Final Report

FEASIBILITY STUDY OF BIOFUEL PRODUCTION IN GHANA:

Assessing Competitiveness and Structure of the Industry's Value Chain

CLIENT: TECHNOSERVE

By Monica Caminiti, Michelle Cassal, Maitiu OhEigeartaigh, Yelena Zeru MA Candidates, International Development Studies

Elliott School of International Affairs - The George Washington University

May 2nd, 2007

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TABLE OF CONTENTS

EXECUTIVE SUMMARY ................................................................................................ 4 INTRODUCTION .............................................................................................................. 9

The Project ...................................................................................................................... 9 Methodology ............................................................................................................. 10 Limitations ................................................................................................................ 11

BIOFUELS: THE GLOBAL MARKET AND ENVIRONMENT .................................. 11

Ethanol: Current and Future Trends ............................................................................. 13 Biodiesel: Current and Future Trends........................................................................... 13

GHANAIAN ENVIRONMENT....................................................................................... 14

Country Background: Economy, Politics and Society.................................................. 14 Fuel sector..................................................................................................................... 15 Crop Suitability............................................................................................................. 16 National Enabling Environment ................................................................................... 16

National Policy ......................................................................................................... 16 Trade ......................................................................................................................... 17 Finance for biofuel industry...................................................................................... 17 Analysis ..................................................................................................................... 18 CO2 credits................................................................................................................ 18

ETHANOL POTENTIAL................................................................................................. 19

Demand in Ghana and the EU ...................................................................................... 19 National Market ........................................................................................................ 19 International Market ................................................................................................. 19

Sugarcane...................................................................................................................... 20 Background ............................................................................................................... 20 Production Model ..................................................................................................... 21 Analysis ..................................................................................................................... 21

Cassava ......................................................................................................................... 23 Background ............................................................................................................... 23 Model ........................................................................................................................ 23 Analysis ..................................................................................................................... 24 Conclusions............................................................................................................... 25

BIODIESEL POTENTIAL............................................................................................... 25

National Model ............................................................................................................. 26 Biodiesel Demand ..................................................................................................... 26 Supply Chain ............................................................................................................. 26 Maximum Feedstock price for Biodiesel B100 ......................................................... 27 Current Feedstock Price Analysis ............................................................................ 28 B5 Production Costs ................................................................................................. 30 Best Case Scenario ................................................................................................... 30

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B5 Production Costs- Best Case Scenario................................................................ 31 Crude Oil Sensitivity Analysis .................................................................................. 32

Mining Model ............................................................................................................... 34 Biodiesel Demand ..................................................................................................... 34 Supply Chain ............................................................................................................. 34 Maximum Feedstock price for Biodiesel B100 ......................................................... 35 B5 Production Costs- Current costs for vegetable oil .............................................. 36 B5 Production Costs- Best Case Scenario................................................................ 37 Crude Oil Sensitivity Analysis .................................................................................. 37

Biodiesel Export Model ................................................................................................ 38 Demand:.................................................................................................................... 38 Potential Export Markets for Vegetable Oil ............................................................. 38 The European Union: a natural market for Ghanaian exports of vegetable oils ..... 39 Analysis of the Export Supply Chain Model ............................................................. 39 Competitiveness Analysis for Exports of Ghanaian Vegetable Oils to West European Markets ..................................................................................................................... 40

Conclusions from Biodiesel Analysis........................................................................... 42 DEVELOPMENTAL IMPACT........................................................................................ 43 CONCLUSIONS AND RECOMMENDATIONS ........................................................... 44 REFERENCES ................................................................................................................. 47 APPENDIXES .................................................................................................................. 49 APPENDIX I .................................................................................................................... 50 APPENDIX II ................................................................................................................... 51 APPENDIX III.................................................................................................................. 55 APPENDIX IV.................................................................................................................. 57 APPENDIX V................................................................................................................... 60 APPENDIX VI.................................................................................................................. 63

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EXECUTIVE SUMMARY

About Ghana: The Republic of Ghana, which has a population size of 22 million people, is located on the West Coast of Africa and has been hailed as an example of positive development in Africa. This country, which is full of ethnic diversity, has been relatively stable in recent years, both politically and economically. The domestic economy in Ghana continues to revolve around subsistence agriculture, which accounts for 34% of GDP and employs 60% of the work force, mainly small landholders. In addition, Ghana has many advanced industries, which include: textiles, steel (using scrap), and oil refining. The current president has pursued an economic policy of growth acceleration, poverty reduction, and private investment promotion. About the Project The purpose of this project, which was contracted out by Technoserve Ghana, was to assess the viability of creating a biofuels industry in Ghana, with the express purpose of using this sector to foster further economic and social development. The main objectives of the project were: to understand if Ghana could be competitive in this industry, identify who the major players in the supply chain would be; and to estimate the developmental impact for the country. Research for the project was divided into three areas of study: global environment and market; domestic opportunities and enabling environment; and local value chain analysis. The study was carried out in three phases with the first phase consisting of desk research on the global market of biofuels. The second phase was carried out through an on-the-ground assessment in Ghana, to understand the national enabling environment and the industry’s supply chain. The third phase consisted on building models to estimate the costs of local biofuel production. It is important to note some constraints in the methodology that limit the generalization of this study’s findings. Most importantly time constraints on field research in Ghana, which limited the amount of information collected, and secondly the lack of current production information on some of the selected crops, specifically ethanol crops. These are issues that must be taken into consideration in the interpretation of findings, as proxy data was utilized to build certain parts of the analytical models. World Market From the research results, it can be concluded that the world biofuels market has been growing at an accelerated pace in the last twenty years, and this trend is expected to continue in the future. This market can be divided into two broad categories: biodiesel and ethanol. Biodiesel is manufactured from natural oils, whether they be from animal or vegetable matter. Ethanol is produced from sugars, either harvested directly or broken down from starches. Both sectors of the industry have grown significantly, with the United States and Brazil focusing their production efforts largely in ethanol and the European Union concentrating on biodiesel.

