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SUBJECT: BIOFUELS IN MOZAMBIQUE: MORE ANALYSIS
REF: A. MAPUTO 1073
B. MAPUTO 1051
C. MAPUTO 1018
D. MAPUTO 958
E. 07 MAPUTO 1341
1. (U) This cable represents the fourth in a series in an
innovative collaboration in energy/resource reporting and
commercial advocacy between Embassies Maputo and
Pretoria. Embassy Pretoria Minerals/Energy Officer and
Maputo Political/Economic officer visited energy/minerals
projects in northern Tete province and met relevant
government and private officials in Maputo October 13-17,
2008.
2. (SBU) SUMMARY: The biofuels industry is often referred
to as a potential energy security solution for Mozambique
given the country's 89 million acres of arable land; of which
only 12 percent is currently in use; experience with sugar
cane production; tropical climate; viable irrigation; access
to ports; and relatively inexpensive labor and electricity.
The Government of Mozambique (GRM) is still developing its
policy on biofuels, but has already approved several
bio-ethanol projects which should become operational in
several years. Bio-diesel projects from sources as varied as
coconuts and jatropha seem less likely candidates.
Currently, however, international prices of petroleum and
tight credit markets will likely limit biofuels production in
Mozambique. END SUMMARY.
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MOZAMBIQUE'S BIOFUEL POLICY
---------------------------
3. (SBU) In January of 2008, President Guebuza announced
that biofuels development in Mozambique would not dislodge
food production and that all refinement would take place in
Mozambique. Mozambique's biofuels policy remains in
development, despite this high-level articulation of
principles. Ministry of Energy Director of Renewable Energy
Dr. Antonio Saide explained to EmbOffs that he is reviewing a
draft policy which will be under discussion within the
government. Dr. Saide said that approval of ethanol projects
from sugarcane was relatively straightforward because
Mozambique is familiar with sugarcane (Ref D). However, the
GRM is cautious and much less familiar when it comes to
bio-diesel projects, particularly with respect to
non-conventional crops, such as jatropha. The GRM will
likely not grant further project approvals until the biofuels
policy has been finalized.
-----------------------
A BIO-DIESEL CANDIDATE?
-----------------------
4. (SBU) Mozambique has been identified as a strong
candidate to benefit from the development of biofuels because
of its extensive natural resources, including arable land and
water, inexpensive labor, tropical climate and expanding need
for fuels. However, a bio-diesel market in Mozambique is
improbable until excess domestic production of vegetable oil
exists. Currently, the domestic market is unready for
bio-diesel, as edible vegetable oils have more value than as
bio-diesel, diesel is cheaper to purchase than bio-diesel is
to produce, and there is no market for feed cake (Note:
bio-diesel sales alone cannot cover production costs, there
needs to be a secondary market for leftover plant material,
or feed cake. While not available now, the rapidly growing
poultry industry may provide a future feed market. End Note)
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AND ETHANOL?
MAPUTO 00001253 002 OF 003
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5. (SBU) Brazil has subsidized its own bio-ethanol industry
for over 20 years to include establishment of mandates for
special fuel autos, suggesting that to implement the same,
Mozambique would have to develop a subsidy scheme to promote
bio-ethanol. Further, sugarcane-to-bio-ethanol production
requires significant chemical inputs, thus limiting
smallholder participation and competing directly with food
production. Finally, bio-ethanol is of marginal benefit at
best in terms of CO2 production, from an environmental and
economic basis. Nonetheless, two production scale
bio-ethanol projects have been approved and are under
development in Mozambique.
6. (SBU) The first bio-ethanol project, developed by Rusni
Distilleries, an Indian concern which has partnered with
national petroleum company Petromoc and the International
Crops Research Institute for the Semi-Arid Tropics (ICRISAT),
agreed in September 2007 to a $30 million sweet
sorghum-to-bio-ethanol project in Sofala Province. Currently
the project is in the feasibility study stage and under
review by the Government of Mozambique (GRM). The second
project, signed by the GRM in October 2008, is led by
Procana, whose main investor is Central African Mining and
Exploration Company (CAMEC), and is located in Massinger,
Gaza Province. The proposed $510 million project will use
74,000 acres of sugarcane to produce 85 million gallons of
bio-ethanol. A third project awaiting
GRM approval is in Dombe, Manica Province. Proposed by
Principle Energy of the UK to produce 60 million gallons of
bio-ethanol annually from 49,000 acres of sugarcane, the
project includes a total investment of $597 million,
including a $290 million bio-ethanol plant, with construction
beginning in 2009 and full production expected by 2011. This
project may be delayed due to Principle Energy's inability to
raise sufficient funding.
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HOW ABOUT COCONUTS?
-------------------
7. (SBU) One small project produced bio-diesel from dried
coconut (copra) and has saved between 20-25 percent on fuel
costs. However, this was only possible because the project
had a processing facility that was able to deal with the
sub-standard quality of copra used as the source material.
Other projects failed because of the poor quality of copra.
A case in point, a Matola-based oil processing plant that
processes copra into bio-diesel has stopped production due to
poor quality feedstock which arrived moldy, thus unsuitable
for processing.
8. (SBU) While Mozambique is a significant producer of
coconuts, there are international standards for bio-diesel
that are implemented with the use of automated analysis.
Because of the composition of coconut oil, these automated
tests cannot be used for checking the quality of coconut oil
even though the oil is appropriate for use in bio-diesel.
Alternative standards are being developed by Brazil and the
Philippines. Mozambique may adapt these standards or develop
its own; however, Mozambique currently lacks the analytical
laboratory facilities to analyze oil quality for bio-diesel
use.
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THE CASE FOR JATROPHA
---------------------
9. (SBU) The ESV Bio Africa Jatropha bio-diesel pilot
project is believed to have about 12,000 acres planted,
although an earlier target had been to have 27,000 acres
MAPUTO 00001253 003 OF 003
planted by this time. Research is ongoing on how to deal
with the toxic substances in jatropha seed and on oil
quality.
10. (SBU) Noting the need for a market for the feed cake of
a vegetable oil sources to make bio-diesel production
profitable, Jatropha could be problematic given its toxic
content. Feed cake typically has a market as feed of poultry
or cattle, although there is little ranching in Mozambique,
and poultry production is still developing. Of further
concern, jatropha in Mozambique is being eaten by a
previously unknown flea beetle, which will impact yield and
long term viability.
--------------------------------------------- ---
COMMENT: BIOFUELS VIABILITY QUESTIONABLE FOR NOW
--------------------------------------------- ---
11. (SBU) A May 1, 2008 report on biofuels in Mozambique,
authored by The World Bank and the Italian Government, takes
a favorable view of Mozambique's potential, but this is based
on many untenable assumptions including government subsidy of
biofuels production and mandated targets for mixing
bio-diesel. The report also fails to include world market
perspectives in the analysis. Some projections about
economic conditions that will support a sustainable biofuels
industry in Mozambique require consistent $70-per-barrel oil
prices, for example. While oil prices were well over $100
for a number of months recently, prices now hover below $50
per barrel, undermining the economics of biofuel production.
Tight credit markets also add to concerns about future
biofuel investments in Mozambique, suggesting that a viable
biofuel industry is still several years off.
Amani