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R5bn canola fuel plant threatened by law delay

The plant will produce 400,000 metric tons of diesel a year.

PhytoEnergy International Holding AG said it will only proceed with a plan to build a 5 billion-rand ($419 million) plant to convert canola into diesel in South Africa if the government passes laws needed by the industry.

The plant, which will produce 400,000 metric tons of diesel a year when complete, could start output in the third quarter of 2017 if the nation passes planned laws mandating the blending of biofuels into motor fuel. While the regulations are supposed to come into effect Oct. 1 this year, the government has yet to take the necessary step of publishing a position paper, Herisau, Switzerland-based PhytoEnergy said.

“The government keeps on postponing the final regulation and thereby endangers the whole biofuel industry,” Petrus Fouche, chief operating officer of a South African unit of PhytoEnergy, said by e-mail on Tuesday.

The plant will need about 1.1 million tons of canola a year, according to Wandile Sihlobo, an economist at Pretoria- based Grain SA, the country’s biggest grain farmers’ association. That’s nine times 2014’s production of 123,500 tons, all of which was consumed by the food industry. Canola is used in margarine and as a vegetable oil.

While 95,000 hectares (234,750 acres) of the crop was planted last year, an additional 500,000 hectares would need to be grown during winter in provinces including Eastern Cape, KwaZulu-Natal and the Free State, Fouche said.

 

Ongoing Delays

 

“It is unlikely that our government will not pass the final regulations as it’s a mega-project for them in the supply of job opportunities,” he said. “If there are ongoing delays from government, we will have to abandon the idea of processing canola to biodiesel.”

The plant will be located in the industrial development zone at Coega in the Eastern Cape and will be 35 percent owned by PhytoEnergy, 25 percent held by South Africa’s Public Investment Corp., 30 percent by black investors and 10 percent by the African Development Bank. The government is pushing companies to increase black participation in the economy to make up for discrimination during apartheid.

The nation’s canola production has more than tripled since 2003 when it produced 37,975 tons, according to the government- convened Crop Estimates Committee.

“There is an increasing appetite, which is largely driven by increasing demand of canola oil by the middle class,” Sihlobo said. “There will be a need for new production capacity, possible from other provinces such as Free State, KwaZulu-Natal, Eastern Cape.”

Currently, canola is mainly grown in the Western Cape.

Biofuel must comprise at least 5 percent of diesel and 2 percent to 10 percent of gasoline starting Oct. 1, the Department of Energy said in a Government Gazette published on Sept. 30, 2013.

©2015 Bloomberg News

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