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World biodiesel production reached 3,524 million liters in 2005, and is expected to reach 11,000 million liters by 2010. Currently world ethanol production is 55,000 million liters and is expected to reach 70,000 million liters in 2010. In both cases, demand is expected to exceed supply, therefore there is potential for new players, such as Ghana, to emerge and engage in the biofuels industry. National Enabling Environment The fuel sector in Ghana is currently controlled by the government. The country imports 100 percent of the crude oil it utilizes, however, the refining of oil is carried in country, by the Tema Oil Refinery, and the storage and distribution to regional depots is carried out by BOST, a company solely owned by the government. Hence the capacity to transport and store biodiesel across the country currently exists in Ghana. In regards to crops that can be used as feedstock for biodiesel and ethanol production, five crops were identified as suitable for Ghana: these are palm oil, jatropha, and coconut for biodiesel production and sugar cane and cassava for ethanol. The national policy environment is favorable for the biofuels industry at this time; lawmakers in Ghana are optimistic and eager to engage in this sector, specifically biodiesel. Officials are currently updating a draft policy that is expected to go to Parliament in the next year to turn into legislation. This policy would mandate the replacement of 5 percent of petroleum diesel with biodiesel by the year 2010 (through B5 blends1), and an increase of this percentage to 20 percent by the year 2015 (through B20 blends1). Nevertheless, this policy is currently a draft and is subject to change before its final approval as legislation. Despite limited access to finance, the government of Ghana is keen to support the industry. Some larger banks, such as Merchant Bank of Ghana, have received sovereign guarantees to attract capital for the provision of loans to producers of biofuels. In regards to financing of feedstock production, the National Microfinance and Small Loan Center is willing to give smaller loans for the cultivation of jatropha, while the Agriculture Development Bank will continue providing financing for all crops produced in Ghana (including jatropha). Ethanol Potential Given the lack of policy drive towards ethanol usage, there is currently no ethanol production in Ghana and the potential for developing this sector seems small in the short term. The most realistic possibility given these circumstances lays in the potential use of ethanol as a gasoline oxygenate. Potential crops for the production of ethanol are sugarcane and cassava. At present, there is no real discussion in Ghana on introducing the use of sugar for ethanol production. This lack of interest is largely due to reluctance on making investments in an industry

1 Blends of up to 20 percent biodiesel with 80 percent petroleum diesel (B20) can generally be used in unmodified diesel engines. Biodiesel can also be used in its pure form (B100), but may require certain engine modifications to avoid maintenance and performance problems

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that collapsed several years ago, forcing the country to import its entire sugar crop. However, if Ghana were to utilize this feedstock, it would need to achieve production costs at the level of Brazil, the world’s largest producer, in order to be competitive. While there is inherent potential for a cassava-based ethanol industry, issues with food security, as cassava is currently a subsistence crop for a large part of the population, and steady feedstock supply prevent cassava from being a suitable feedstock for biofuel production at this point in time. There is need for wide-spread improvements on yields, reduction of production costs, and further research regarding food security issues. Biodiesel Potential There is potential for the biodiesel industry in Ghana that could be supported by the already explicit interest of the government and small entrepreneurs, who are already involved in the nascent industry. This report analyses the possibility of a biodiesel industry based on three identified crops: jatropha, coconut, and oil palm; and three potential models of production. The first model is based on the government’s policy draft for the biodiesel industry and identifies all of Ghana as the potential market. Based on the analysis of this model, it can be concluded that if Ghana were to seek a biodiesel industry competitive with current diesel prices, it would have to increase productivity of jatropha growers, reduce the seed price by 55 percent, and provide a tax break of 5 percent on the total blended fuel. If this is not met, the best next alternative is palm oil, which would require further subsidies or tax breaks on the blended fuel for it to be competitive. However, the price of palm oil is subject to volatility due to its demand in the food market, which could in turn negatively influence the competitiveness of the biofuel industry. The second model takes a sectoral approach, targeting the mining sector as the market for biodiesel. The most promising sector in Ghana would be that of mining since it consumes approximately 40 percent of the national production of diesel. Furthermore, diesel represents around 42 percent of operational costs for the mining industry, and mining companies are obliged by law to ensure that other economic activities are promoted in the areas where mines are located. Hence, a biodiesel industry would not only fulfill the sector’s need for fuel, but would also diversify the economic activity of communities surrounding the mines by creating jobs in the agricultural sector. Based on the analysis of this model, the best feedstock for B5 blend production at the mine level are palm oil and jatropha. However, this model would be viable only if the prices for palm oil are low and productivity is increased for Jatropha in order to reduce the farm gate price. The last model deviates from the production of biodiesel by identifying the potential for Ghana to participate in the world market of biofuels as a supplier of raw materials through the exportation of vegetable oils to Europe. This model can be used to increase the supply of feedstock until capacity for biodiesel production is built in Ghana. This model is based on the export of the vegetable oil and not on exporting the biodiesel itself, because the largest markets for biodiesel consumption have excessive production capacity and are not open to importing biodiesel. However, these nations are facing

