Volatile Exchange Rate Impedes Bio-Fuel Plans

Volatility in the exchange rate has impeded plans by the private sector to mobilise funds for the establishment of bio-fuel processing facilities in Zambia.

Biofuels Association of Zambia chairperson Thomson Sinkala said the depreciation of the Kwacha against other convertible currencies has made it difficult for entrepreneurs to borrow money from local and foreign lenders.

Mr Sinkala said one requires US$1 million capital to establish an ethanol refinery, while it has been estimated that K12.3 million would be required to construct biofuel blending facilities.

Biofuels would be blended with crude oil because Zambia does not have modified vehicles with engines that can start on biofuel.

“Potential entrepreneurs in the industry have already embarked on fund mobilisation but the process has been hampered by the activities in the exchange market.

The depreciation of the Kwacha has made it difficult for people to borrow money because loan applications are now subject to intermittent reviews due to project cost changes,” he said.

Professor Sinkala said Government needs to internally craft a strategy that will stabilise the Kwacha for it to compete favourably against the United States dollar and other foreign currencies.

He said at the current exchange rate, entrepreneurs face the prospect of failing to remit any loans that would be accrued from foreign lenders to finance ethanol processing ventures.

The use of biofuels as a supplementary source of fuel in Zambia would reduce the country’s dependence on imported crude oil by at least on an average of 10 per cent.

If ethanol based fuel was to be manufactured at full capacity, the country would require 440 million litres and 550 million litres of bio diesel and ethanol per annum respectively.

Government has worked out a pricing mechanism for biofuels using the petroleum price framework by applying a 0-5 per cent discounted rate to the current wholesale prices for petrol and diesel, at K 5.47 and K 6.20 per litre respectively.

This means that the set wholesale price for bio-ethanol is K 5.20 per litre while that of bio-diesel is K 5.89 per litre before tax.

Source : The Times of Zambia

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