Cheaper Oil Forces South Africa to Rework Biofuels Subsidy

by Wendell Roelf (Reuters Africa) South Africa's biofuels funding incentive is being revamped over concerns that it is unaffordable after a halving of global crude oil prices over the past year, officials said on Tuesday.

A net importer of crude, Africa’s most advanced economy wants biofuels initially to meet 2 percent, or around 400 million litres, of the country’s annual fuel consumption to wean itself off oil imports and improve the trade balance.

However, regulatory uncertainty centred on financial support incentives to manufacturers has choked investment since the approval of a national biofuels strategy in 2007.

Instead of a first-come, first-served model, the new proposed subsidy will see producers compete directly against each other on the basis of their individual needs.

"You tell us how much subsidy you need and that would be a competitive element in determining who gets the subsidy. That is a major departure,” Aphane said.

The regulatory framework currently provides for financial support to biofuel manufacturers via a general fuel levy.

Between 4.5 and 6.5 cents per litre is being proposed for 20 years to give firms a 15 percent return on equity. It is supposed to commence on Oct. 1, the government's deadline for mandatory fuel blending to start if feedstock is available.

However, with a carbon tax looming and a raft of tax increases announced earlier this year, the fuel levy proposal may prove unpalatable to the public and industry, analysts said. READ MORE and MORE (Biofuels International)