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bottlenecks in the availability of feedstock and are seeking to import raw materials, thereby providing a great opportunity for Ghana to become a potential supplier. The results of analysis of the export model of vegetable oils produced in Ghana show that there is definitely an opportunity for this country to participate in the export markets, particularly in Europe. Aside from potential competitiveness in terms of production costs, Ghana has a comparative advantage over other large vegetable oil producers, such as Malaysia and Indonesia, to export to Western European markets due to close proximity and favorable trade agreements, such as the Cotonou Agreement which provides import tax exemptions for vegetable oils, like coconut and palm oil into Europe. Developmental Impact To asses the developmental impact of each model, the implications were analyzed based using three indicators: agricultural income generated, total agricultural employment generated and hectares required for biodiesel farming The total income generated in USD was calculated by multiplying feedstock income per hectare times the number of hectares needed to meet the biodiesel demand in each model. The only exception is the export model, for which the export price per metric ton of oil was multiplied times the number of tons that would be consumed in the national model (this is an estimate however, because the potential for exports is much larger and is limited mainly by the ability of producers to increase production volumes and compete in price). The second indicator measures the employment created in the agricultural sector. However, this estimate is conservative as it does not include other jobs created throughout the biodiesel supply chain. Lastly, the number of hectares needed for feedstock was used to measure the environmental impact. It is assumed that the higher the requirement of land the more negative impact on the environment, as more wild forest would have to be allocated to agricultural production. As will be evident in the report, palm oil generates the largest agricultural income, but jatropha has the highest number in employment creation and the lowest amount of land required. Other aspects of the developmental impact that must be considered, independently of the selected model, are the positive impacts on the foreign reserves, as the country will import less crude oil, and the reduction on CO2 emissions. Therefore it is determined that overall, the outcomes of a new biofuel industry in Ghana can have a positive impact on economic and social development in the country. Conclusions and Recommendations Based on the research and analysis carried out in this project, some major conclusions and recommendations were proposed. Firstly, it was found that Ghana has the potential to engage in the biofuel industry, for both the national and international markets, although the country should initially focus on the biodiesel sector, particularly on utilizing jatropha and palm oil as the primary feedstock. Secondly, in order to be competitive, it is necessary for feedstock producers to realize high productivity gains, in terms of production yields and oil extraction rates. A third conclusion suggests for further research on the cost of Methanol, a major ingredient in the production of biodiesel, that is oddly very expensive in comparison to other African countries, and that currently generates up

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to 30 percent of the overall cost of biodiesel production in Ghana. A fourth conclusion is that all the models that ware identified to be competitive in the creation of a biofuels industry in Ghana, offer positive developmental impacts in terms of income and labor generation, to different degrees, and the choice of the best model to develop this industry will depend on compromises and tradeoffs among the different players in the industry. Finally, it is suggested that ethanol should not be considered in the short term in the biofuels industry in Ghana, since the there is no expected government support for this sector, and if sugarcane is to be used for production, very low production costs would have to be achieved in order to compete with the largest producers like Brazil and the United States. Therefore, the main recommendations in this report indicate that in order for Ghana to be competitive in the biofuel industry, it needs to jumpstart the biodiesel production using jatropha; however this crop requires much more extensive research and development. Nevertheless the production of biodiesel can not be successful without government support. Another recommendation is that the palm oil industry should be expanded, and based on the international prices trends, palm oil could directed successfully towards both the export or the local industrial markets. Finally, additional uses for jatropha biodiesel should be further investigated to see if this fuel can used for rural electrification.

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INTRODUCTION

In the world of development, there are many theories and practices that attempt to end world poverty and encourage growth. One approach is to develop sustainable industries through private sector development to encourage entrepreneurship, GDP growth and employment generation. The possibility of developing a biofuel industry in Ghana would ensure the creation of these factors in the rural area, decreasing the poverty that afflicts thousands of subsistence farmers while providing renewable sources of energies for the country.

The origin of this project took place in October of 2006. Our team of graduate students at George Washington University met with the director of Technoserve’s Ghana office. It was in that meeting where the director outlined a vision of helping the poor not through government programs or civil society, but investment. It was the desire of Technoserve-Ghana to determine whether it was advisable to initiate a large biofuels project in the Republic of Ghana as a means of alleviating poverty through business development. Intrigued by this opportunity, the team agreed to the terms of reference and began the Biofuels in Ghana project.

The Project

The purpose of the project was to assess the feasibility of developing a biofuel industry in Ghana by conducting a preliminary analysis on the industry’s value chain. The main objectives were to: assess the industry’s competitiveness in the global and national market; identify major players in the supply chain; and estimate the developmental impact in the Ghanaian agricultural sector.

In order to attain the project objectives, the research was broken down into three areas of study that included the following tasks .

1. The World Environment and Value Chain

a) an industry overview and analysis of worldwide biofuels markets

b) a world demand and supply analysis c) assessment of the political climate in key nations

concerning the use of biofuels d) a review of taxation incentives, subsidies, and

tariffs being provided concerning biofuels e) a brief examination of other nation’s practices

regarding promoting the biofuels industry

2. An Analysis of the Opportunities in Relation to Ghana

a) examination of the potential for target domestic and

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export markets b) assessment of competitive advantages specific to Ghana c) examination of the potential capacity for both agricultural

production as well as refinement d) assessment of the infrastructure challenges faced

throughout the country e) identification of top 4 feedstock for ethanol and biodiesel

production

3. Value Chain Analysis within Ghana

a) costing value chain at point of export for the top biodiesel and ethanol feedstock including farm level attractiveness of growing the crop, extraction of vegetable oil, manufacture of biodiesel and transport to wholesaler / retailer

b) costing benchmarks (cost value chain of biofuel competitors)

c) determining productivity threshold to be competitive and gap analysis

d) providing a map of the value chain e) quantifying the tangible benefits in terms of

development (employment, growth, etc.)

Given the research and analysis carried, it can be concluded that there is potential for a biofuel industry in Ghana. The industry should initially focus on the production of biodiesel, until a competitive sugar industry is developed for the production of ethanol. At the same time, the competitiveness of the biodiesel industry is dependent on stable national and international prices for oil palm, and increased productivity of jatropha obtained through R&D.

Methodology

The project utilized a value chain approach in order to research the market; transportation and distribution; bio-fuel production and refining; and biofuel feedstock production at farm level. The research was divided into three phases. The first phase began with the review of academic literature, business reports and available statistics on the biofuel global environment. This was followed by the second phase composed of a two-week intensive on-the ground assessment in Ghana designed to understand the national enabling environment and the industry’s supply chain. Tools utilized on the field study included: site visits, interviews and surveys of local producers, entrepreneurs, intermediaries, service providers, export agencies, TechnoServe staff and Ghanaian government officials to determine the capacity of Ghana to participate in a potential biofuel industry.

