Is South Africa ready for the 24 months Biofuels deadline?

The South African government has committed to unleash the Mandatory Blending of Biofuels with Petrol and Diesel from the 1st of October 2015 in a move that promises to change the face of the country’s fuels industry and carve out a whole new manufacturing subsector.

However there are major issues which must be attended to clear the path of smooth implementation in 24 months.

The Biofuels movement has always faced a suspicion that it will have a negative impact on food security by diverting critical crops away from the food basket and will raise prices.

These concerns are best reflected in the direction taken by the European Union (EU) recently. In September this year the European Parliament voted to reduce the limit of Biofuel mix in petroleum fuels from the current 10% to about 6% by 2020. The motivation was a concern that the booming biofuels industry was causing was driving up global food prices. The first generation crop-based fuels were the main concern.

Perhaps South Africa is very much alive to this as can be witnessed from the 5% cap in the Biofuel mix proposed in the regulations under review.

Following the publishing of the Mandatory Blending of Biofuels with Petrol and Diesel regulations in the Government Gazette on 30 September this year, the debate has once more risen in South Africa. There are concerns that incentives provided are insufficient to attract investment into the new industry.

Emma Dempster, Senior Associate in the Projects and Infrastructure Practice at Cliffe Dekker Hofmeyr, noted that although the Government has implemented tax incentives, these incentives are currently indicated as being insufficient.

In a statement released last week Dempster cited the exemption of biofuels from fuel tax; a 50% general fuel levy rebate on biodiesel; and a three-year “accelerated depreciation allowance” for such renewable energy projects.

“Further,” said Dempster, “bioethanol currently falls outside the fuel tax net and therefore no fuel tax rebates apply to ethanol for fuel blending purposes.

Dempster added that “There is still a need for further development of the biofuels industry, including the publication and finalisation of draft pricing regulations and rules for administering the biofuels prices. As a result, the Regulations will only become effective once a biofuels support mechanism is finalised”.

Dempster noted that “The Regulations were formulated to control the mandatory blending of bio-ethanol or biodiesel with petroleum petrol or petroleum diesel to produce a biofuel blend that may be sold in South Africa”.

“Biofuels include bioethanol, produced from sugar and starch crops such as corn or sugarcane; and biodiesel, produced from vegetable oils.  The development of the industrial strategy and the establishment of a biofuels industry is aimed at stimulating South Africa’s underdeveloped rural communities with a bio-fuels value chain as well as being in line with South Africa’s aim of moving towards using cleaner fuels that have a lower sulphur content and produce less greenhouse-gas emissions by 2017,” said Dempster.

She explained that Section 3 of the Regulations provides that a licenced petroleum manufacturer must only purchase biofuels from a licensed biofuels manufacturer. This Section also states that when a licensed biofuels manufacturer supplies biofuel to a blending facility of a licensed petroleum manufacturer; that biofuel must be accompanied by a quality assurance certificate.

Also, a licensed petroleum manufacturer must pay the regulated price (being the transfer price of biodiesel or bio-ethanol, as regulated by the Minister of Energy) for the biofuels sold to it by a licensed biofuels manufacturer. This section also notes that all petroleum petrol and diesel supplied to a blending facility must allow for the blending of biofuels to the effect that the allowed minimum concentration of the biofuel in the final blended biofuel complies with (i) the minimum concentration to be allowed for biodiesel blending, mainly 5% by volume; and (ii) the permitted range for bio-ethanol blending, namely from 2% by volume up to 10% by volume.

Dempster further explained that that Section 4 of the Regulations provides that a licensed petroleum manufacturer may not refuse to purchase bioethanol or biodiesel unless it is able to provide proof that it does not have sufficient volumes of petroleum petrol or petroleum diesel to accommodate the volume of bio-ethanol or biodiesel being sold.

“In this regard, all petroleum petrol or petroleum diesel produced by a licensed petroleum manufacturer is considered to be destined for the blending facility,” she said.

“Section 5 provides that all licensed manufacturers of bio-ethanol and biodiesel must submit records to the Department of Energy at the end of each month.  Included in these records must be (i) volumes of bio-ethanol or biodiesel manufactured; (ii) volumes of bio-ethanol or biodiesel sold to licensed petroleum manufacturers; and (iii) names of licensed petroleum manufacturers to which the biodiesel or bio-ethanol was sold.  Licensed petroleum manufacturers are expected to submit similar records monthly. 


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