Biofuels levy expected to hike petrol price

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Published Aug 14, 2013

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The department of Energy expects to finalise the biofuels pricing framework in the third quarter of this financial year and has estimated that 3.5c to 4c will be added to the price of a litre of petrol or diesel to subsidise the renewable energy resource.

The department’s chief director of hydrocarbons policy, Muzi Mkhize, told the portfolio committee on energy yesterday that five companies had been granted conditional biofuel manufacturing licences and two had full manufacturing licences.

Eight companies had the capacity to make over a billion litres of biofuels a year. The company that would produce nearly half of this was still at the initial stage of licensing but would make over 500 million litres of canola-based biodiesel in Port Elizabeth.

The department had targeted a 2 percent biofuels penetration – about 400 million litres a year – by the end of this year but none of the licensed companies had begun building manufacturing plants.

The department said it needed to finalise the biofuels pricing mechanism before companies could invest in building plants as biofuels were not financially viable. “The industry has indicated to us that potential funders are hesitant about going on with these projects if they are not sure enabling regulations would come into place,” Mkhize said.

These enabling regulations include the biofuels pricing framework and the mandatory blending of biofuels with petrol and diesel, also to be finalised.

 

He said petrol could have a bio-ethanol concentration of 2 percent to 10 percent when blended. Biodiesel could be blended with conventional diesel at a concentration of up to 100 percent.

But with oil firms only willing to pay prices linked to the basic fuel price, the department would have to fund the gap between what they would pay and how much biofuels makers needed to be profitable.

Mkhize said the department had had a number of discussions with the National Treasury and the Department of Trade and Industry about incentives. The Treasury had proposed a levy of 3.5c to 4c a litre be imposed on petrol and diesel to subsidise biofuels.

 

Mkhize said the eight biofuels companieshad said it would not take more than 18 months to build their plants. The department said with 2 percent biofuels penetration, 25 000 jobs could be created.

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