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Once the global and national enabling environments were identified, all data collected regarding the supply chain in Ghana was analyzed. Production models were built in order to determine the competitiveness of the industry.

Limitations

As with any research undertaken, certain limitations of methodology exist. Due to time constraints, research on-the ground was only carried for a period of two weeks, limiting the information that could be obtained from other regions of the country. Moreover, lack of current information on crop production was encountered when meeting with the Ministry of Agriculture, Ministry of Energy, and other stakeholders. This is particularly true for the case of jatropha and sugarcane, industries that are not developed in Ghana.

Another major limitation is the lack of production costs for ethanol given that no industry currently exists in the country. This required the use of production costs from the US and Mozambique as estimates. Additionally, production costs for biodiesel obtained were based on current small-scale production and can hence vary from large-scale production. Furthermore, all models of production are made based on assumptions and do not include an extensive list of costs incurred in a business such as land, and overhead expenditures. Therefore, the analysis made is to be used only as an indicative of the potential for a biofuel industry and not exact costs of production.

This report is designed to outline both the research taken prior and after the on-ground assessment of Ghana, as well as final conclusions and recommendations. The paper begins by outlining the global market of biofuels, and it is followed by an overview of the national enabling environment in Ghana. It continues with an analysis of the potential ethanol and biodiesel industries, and presents possible production scenarios. The paper concludes with recommendations and conclusions based on research and findings which include: the analysis of the world markets, the biodiesel models created, and developmental implications of this industry.

BIOFUELS: THE GLOBAL MARKET AND ENVIRONMENT

Biofuels, in this case ethanol and biodiesel, are renewable energies derived from biomass or solar energy captured in plants through the process of photosynthesis. They are heavily utilized in Europe and America for the replacement of fossil fuels due to environmental and national security concerns. On one hand, ethanol, which is produced from crops that are sugar based and fermented into alcohol, is used as an additive or replacement of gasoline. It can be mixed with gasoline up to a 20 percent blend without the need of modification of motor engines. The main crops utilized for its production are sugar and maize, feedstock that are produced in large quantities in Brazil and the United States respectively. On the other hand, biodiesel, made by transesterification, a chemical process that reacts vegetable oil or fat with methanol and a potassium hydroxide catalyst, is used to replace diesel. It can be used in compression ignition diesel systems, either in its 100% “neat” form or more commonly as a 5%, 10% or 20% blend with petroleum diesel. At this time, rapeseed and sunflower are the most commonly used feedstock to

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produce biodiesel in Western Europe, the world’s largest producer and consumer of biodiesel.

The world market of biofuels has been steadily growing in the last years, with an increasing number of countries participating in it for environmental and security reasons. In 2002 world production of ethanol reached 21,841 million liters, while biodiesel production was 1,503 million liters. This production not only provided an alternative to fossil fuel, but it is also generated large number of employment since biofuel production requires 100 times more workers per unit of energy produced than fossil fuels. In 2002, the ethanol industry provided more than 200,000 jobs in the US and ½ million direct jobs in Brazil (IEA, 2004).

In regards to methods of ethanol production, most producers utilize first and second technologies to turn sugar or starch (that is converted into sugar) into ethanol. However, research is being carried on utilizing cellulosic material for the production of ethanol. This method would focus on utilizing cellulosic waste materials to create fermentable sugars, ultimately leading to more efficient production of ethanol. The process, however, is more complicated than converting starch into sugars and then to alcohol. Currently, there is no commercially viable production of ethanol from cellulosic biomass, but there is substantial ongoing research in this area in IEA countries, particularly the US and Canada. It is important to note that there are several potential benefits from developing a viable and commercial cellulosic ethanol process which include:

• Access to a much wider array of potential feedstock (including waste cellulosic materials and dedicated cellulosic crops such as grasses and trees), opening the door to greater ethanol production levels.

• Greater avoidance of conflicts with land use for food and feed production. • A much greater displacement of fossil energy per liter of fuel, due to nearly

completely biomass-powered systems. • Much lower net well-to-wheels greenhouse gas emissions than with grain to-

ethanol processes powered primarily by fossil energy.

A number of research organizations and companies are exploring combinations of thermal, chemical and biological saccharification processes to develop the most efficient and economical route for the commercial production of cellulosic ethanol. These programs have substantial government support, particularly in the United States and Canada. None of the approaches, however, has as yet been demonstrated on a large-scale, but if developed, it can drastically alter the world ethanol market. In comparison with some of the technologies being developed to produce ethanol and other biofuels, the biodiesel production process involves well-established technologies that are not likely to change significantly in the future. However, some organizations and companies are trying to develop technology to extract biodiesel from algae.

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Ethanol: Current and Future Trends

The world market size of Ethanol reached 55,000 million liters in 2005 (Hunt 2006). Brazil and the US dominated the world market taking a share of 19,000 million liters each, however the EU ethanol share was lower due to difficulties in competing with cheap imports (USDA, 2006). Its market size in 2005 only reached 3700 Million liters (Hunt 2006), nevertheless, production in the EU is expected to increase during the coming years.

According to research from the Chicago board of trade, prices of Ethanol have fluctuated from 1.73 $ / GAL in 2003 to more than 3.20 $/ GAL in 2005 (Chicago Board of Trade, 2006). Prices are normally influenced by several factors: production costs, feedstock prices, countries legislations and oil prices among the most important ones. In Brazil costs are lower than any country and e close to the cost of producing petroleum fuel.

The estimated size of the Ethanol market in 2010 is expected to be around 70,000 Million liters (Berg 2004). It is forecasted that by 2020 the market will grow to 120,000 Million liters (IEA 2004). If historical trends were to continue, annual growth rates in the future would be about 7% for Europe, 2.5% for North America and Brazil, and 2.3% for the rest of the world. However, given recent global policy initiatives and changes in trends, a different picture might emerge: a quadrupling of world production by 2020. For example, Japan is expected to become the largest importer of Ethanol (6000 Million liters/year) by 2012, followed by the US (1000 million liters) and EU (800 million liters) by the same period (Berg 2004).

