Ethanol expansion hinges on cutting production costs

CABINET'S approval of an ambitious plan to expand Zimbabwe's annual ethanol production from 155 million litres to 600 million litres by 2035 has placed renewed focus on whether the country's biofuel industry can deliver meaningful savings for motorists and the economy.

The strategy represents a planned 287% increase in production capacity and is being presented by the Government as a key intervention to reduce petroleum imports, strengthen energy security and lower foreign currency expenditure.

However, analysts say the commercial success of the programme will depend largely on one critical factor: whether locally produced ethanol can be supplied at a price below imported petrol.

Zimbabwe's ethanol blending programme is anchored by the Chisumbanje plant, operated by Green Fuel Zimbabwe, one of Southern Africa's largest biofuel facilities with an installed capacity of more than 150 million litres annually.

Green Fuel, led by general manager Conrad Rautenbach, is targeting production of 120 million litres this year and has expanded storage capacity to 40 million litres, allowing year-round E20 blending rather than reverting to E5 during the sugarcane off-season.

The company supplies ethanol to the National Oil Infrastructure Company of Zimbabwe (NOIC), which blends it with imported petrol before distribution.

Triangle Sugar remains the country's second ethanol producer, manufacturing the biofuel from molasses generated during sugar production.

Because molasses is a by-product of sugar manufacturing, analysts argue that Triangle's production model enjoys a lower feedstock cost than Green Fuel's dedicated sugarcane-to-ethanol operation, potentially making its ethanol cheaper to produce.

Despite Government expectations that increased blending will reduce fuel import costs, current pricing has raised questions over the programme's economic efficiency.

Imported petrol delivered through the Mozambican port of Beira currently costs about US$1.09 per litre on a free-on-board basis, while Green Fuel's ethanol reportedly costs approximately US$1.10 per litre.

By comparison, international ethanol prices generally range between US$0.50 and US$0.70 per litre, with Brazilian ethanol selling for around US$0.56 to US$0.60 per litre.

The disparity means Zimbabwe is paying substantially more for locally produced ethanol than prevailing global market prices.

Critics argue that while ethanol blending reduces the volume of imported fuel, it does not necessarily reduce the country's overall fuel bill if domestic ethanol costs more than the petrol it replaces.

Zimbabwe continues to record some of the highest fuel prices in the Southern African Development Community (SADC), with E20 petrol retailing at US$1.98 per litre following a Zimbabwe Energy Regulatory Authority (ZERA) price adjustment on June 19.

Green Fuel maintains that E20 blending saves the country more than US$10 million in foreign currency every month by replacing imported petrol with locally produced ethanol.

The company also estimates that E20 blending can save motorists approximately US$0.18 per litre compared to E5 fuel.

However, analysts argue that these figures reflect import substitution rather than actual cost savings, noting that if ethanol is purchased at a higher price than imported petrol, the net financial benefit becomes questionable.

For the Government's target of producing 600 million litres annually by 2035 to become commercially viable, experts say significant reductions in production costs will be essential.

One scenario would see Green Fuel lowering production costs through economies of scale, improved irrigation, higher sugarcane yields, mechanised harvesting and greater energy efficiency, allowing ethanol prices to fall towards US$0.60 to US$0.70 per litre.

A second option would involve encouraging additional producers into the market to introduce competition.

Analysts suggest that expanding Triangle Sugar's ethanol operations and encouraging new distilleries in the Lowveld could increase supply while reducing costs through competitive pricing.

The expansion strategy also presents potential export opportunities.

South Africa's mandatory biofuel blending programme is expected to create demand for approximately 400 million litres of ethanol annually.

However, industry experts caution that Zimbabwe will only be able to compete in regional export markets if domestic production costs fall closer to international benchmarks.

At current prices, Zimbabwean ethanol remains significantly more expensive than Brazilian supplies, limiting its competitiveness despite the country's geographical proximity to South African fuel markets.

While Government believes the expansion will improve energy security and reduce dependence on imported petroleum, analysts say the programme's long-term success will ultimately depend on whether local producers can deliver ethanol at globally competitive prices capable of benefiting both consumers and the broader economy.