AN ASSESSMENT OF THE FINANCIAL VIABILITY OF SCALING UP ETHANOL PRODUCTION IN MALAWI

Abstract

Malawi’s dependency on fuel imports, combined with unstable local currency and fluctuations in world fuel prices poses a threat to short term macroeconomic advancement. Malawi has been using biofuel for transport since 1982. Currently an E20 policy is in place where petrol from the pump station is sold as a blend of 20 percent ethanol and 80 percent gasoline. Consequently, the Government of Malawi is looking at further promoting the use of biofuel in order to substitute fossil fuels. This study explored the viability of scaling up the use of ethanol to higher blends. Specifically the study built on two financial models to establish the viability of ethanol production from molasses and sugarcane respectively. Study results show that molasses ethanol production is viable but is not practical as it requires huge land holding for irrigated cane growing and in essence increased sugar production. An estimated minimum of 432,000 tonnes of molasses would be required to produce ethanol that will enable petrol vehicles to run on E100. Sugarcane ethanol production on the other hand, despite being heavy on initial capital requirement, has proved to be viable. The issue of land remains dominant in both scenarios. It was established that the cost of feedstock is a major cost in the whole production process. In that regard, results also show that the production of ethanol is highly sensitive to the cost of molasses and sugarcane. Although study results suggest viability in ethanol production, the practicality of using molasses to scale up production of ethanol is questionable. This is on account of limited availability of the feedstock, more so because the sugar industry runs as a monopoly currently. The option of sourcing the molasses from neighbouring countries presents a reasonable opportunity however sustainability will be crucial since efforts to promote biofuels have been deployed across the continent. The sugarcane ethanol production despite being better off on land usage requires huge financing which is compounded by the high cost of capital in the country. To make it sustainable there is need for government to harness the macroeconomic environment which will boost the business confidence and enable more players in the sugar and ethanol market to work in association (especially on irrigation infrastructure) so as to benefit from the economies of scale.