Biodiesel: Current and Future Trends

There are many crops that can be used for producing biodiesel, but the choice normally depends on local availability, affordability and government incentives. For example, rapeseed oil is preferred in Western Europe, while the United States favors refined soybean oil as a feedstock. Although Brazil is the world’s second-largest producer of soybeans, its government is fostering a castor oil–based biodiesel industry. The big palm oil producing countries in Southeast Asia are Malaysia and Indonesia. They are currently focusing on palm kernel and palm seed oil. Both India and China have large jatropha (physic nut) plantations under development. In addition, China is investigating recycled cooking oil as an option. The most important feedstocks by 2010 are expected to be soybean, rapeseed and palm oil, in descending order (CITE). Nevertheless, Jatropha and cottonseed oils will show the highest growth rates. In terms of the market size, the biodiesel industry reached 3,524 million liters in 2005 (Hunt, 2006), with Western Europe having the largest share of the market. Although it is still the largest producer, market fragmentation has decreased Western Europe’s monopoly in the biodiesel market. Its share which represented 95% of the market in 2000(Gubler 2006), had been reduced to approximately 80% by 2005. This is accounted by new players, such as Asia, entering into the market.

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The forecasted growth for the Biodiesel Market expects that it will reach a size of 11,000 million liters by 2010 and continue to grow to reach 24,000 million liters by 2020. Furthermore, the total EU biodiesel production is estimated to grow from 2.98 million tons in 2005 to 6.1 million tons in 2007. Sixty one percent of the world consumption in 2005 was accounted for by Germany. The United States is expected to be largest single biodiesel consumer and market (18% of world consumption). All other countries combined account for only 11% of world consumption. By 2010, further fragmentation of the market is expected. Nevertheless, China and India are two new large single markets that are expected to emerge. The share of other countries will also increase to 44%; Africa also has an opportunity to emerge. (Gubler, 2006). With capacity growing at 115% per year, the world is expected to run into an overcapacity situation during 2007 (Gubler, 2006). Capacity worldwide will far exceed expected consumption growth rates. The results will be intensified competition, lower capacity utilization rates, squeezed profit margins, a war for raw materials, and, probably, closure of small-scale producers and those in less strategically important regions.

GHANAIAN ENVIRONMENT

As previously seen, the biofuel market is continuously growing and will be fragmenting in the years to come allowing new players in Africa, such as Ghana, to have an opportunity to enter the industry. This section seeks to present information on the country’s background, the enabling environment and feedstock production for the biofuel industry.

Country Background: Economy, Politics and Society

The Republic of Ghana is located on the West Coast of Africa and has an estimated population of 22 million. Among this population there are six major ethnic groups which are: Akan 44%, Moshi-Dagomba 16%, Ewe 13%, Ga 8%, Gurma 3%, and Yoruba 1%. Although there is ethnic diversity, Ghana does not suffer from tension among ethnic lines. Moreover, religion plays an important role in the lives of Ghanaians. There are 63% Christians, 21% that have indigeneous beliefs and 16% that are Muslim (http://www.infoplease.com/ipa/A0107584.html). Ghana's industrial base is relatively advanced compared to many other African countries. Industries include textiles, steel (using scrap), tires, oil refining, flour milling, beverages, tobacco, simple consumer goods, and car, truck, and bus assembly. Tourism has become one of Ghana's largest foreign income earners (ranking third in 2003 at $600 million), and the Ghanaian Government has placed great emphasis on further tourism support and development (www.state.gov). The domestic economy in Ghana continues to revolve around subsistence agriculture, which accounts for 34% of GDP and employs 60% of the work force, mainly small landholders. In 1995-97, Ghana made mixed progress under a three-year structural adjustment program in cooperation with the IMF. Public sector wage increases and

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regional peacekeeping commitments have led to continued inflationary deficit financing, depreciation of the cedi, and rising public discontent with Ghana's austerity measures. Nonetheless, Ghana remains one of the more economically sound countries in the west of Africa By West African standards, Ghana has a diverse and rich resource base. The country is mainly agricultural, however, with a majority of its workers engaged in farming. Cash crops consist primarily of cocoa and cocoa products, which typically provide about two-thirds of export revenue, timber products, coconuts and other palm products, shea nuts (which produce an edible fat), and coffee. Ghana also has established a successful program of nontraditional agricultural products for export including pineapples, cashews, and pepper. Cassava, yams, plantains, corn, rice, peanuts, millet, and sorghum are the basic foodstuffs. Fish, poultry, and meat also are important dietary staples. Minerals--principally gold, diamonds, manganese ore, and bauxite--are produced and exported. In addition, exploration for oil and gas resources is ongoing (www.state.gov). Despite being rich in mineral resources, and endowed with a good education system and efficient civil service, Ghana fell victim to corruption and mismanagement soon after independence in 1957. However, John Kufuor, the current president of Ghana won a second term in December 2004. Known as the "Gentle Giant", Mr Kufuor has made economic growth a priority. During his first term, inflation and borrowing costs fell. He has also taken a leading role in mediating in regional conflicts, including those in Liberia and Ivory Coast Moreover, Ghana’s stated goals are to accelerate economic growth, improve the quality of life for all Ghanaians, and reduce poverty through macroeconomic stability, higher private investment, broad-based social and rural development, as well as direct poverty-alleviation efforts. Other reforms adopted under the government's structural adjustment program include the elimination of exchange rate controls and the lifting of virtually all restrictions on imports. Therefore, Ghana’s economy is inviting of new industries and investments.

