20 January 2016 -Kakira Sugar Ltd, a unit of Madhvani Group, for decades the country’s leading sugar producer, is scale back on the sweet product to consolidate its hold on energy production.
In the past few years, the firm invested heavily in expanding cane crushing and power generation. Now, the ambitious sugar plant is venturing into commercial ethanol production – a key product for energy production.
Kenneth Barungi, the assistant general manager, told The Independent that the construction of the $37million ethanol plant is on course in preparation for the production of the clean energy product starting in July. The sugar firm hopes to produce 20 million litres of ethanol using 74,000 tonnes of molasses – the by-product of sugar production – annually, hence eliminating revenue losses in the sale of raw black treacle to local dealers. Presently, the company sells molasses to local gin producers and farmers at Shs 50, 000 – Shs 500, 000 per tonne depending on the season.
With the Biofuels Bill 2014 now in the offing, Barungi says this would pave way for ethanol either being blended with gasoline to run vehicles or being sold as neutral alcohol for making other products including sanitisers.
To demonstrate the government’s commitment to support the development of biofuels industry, Cabinet approved the Biofuels Bill 2015 and now awaits parliamentary debate and enactment.
As stipulated in the Renewable Energy Policy, 2007, the legislation provides for compulsory blending of biofuels with fossil fuels up to 20% among other provisions, which would provide a lucrative market for the product.
Kakira’s entry into biofuels comes at the time when the price of crude oil is averaging $35 a barrel – down from $80 barely a year ago, hurting the global biofuels industry.
A report published by the US-based Bain & Company in matters oil and gas in 2014 titled, ‘Biofuels: From boom to bust?’ says a range of problems have stunted growth of the biofuels industry across markets, including rising production costs, inadequate infrastructure for blending ethanol, wavering government support for subsidies and tax credits, and waning consumer interest.
The report says concerns over the impact of biofuels on food prices, along with tighter budgets due to the global economic crisis in 2008 and 2009, have left many governments less willing to support the industry.
Mayur Madhvani, the group managing director of the Madhvani Group, says the sugar firm is still watching the impact of crude oil prices on the industry ahead of its commercial ethanol production.
“Let us keep watching,” Madhvani told The Independent. “The plant is far from production, nearly seven months away.”
For that, what lessons can the government and private sector learn from the past years of biofuels that may help the industry grow?
According to the Biofuels: From boom to bust? report, biofuels need government support in terms of tax subsidies, investment incentives, and volume or blend mandates as they are still more expensive than fossil fuels.
“Even in Brazil, which produces the most efficient first-generation ethanol, the industry suffered when the government pulled back tax credits. Today, ethanol is competitive with gasoline at the pump only in the state of Sao Paulo, where production costs and taxes are lowest,” the report says.
The report says government’s need to carefully weigh the costs and benefits of policy options including potential effects on overall market dynamics before implementing them to promote sector growth.
Further, though the government and the private sector may decide to engage in second-generation biofuels that will not, in theory, compete with consumers for food stock, they will continue to face many of the same challenges as first-generation biofuels, including access to land and rising labor costs. “The commercial sustainability of advanced biofuels is still a long way off, and continued government support will be necessary for industry growth,” Martins says.
First- generation biofuels are made from the sugars and vegetable oils found in arable crops, which can be easily extracted using conventional technology.
On the other hand, second generation biofuels are made from woody crops, agricultural residues or waste, which makes it harder to extract the required fuel.
Kakira Sugar Limited, whose financial year starts in May, is projecting a reduction in sugar production for 2015/16 from the 180,000 tonnes produced in the previous year, citing cane poaching and El-nino rains that affected cane harvesting.
The sugar firm, whose production started in 1930, invested $75 million in cane-crushing facilities and in a power-generating facility from bagasse, a cane fiber, in 2012.
At the moment, Kakira, uses 20 MW of the 52 MW it produces, selling the remainder to the national grid at $0.09.5 per Kilowatt-hour.
Via: The Independent (Kampala)
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