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Govt eyes ethanol take over

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Deputy Prime Minister Arthur Mutambara chaired an inter-ministerial committee tasked with establishing challenges facing the Chisumbanje ethanol project.
Deputy Prime Minister Arthur Mutambara chaired an inter-ministerial committee tasked with establishing challenges facing the Chisumbanje ethanol project. Report by Business Reporter

Below are excerpts of the committee findings and recommendations.

The Chisumbanje Ethanol Project is an enterprise of strategic and national importance which has the potential to be the nucleus for the development of an ethanol industrial cluster.

The project currently has issues and problems in two broad areas, which are: social and community related and technical and business related.

Social and community issues: recommendations: With regard to the social and community issues, the key suggestion is that all households that were displaced or mishandled must be compensated and resettled.

The following specific actions are recommended for the issues and problems that have been identified: The Chipinge Rural District Council should immediately regularise all land acquisitions to the project in accordance with the law by completing the appropriate lease agreement with Arda in compliance with the Communal Land Act (Chapter 20:04).

Specifically, the outstanding lease agreement for 2 663 hectares that have already been ceded to the ethanol project, together with council decisions enabling this particular land acquisition, should be reviewed and harmonised in order to align them to the recommendations contained in this report.

Thereafter, the lease agreement must be completed and signed.

The company should immediately compensate and resettle the 117 households that had offer letters and were displaced from Arda estates.

With the government and Arda supervision, the company should engage the farmers directly and pay the compensation in lieu of the land user rights that were lost, and negotiate terms for the farmers to continue to live on the estates as out-growers and producers to the ethanol project.

In order to avoid future acrimonious community relations, the government and Arda should maintain an effective oversight of the implementation of the project.

Technical and business issues In terms of the technical and business related issues and problems, the solution matrix consists of converting the entire project into a JV, making the pricing of ethanol competitive, engaging in comprehensive marketing of ethanol blends, while gradually adopting mandatory blending.

The following specific solutions and actions are recommended: The Cabinet decision to convert the project from a BOT to a JV must be upheld and implemented within the proposed timeline of two months.

It must be noted that the ethanol plant is not on Arda land, and was not part of the BOT, which means this BOT arrangement was actually detrimental to the national interest. In doing the BOT conversion to JV due diligence and investment/project valuation there is need for rigour and creativity.

The veracity of the claim that $600m has been invested must be established, including the source of the financing.

There must be robust and creative valuation of the State’s asset contributions to the project, such as the land (40 000ha), equipment, intellectual property, institutional memory, other State assets usable as security for loans, the partnership with the government as an asset and value enhancing instruments such as mandatory blending.

In fact, the State can easily bring to the project assets that will enable it to achieve 51% ownership of if not higher.

Mandatory blending should only be considered within the context of a JV.

We cannot have mandatory blending for one private producer of ethanol. If there were several producers it might make sense. As a starting point, the mandatory blending should be at the 5% level. This should be implemented immediately, on the assumption that the conversion from the BOT to a JV is now irreversible.

The legal instrument required and other supportive measures must be put in place.

This mandatory E5 fuel specification would increase the uptake of ethanol fourfold to 2,3 million from the current 0,6 million litres and result in 3% lower carbon emissions.

E5 is also the ideal starting point because none of the car manufacturers and sellers has a problem with that level of ethanol, whereas there were complaints about certain vehicles’s compatibility with E10.

The issue of pricing of ethanol should be based on the best practice formulae and be regulated.

It must reflect regional and global pricing of ethanol and take cognisance of the low caloric value of ethanol.

On the basis of the analysis done, with the motivation to encourage consumers to use ethanol blends, while jump-starting the company, the generous price of 85 cents per litre of ethanol is suggested.

The actual price should be 69,2 cents per litre. The price of 85 cents a litre, will mean the prices of the blends will be as follows; E5 ($1,47), E10 ($1,43), E20 ($1,37), E85 ($0,95), E100 ($0,85), as compared to unleaded fuel going at the rate of $1,50 a litre.

Concluding remarks The committee rejects the conditional approach that says these challenges can only be addressed when the plant is running, after the business and technical issues are resolved.