Fuel sector

In Ghana, the importation, refining, and distributing of fuel is run by Government agencies. The Tema Oil Refinery, a para-statal, processes roughly 45,000 barrels of Nigerian oil per day, representing full capacity of the plant. This oil supplies about 70-75% of the market, with imports making up the remainder of Ghana’s fuel needs. Of that production, roughly 11,000 tons of petrol is produced in a week, along with 13,000 tons of diesel, and 2,000 tons of LPG (Adamako 2007). This corresponds to projected consumption in 2005 of roughly 574,242 MT of gasoline and 895,576 MT of petroleum diesel (GEC 2007). The finished products are then stored and shipped by BOST to be distributed throughout the country. Although BOST is registered as a private company it is solely owned by the government (Ohene-Amoah 2007).

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Crop Suitability

Given the wide variety of feedstock from which biofuels can be made, it is important to identify crops that are most suitable for production in Ghana. By applying a set of criteria, which takes into account current yields and production, six different crops were selected for further research on the ground2. These were:

▬ Biodiesel: Jatropha curcas, oil palm, coconuts ▬ Ethanol: Sweet potatoes, cassava, and sugar cane

Limitations on information obtained in Ghana prevent a full analysis on some of these crops. In the case of sweet potatoes, the added costs in preserving and transporting the feedstock as well as in the actual processing it into ethanol is unknown and believed to be too high. In the case of sugar cane there is currently no significant production of this feedstock in country, however efforts are being made to revitalize the industry that existed in the past. Given that the returns on creating ethanol from this feedstock are much higher than any comparable crop an analysis was made using estimates from US and Brazil. Due to these limitations the models presented in the next sections focus only on sugarcane and cassava for ethanol production and coconut, palm, and jatropha oil for biodiesel production.

National Enabling Environment

National Policy Given that the fuel industry in Ghana is state-run, the policy environment is of particular importance when looking at the potential for the biofuel industry. Over the course of several discussions with government officials, it became obvious that there appears to be substantial excitement over the development of a biofuels program. Many individuals from the Energy Commission to the Ministry of Food and Agriculture had already discussed the potential for developing the sector and a draft of policy recommendations has already been put in place. However it must also be stressed that while the officials were very enthusiastic, there remains doubt as to how much of the policy will be put into effect. Discussions revealed that the draft policy had been in place since November of 2005 yet at the time of interviews (March 2007) the policy had not been put before Parliament nor was there any discernable timetable to do so (Ahenkorah 2007). This is of particular concern in that many of the policies recommended are on timetables that may be unrealistic if not implemented within the next few months (Amoah 2007). Therefore there is some question as to the level of commitment behind these recommendations and potential policies. Given the uncertainty, these policies (and their subsequent consequences) must be taken as no more than “best guesses” at this point in time. That being said, there are some measures that the Ghanaian government is considering to promote the use of biofuels. There is particular interest in the creation of a domestic

2 See Appendix I for a detailed list of all relevant crop selection criteria and weights

17

biodiesel industry. The primary reasons for this policy include a desire for economic growth, fuel security, and a potential increase in employment (Ahenkorah 2007). Therefore biofuels is seen as a vehicle for economic development rather than a policy to be pursued based on environmental grounds. In terms of feedstock, the government is most interested in promoting the use of jatropha and palm oil, with a particular emphasis on the former. The reasons for this preference seems to be rooted in the idea that jatropha can grow in a wide variety of places and has the potential to employ a larger number of individuals (Amoah 2007). The policy covers a great deal of ground but the most important measure being considered is the mandated use of biodiesel; approximately 5% of the countries total consumption by 2010 and a further 20% by 2015 (GEC 2005). However, these goals are increasingly dubious as Ghana has yet to act on these recommendations and there is no large scale production of biodiesel currently being undertaken anywhere in the country. Other policies include: the provision of tax breaks for producers (tax holidays); waiving of duties on machinery used to produce biodiesel (Ahenkorah 2007); mandating government vehicles to use at least B20 and encouraging other mass transportation fleets to do the same; and requiring all existing commercial gas stations to offer both blends of B20 and B100 (GEC 2005). There is also a recommendation towards the subsidization of biodiesel by means of removing various levies and BOST margins from biodiesel (GEC 2005); however the Energy Commission has also stated that it will not offer such subsidies at the cost of revenue (Ahenkorah 2007). How these two viewpoints are to be reconciled remains to be seen. It should be noted that ethanol production has been all but left out of these policy recommendations. Both the draft policy as well as government officials have largely dismissed the production of ethanol as a viable alternative. There have been failed attempts in the 1970s to create an ethanol industry; however this initiative was not successful due to subsequently lower oil prices as well as a lack of implementation on the part of the Ghanaian government (GEC 2005).

Trade In addition to the various domestic policies there are several thoughts as to the actual exportation of biofuels. According to the draft policy, there are policies proposed to look to export biodiesel along the same lines as cocoa is exported today. Cocoa is currently bought by the government at set prices and then subsequently sold on the world market. It is also recommended that biodiesel exports be regulated and taxed as a source of revenue (GEC 2005). Government officials have expressed generally a protectionist stance, perhaps even seeking import taxes on biodiesel (Ahenkorah 2007). Additionally, some officials have expressed the possibility of imposing a ban on the export of jatropha seeds (Kufuor 2007).

Finance for biofuel industry The government of Ghana is also trying to promote the funding of biodiesel production, and might have access to a special fund set up by the Indian government of approximately $35 million to further the use of jatropha as a biodiesel feedstock. In

18

addition to this funding, the Merchant Bank of Ghana has determined to seek government support, which they have accomplished by gaining a sovereign guarantee from the government to provide funding for biofuel production. In regards to financing for feedstock production, the Bank is relying on existing microfinance schemes for the provision of credit to farmers. Additionally, the National Microfinance and Small Loan Center is willing to give smaller loans for the cultivation of jatropha, focusing on youths and using set prices for the seed to be sold to the producer (Kufuor 2007). Finally, the Agricultural Development Bank (AGDB) expressed no preference for the crop to be cultivated since they provide support to all crops in Ghana. The Bank, will finance these crops through its own budget, and has the liberty to finance a variety of crops. The government on the other hand will only provide funding for its jatropha initiative. AGDB will also use some of its fund to support this crop, however further information on the costs of production still have to be shared with them to determine feasibility and price (AGDB 2007).

