eBusiness Weekly
Business Writer
Zimbabwe is expected to resume blending its petrol with ethanol next month, a move that is expected to cushion motorists and industry from skyrocketing international oil prices triggered by global supply chain bottlenecks caused by a war that erupted between Russia and Ukraine.
The standoff between the two countries has seen fuel prices adjustments in many parts of the world with the Zimbabwe Energy Regulatory Authority (ZERA) this week announcing that diesel now cost US$1, 68 while blend petrol pump price will US$1, 67 per litre. And this rise in fuel price is the second one in six days after diesel and petrol prices rose to $1, 51 per litre last Friday. ZERA indicated prices will be reviewed periodically to avoid shortages.
The country started blending its fuel with ethanol derived from sugarcane back in 2011 with government saying the move would help reduce the country’s fuels import bill by approximately US$12 million per month.
The blending has over the years fluctuated from mandatory blending level of 5 percent ethanol (E5) and 85 percent unleaded petrol to E20, but currently there is no blending after Green Fuel, the largest local ethanol producer, shut down the plant for a scheduled annual maintenance. There was an experiment on E100, but it was then realised some motorists were not comfortable with this fuel on their engines, while other vehicles were reported not be compatible with this fuel type.
Production of ethanol and blending is, however, set to resume with the later starting this coming April according to ZERA chief executive officer, Edington Mazambani.
Mazambani said as is tradition, Green Fuel uses the rain season, which makes accessing its fields difficult, for its annual maintenance.
“There is no other reason than the issue of annual maintenance, so we are expecting production and blending to resume next month.” Mazambani also revealed that the National Oil Infrastructure Company (NOIC), is currently constructing huge storage tanks to allow stockpiling of volumes of ethanol so that there are no shortages in the future. Can blending cushion Zimbabweans ?
While blending is this time expected to cushion motorists, its has not always been the case as in the past, a litre of ethanol would cost more than a litre of unleaded petrol at the total product cost landed at Msasa after accounting for taxes and other local costs. A schedule previously shared by ZERA sometime last year, had ethanol costing US$1,10 per litre, more than the total unleaded petrol cost landed at Msasa of US$0,994 after accounting for taxes, levies and administrative costs.
This means 20 percent of unleaded petrol at the total product cost landed at Msasa (US 19.88 cents) would cost less than 20 percent of ethanol (US 22 cents). However, with international fuel prices skyrocketing and brent crude selling above US$130 per barrel, fuel blending could at last cushion local motorists.
Actually, according to Mazambani, when free on board (FOB) is higher than US$0,52 per litre blending reduces the pump price. For March, the landed cost for fuel at Msasa before any taxes and other distribution costs was US$0,8679 per litre according to Mazambani. Taxes and levies normally add US$0,487 to costs but might be reduced if government decides to cushion consumers. If government maintains its taxes and levies, the price of unleaded petrol including taxes and levies would be US$1,3549. This means the cost for 20 percent of unleaded petrol, which is the blending ratio would be US$0,27, more than the price of 20 percent of ethanol at US$0,22 (if price is maintained at US$1,10 per litre).
The gap is likely to be higher for April as oil prices have continued on an upward trajectory. While ethanol does not always provide much in terms of savings its production and blending with unleaded petrol fits into the country’s drive to promote uptake of biofuels.
According to ZERA, on its website, increased use of biofuels such as ethanol has many benefits that include reduction of the country’s carbon foot print, creation of employment and reduction of petroleum’s import bill. “We have always indicated that blending at a certain level reduces the pump prices but the other benefits are to do with balance of payments, employment and other social amenities,” said Mazambani.
Not appreciated
Blending of petrol has, however, always drawn criticism. On a call on Wednesday, economic analyst, Eddie Cross, said there is zero benefit to the country from petrol blending. He alleged that blending was actually costing the country US$20 million without specifying the period.
“We are also not saving any foreign currency as alleged because we are now paying the producers in hard currency’’, Cross added. Motorists have also lodged complaints over the years saying the blended fuel lessens engine efficiency, damages their cars and reduces mileage per tank. Experts, however, say blending up to an optimum of about 20 percent improves fuel and engine efficiency as it burns better reducing gases that are released to the environment. According to the Conserve Energy Future website, blending ethanol with petrol creates a mix that releases fewer emissions into the environment and is considered cleaner in nature.
“It also keeps the car in better shape by increasing the octane rating of the fuel.”
Market watchers also say for the country to fully benefit from the production and subsequent blending of fuel, there is need to modernise production plants as well as increase players in the sector.
Doing so would significantly reduce the cost of ethanol than the prevailing prices.
