ZIMBABWE Independent Business Reporter Taurai Mangudhla (TM) recently interviewed Green Fuel general manager Graeme Smith (GS) at the company’s Chisumbanje ethanol plant.
Report by Taurai Mangudhla
Smith talks about the company’s operational challenges and its future prospects in anticipation of a mandatory blending policy being contemplated by government.
TM: May you kindly give us a brief update of your operations while you await government to enact legislation for mandatory blending.
GS: Today, we have excess stock of ethanol sitting in Harare. At the moment we are just slightly above 10 million litres. We ran the plant recently for a period of two weeks and we switched off last Tuesday because of the large quantities of stock.
The Deputy Prime Minister Authur Mutambara has been to the site and as you have seen and reported yourselves cabinet has agreed to do the 5% mandatory blending. However, that has not been implemented as yet so we have stock that we are unable to move at the moment.
TM: Suppose government implements the 5% mandatory blending policy, how much is the move likely to go in terms of improving your operations?
GS: For the plant to run continuously we need to be selling a minimum of 4 million litres of ethanol a month so 5% mandatory blending will only mean approximately 2,2 million litres, meaning the plant will only run for approximately two weeks a month and will be switched off every two weeks.
TM: What does operating below capacity mean in terms of your staff?
GS: At the moment we try very hard to keep all our staff. We haven’t laid off any staff whatsoever in terms of the plant, but we have negotiated with our employees and the non-critical staff are working on a 50% time so we are paying 50% wages.
TM: In your view, what is the reason behind delays in approving the 10% mandatory blending?
GS: I think there has been a lot of misconceptions and misunderstandings of what E10 is, its benefits and the actual implementation of it. In certain sectors of government they don’t have a clear understanding of the benefits of this fuel to the country so the DPM is exposing this to the entire cabinet and to the GNU so they understand what the benefits of this plant are and what it can do for the country. Since that happened, we have basically gained sufficient support to start from 5% mandatory blending.
We are now calling for a minimum of 20% because every vehicle in the country can run on 20% ethanol blending without any modification and it can benefit the country.
TM: What is stopping you from exporting?
GS: We have had interest from outside countries and we do have export potential.
The problem we have is this plant can produce 2,5 million litres per month and if we get 10% mandatory blending, which we have had indications for the past 12 months that we are going to get, it means all our production will be committed to local consumption.
As a result, we have been unable to go and secure an export market to say we will be able to deliver 1 million or 2 million litres a month for the simple reason that if we do that and sign a long-term contract then mandatory blending comes in we may then short-supply the local market.
We are in a bit of a situation where we are waiting for a decision to be made so that we can start the full process.
TM: Suppose you are operating at full capacity, how much revenue can you generate in a month?
GS: Well it depends; currently we are selling our ethanol depending on volumes at anything between 90 US cents and US$1 because we need to recover our investment so if you look at the plant capacity of 4million litres it translates to US$4 million.
TM: Now that the plant is not operating at full capacity what is the cost of running operations?
GS: It’s very high at the moment. Just to pay our staff alone costs over US$1million each month.
TM: You spoke about pricing, can you shed more light on your pricing model especially given concerns that your product may be overpriced?
GS: We have gone to Zera (the Zimbabwe Energy Regulatory Authority) and they have certified our costs.
TM: What are the key variables in your costing?
GS: There are many variables that make up the cost structure, there are overhead costs like labour, depreciation, chemicals and consumables. Those all add up.
Obviously you have to remember this was not built on grant money, it was an investment which has to be recovered. I know the argument is that other countries like Brazil are producing for less, but obviously they have built their plants over 60 years ago.
TM: Can you speak a bit on the quality of your product from a technical point of view in light of information among motorists that ethanol can in fact damage cars?
GS: Worldwide now there is almost no petrol- unleaded or leaded- that you go and buy that is not blended. It has other reagents in order to increase the octane level which is how efficiently it burns compared to a standard.
For you to get petrol to the 95-98% octane levels that people want to use, you have to use additives.
One of the best alternatives is ethanol because it has a very high octane level of over 100%. If fact the petrol that is being brought into this country, the majority and not all of it, I would suggest in excess of 90 % is coming in already blended to get it to the right octane level. So everybody in this country is using blend petrol without even knowing that they are doing it, but it’s called unleaded.
TM: Going forward, what are the company’s major plans?
GS: The plans are much greater than what you have seen today. This is what we refer to as Phase A or Phase One. We have sufficient sugarcane in the ground to produce enough ethanol for the country at 20% blending.
The plant itself can run and support 10% blending but with some minor adjustments and small costs we can upgrade it to 20%. From there we can go to 60%, 80% and then 100%.
One of the by-products is electricity generation. Right now the plant can generate 18MW of power and when it is complete it will be generating 120MW which is approximately 10% of the country’s generation capacity.