Analysis While the enthusiasm and spirit to promote biofuels is there, the actual policies of the Ghanaian government in both promotion and trade leave room for improvement. First, some of the policies tend to conflict both with various parts of the draft plan as well as various interviews that were completed. There also appears to be a swift push for jatropha cultivation despite the lack of established scientific evidence as to its yields. This is coupled with what seems a great misunderstanding as to the effect cultivation may have on land use: e.g. “unlike most of the other crops, the oil produced from jatroph [sic] is not edible and thus its cultivation for energy purposes will not deprive the use of arable land for purposes of growing food crops.” (GEC 2007:11) This raises several questions as to the government’s ability to play an effective role in the promotion of jatropha cultivation or even biodiesel promotion. The reported desire to limit the export of jatropha seeds and tax imports of biodiesel also point to policies that may hinder the promotion of this infant industry.

CO2 credits Biofuel projects are in principle eligible under the Clean Development Mechanism (CDM) under the Kyoto Protocol. However no current project has been able to obtain certification because baseline and monitoring methodologies have not been approved by the CDM Executive Board. This is the main constraint for the application of CDM as a financing tool for biofuel projects. As of February of 2007, five methodologies have been submitted and are under review. Approval of one or more of these would improve chances for biofuel CDM projects significantly. However, it must also be pointed out that if credit emission reductions are approved, it would only apply for domestic consumption of biofuels and not for exports. Only when these barriers are cleared, will certified emission reduction revenues in most cases be able to help cover part of the capital costs of biofuel production and increase the project’s IRR.

19

ETHANOL POTENTIAL

Demand in Ghana and the EU

National Market Given that no policy to drive ethanol usage is in place, the potential for developing the ethanol sector in Ghana is actually quite small. The most realistic possibility given these circumstances lay in the potential use of ethanol as a gasoline oxygenate. Ghana has phased out the use of lead in gasoline and is currently using the additive MMT (methylcyclopentadienyl manganese tricarbonyl) as oxygenate in place of the more harmful MBTE (methyl tertiary-butyl ether). However MMT may present some health concerns since high levels of manganese inhalation can cause irreversible neurological disease. Hence, the use of manganese additives in gasoline could increase inhalation manganese exposures (EPA). This concern could present an opportunity for ethanol to substitute MMT as a blend of 2.0% with gasoline (EPA 1999). Given a projected usage gasoline usage of 632,622 MT in 2010 and 696,938 MT in 2015 (GEC 2005) this would mean an ethanol demand of 12,652 MT and 13,939 MT in their respective years (Figure 1). While not insubstantial numbers, this would be equivalent to the production capacity of one large or two smaller ethanol production plants. Hence the potential national market for ethanol is relatively small unless the government implements policies that mandate further use.

Figure 1: Projected Ethanol Demand in Ghana (MT)

0 12,652 13,939

696,938

632,622

574,242

2005 2010 2015

Petrol Usage Ethanol Demand

International Market The EU current stance on biofuels has been driven in large part by environmental concerns. While energy independence is a concern, the prevailing focus is that of reducing CO2 emissions and creating an environment for “sustainable energy flows.” This is evidenced in the Green Paper, "Towards a European strategy for the security of energy supply," which sets the objective of 20 % substitution of conventional fuels by alternative fuels in the road transport sector by the year 2020 (EU 2003). Given current legislation as well as trends in gasoline consumption, the EU market demonstrates higher potential demand for ethanol and a possible outlet for production in Ghana. The EU is projected to consume roughly 116 Million Metric Tonnes (MMT) of

20

gasoline in 2010 and a further 120 MMT in 2015 (Eurostat 2006). This would imply an ethanol demand of 6.6 MMT and 12.0 MMT according to current proposals (Figure 2). Europe is currently a net importer of ethanol, primarily supplied from Brazil and can continue increasing its imports until it builds enough production capacity. Once this capacity is reached, there will be a potential market for feedstock supply since land suitable for ethanol crops is largely being used for biodiesel feedstock production or more traditional forms of agriculture.

Figure 2: Projected Ethanol Demand in the EU (MMT)

112.0 116.0 120.0 124.0

2.1 6.6 12.025.7

2005 2010 2015 2020

Gasoline Demand (MMT)Ethanol Demand (MMT)

While there may be a need in Europe to make up for shortfalls in ethanol production in the short-term, it is uncertain whether it the demand for imports will continue in the long-term. Some nations have seemed content to import ethanol from Brazil, particularly Sweden and Denmark, while there are large initiatives in both Spain and France to increase production of biofuels (USDA 2006a). What is certain is the EU’s intention to continue producing biofuels which will in turn increase the need for feedstock.

Sugarcane

Background Sugarcane is the single largest source of ethanol production in the world. The fact that sugarcane requires little in the way of processing before it can be turned into alcohol, make it a natural feedstock for production. It has also proven to be the most efficient feedstock in terms of using its own waste, in the form of bagasse, as a major source of energy to convert the sugars into ethanol. In fact, ethanol produced from sugarcane is the most efficient in terms of energy input/output ratio at roughly 8.1 compared with a ratio of 1.3 for maize (corn) and lower ratios for most biodiesel crops (USDA 2002). Brazil is arguably the biggest success story in terms of biofuel production and it is in large part due to the country’s ability to grow massive quantities of sugar at very low cost, nearly at half the price of its nearest competitors (World Bank 2005). As the leading producer and consumer of ethanol in the world, Brazil has managed to make its programs profitable without government subsidies. However, it must be noted that this has not

21

always been the case and that Brazil’s current status as a net exporter of ethanol is a recent development. Currently, there is no real discussion in Ghana on introducing the use of sugar for ethanol production. This lack of interest is largely due to reluctance on making investments in an industry that collapsed several years ago, forcing the country to import all of its sugar crop. However, at the time of this report there was news of private initiatives being developed to revitalize the sugarcane industry in Ghana (Ghanaweb 2007).

