Kenya: Petrol Blending Plan Falls Behind Schedule

Teething problems have hit Kenya's plans to start blending ethanol with petrol, casting doubts on whether the supply chain will be ready soon to implement the hybrid that would see consumers pay less.

A Kenya Gazette notice by Energy minister Kiraitu Murungi said blending would start on September 1, but Kenya Pipeline Company (KPC) and oil marketers are still preparing facilities.

KPC says the earliest date could be December. "There are outstanding issues like identifying the suppliers, quality control and fixing the machines that are being discussed and implemented," said Mr Selest Kilinda, the managing director of KPC.

He added: "We cannot give a timeline, but the blending is likely to start in December this year."

Reduce cost

Parties are also discussing sourcing ethanol when local supplies are inadequate and ensuring fuel for export is not blended.

KPC is mandated to provide facilities while the marketers will source for ethanol.

The Energy Regulatory Commission said progress has been made but did not give a date when blending starts.

Although the intention of the blending project is not to entirely bring down the cost of petrol, analysis of prices indicates it will have an impact.

A litre of extra neutral ethanol is Sh85, while one litre of petrol costs Sh95.

The cost of neutral ethanol that will be used for blending is Sh69 according to Spectre International and Sh60 according to Agro-Chemical and Food Company.

However, the alcohol content of the blending variety will be raised from 90 per cent to 98 per cent, meaning it will cost more.

There will be 10 per cent of ethanol in every litre of petrol.

The blending seeks to stimulate economic growth by providing ready market that is expected to motivate investments in sugarcane, cassava and sorghum.

It is expected to promote value addition, increase farmers' earnings, boost use of clean energy, giving a possibility of firms tapping more income from the carbon market.

Blending will reduce petroleum import bill, saving the country foreign exchange and help to stabilise balance of payments. Kenya spent Sh181.2 billion ($ 2.2 billion) to import oil in the year ending February 2010, according to the Central Bank of Kenya.

Ethanol market will open a major income stream for the struggling sugar industries facing internal cash flow problems and offer them a soft landing when the protection they enjoy against imports from Comesa comes to an end in December 2011.

The expiry of the Comesa safeguard is expected to open up the sugar industry to cut-throat competition from imports.

Kenya allows 260,000 tonnes of sugar imports, or 36 per cent of the country's consumption of 720,000 tonnes, from Comesa member countries.

The measures are also a major boost in the planned privatisation of the five sugar factories.

The end of Comesa safeguards and the resulting competition from cheaper imports had been seen as a major disincentive for investors planning to buy into the millers.

Privatisation candidates Sony, Chemelil and Nzoia sugar millers announced plans last year that would yield 140 million litres of ethanol annually.

The Kenya Sugar Board is also working on a plan to guide the factories on producing ethanol to take advantage of the new measures, said Christine Chesaro, the Board's head of public relations.

Immediate winners will be the Spectre International and the Agrochemical and Food Company that already manufacture ethanol.

Spectre exports 70 per cent of its ethanol to regional markets.

The company said it was in talks with the Ministry of Energy on plans to increase production to meet the blending demand.

Spectre International director Israel Agina said earlier the company was planning to triple production in line with rising demand.

"We have the potential of three times the production," he said.

Blending is expected to start at KPC's depots in Kisumu, Eldoret and Nakuru, according to a government notice because they are close to the sugar belt.

Mr Kiraitu said blending would cover the whole country once there is enough quantity of ethanol.

Spectre International is Kenya's largest manufacturer of ethanol, churning out about 27,000 cubic metres per year followed by Agrochemical that produces 21,600 cubic metres annually.

Mumias Sugar Company is expected to start producing ethanol by end of 2011.

The company has signed a deal with Ecobank Kenya and Commercial Bank of Africa to finance the project.

Stretched demand

Kenya consumed 598,014 cubic metres of petrol in 2009, meaning that it will require 59,801 cubic metres of ethanol yearly; the current production is 48,600 cubic metres.

Demand will be stretched because the country exports to Uganda and the DR Congo.

The situation could eventually change when the planned 50,000-acre sugarcane plantation in Tana River delta to be managed by Mumias Sugar Company becomes a reality.

Mat International is also planning a sugar plantation in Kilifi, which will add to the Kenya's ethanol capacity.

Spectre said its experiments to produce ethanol from sorghum were positive.

Hiroyuki Hino, an economic adviser of Prime Minister Raila Odinga, had suggested that maize and sorghum grown in the Eastern and North Eastern provinces be used for ethanol and biodiesel production rather than for food.

source: allafrica