beverages).

Interest in bio-fuels was revived in 2005 with the establishment of an Ad-Hoc Cabinet Committee on Import Substitution in the Energy Sector. Government launched a national bio-fuel feedstock production programme and built two bio-diesel processing plants. Processing capacities of the plants are 1 million litres/year and 36 million litres/year for the Mutoko and Mt Hampden plants respectively.

However even during that time (pre-Independence and after) engine tuning and modifications were required before this ethanol blend fuel could be used in cars. Some makes fared quite well while others suffered from rapidly decaying fuel pipes and fuel system seals. It also caused problems with the engine cooling.

Therefore this not being a new phenomenon does not necessarily mean it is still a good policy. And already we have seen the effects of such with Government just last week Friday giving a three month licence to a private sector player against a Statutory Instrument signed during the days of the inclusive Government which states that mandatory status will only be given to those who are in joint venture with Government.

Past experiences should have taught our policy makers otherwise. But perhaps policy inconsistency is a different subject altogether.

Consumers are actually now worse off with E15.

We have to spend more on fuel. But it gets even more interesting. Government in making it compulsory for people to go to the E15 blend and claiming savings on unleaded fuel imports and economic benefits, the question still remains: who really is saving here? What economic benefits are accruing to consumers and motorists here?

Consumers are now buying 20 percent more blend locally (which in theory has been diluted to 15 percent with ethanol). The maths shows that if everyone is still travelling the same distance(and paying more to do that) we actually need 5 percent more unleaded fuel meaning that the country has to increase its fuel imports rather than reduce them.

While addressing an inter-ministerial task-force headed by former Deputy Prime Minister Prof. Arthur Mutambara at the Chisumbanje Ethanol Plant in June 2012, Green Fuel owner Billy Rautenbach claimed that apart from significant savings from a reduced fuel import bill, his project would employ more than 4 000 workers, generate 18 megawatts, enough to power the entire Manicaland province and carbon dioxide by-products will be used by beverage and fertiliser manufacturers, among other benefits.

Indeed the Green Fuel people will tire of talking about other perceived benefits of the mandatory blending for the local Chisumbanje economy citing the multiplier effect taking place at Checheche Growth Point with several top banks, retail outlets and other big companies opening branches.

Be that as it may, it cannot even be seriously maintained that the country is saving anything, if anything Zimbabwe is actually worse off financially!

Never mind the downstream costs of increased maintenance costs for the vehicles , current running fuel costs are actually 20 percent higher than they were a few months ago!

So my own two cents conclusion is that the benefits are not clearly defined. In other words people need solid proof of the real benefits of switching choices.

The corporate model is superb and trailblazing but a few markers were overlooked in the zeal to give the market cheaper fuel that saves the environment by a lower carbon footprint.

– The Herald

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