Production Model Calculations were made to determine the approximate price of ethanol production in Ghana and to identify the cost of feedstock necessary for a competitive industry. The model was created by using the current price of petrol gasoline ($0.86/liter 4 ) and subtracting transportation costs, distribution margins, taxes and levies to determine the ex-refinery price of petroleum gasoline ($0.53/liter) Once this price was obtained estimated ethanol production costs were subtracted to determine the maximum cost for sugarcane (Table 1: Maximum Feedstock ). Since there is no current ethanol production in Ghana, the model utilized production costs from the United States to obtain an estimated maximum cost of feedstock of approximately USD 0.28 per liter of ethanol (Figure 3). However, this figure might be lower since production costs in Ghana are likely to be initially higher than that of the US due to high infrastructure and utility costs. Nevertheless, if Ghana were to produce sugarcane for less than USD 0.28 per liter it would be positioned to be competitive vis-à-vis gasoline in the national market.

Analysis5 Given that Ghana has no current sugarcane production, it is useful to identify international costs of production to be used as benchmark. In the case of sugarcane it is useful to look at production costs for Brazil, the world leader, and the United States, the scenario for which best data is available.

3 All production costs from USDA 2006b 4 Unless otherwise noted all costs are taken from March 14th 2007 5 See Appendix II for detailed cost information on ethanol production from sugarcane

Table 1: Maximum Feedstock Price3 Current ex Refinery Price (per liter) $0.5264Production Costs Administrative Labor $0.0152Administrative Non-Labor $0.0245Total Administrative Costs $0.0397Repairs and Maintenance $0.0654Processing

Labor $0.0478Fuel $0.0085Chemicals $0.0054Electricity $0.0057Materials and Supplies $0.0216

Total Processing Costs $0.1544Cane Transportation $0.0518 Maximum Feedstock Cost $0.2805

Table 2: ex-Refinery Price Current price of petrol (ex pump) (per liter) $0.8603 Gross margin (distributors) $0.0722 Transport margin (oil marketers) $0.0340 BOST Margin $0.0111 Distribution Margin $0.0056

Government subsidy -

$0.0325 Taxes and Levies $0.2435 Current ex Refinery Price $0.5264

22

There is some debate regarding the exact cost of sugarcane production in Brazil. Some estimates indicate costs as low as USD 0.14/liter (World Bank 2005) but others estimate the cost around USD 0.24 and up to USD 0.27 per liter (USDA 2006b). In the case of the US, the Department of Agriculture estimates that large-scale ethanol production from sugarcane is likely to cost approximately USD 0.39 per liter (USDA 2006b). Given the limitations of USD 0.28 per liter, Ghana would have to produce sugarcane at a cost three times less than that of the United States and achieve costs of production comparable to those of Brazil. Reaching these production targets might not be a reasonable goal for Ghana in the short- term. Significant developments in sugarcane production must occur if there is to be an adequate supply of feedstock to meet Ghana’s relatively small demand. Moreover, the initial costs of production could be higher than assumed and further research is required to ensure that it would not be too high so as to make ethanol production not viable. Additionally, significant reduction in taxes and levies, or substantial increase in subsidies, will likely be necessary to offset higher production or feedstock costs and to make Ghana’s ethanol industry viable in the short-term. Barring these developments the

prospects for developing the Ghanaian ethanol industry in the long-term are low. The experiences from Brazil might provide an indication on the type of policies required for the creation of a viable industry. First, it was necessary for the Brazilian government to subsidize ethanol production, particularly the construction of refineries for a long period before government price-setting was removed in the mid-1990s. A long period of time was needed to put infrastructure in place and to refine production processes. Additionally, Brazil had a large domestic market which allowed for economies of scale while mandating domestic consumption. This is not to say that a country such as Ghana

Figure 3: Cost Breakdown for Estimated Maximum Feedstock Cost of Sugarcane-based Ethanol

23

would have to have an equivalent domestic market today, but only that in lieu of a competitive product, a ready market that is required to purchase biofuel is a pre-requisite to develop the sector. However, this is not the case in Ghana.

Cassava

Background Cassava is the largest staple crop in Ghana with an estimated production of over 10 million MT a year. The amount of land cultivated is estimated to be 800,000 ha with an average yield of just under 12 tons per ha (RTIP 2004). Cassava is mostly utilized in the food market or as a subsistence crop, however cassava is also grown for the production of industrial starch, an industry that has been initiated with poor results in Ghana (Bonsu 2007).While there is no established large scale cassava cultivation for the sole purpose of ethanol production in Ghana, there are efforts in other parts of the world, notably Thailand, to create a market for cassava based ethanol. Despite the large production of cassava, industries based on this crop have encountered difficulties in Ghana, Ayensu, a commercial starch factory backed by the President’s Special Initiative (PSI), began operations with 10 percent of its installed capacity (22,000 tons/year) producing 1700 tons per year for the export market, The factory soon ran into cash flow problems due to lower demand and reduced global prices. Because the plant runs under capacity the average cost of production is 250 USD per ton, a cost too high to compete with global market prices around 200 USD/ton. These problems were further exacerbated by the lack of a steady supply of feedstock. The plant was being supplied almost exclusively by small-holder farmers who had become disillusioned with the project and who were able to find better prices for their wares on the open market (Bonsu 2007). The Ayensu experience highlights some of the issues of establishing a cassava-based industry in Ghana, the most important being obtaining a steady supply stream. Particular attention must be paid to maintaining steady incentives for small-holders before any cassava based ethanol project can move forward. Despite issues with supply, Ghana has a great potential to improve its production of cassava. The Root and Tuber Improvement Program (RTIP) has been able to improve yields by up to 300% (RTIP 2004). While some of the test cases may be hard to duplicate, the opportunity for higher yields exists. Furthermore newer high-starch varieties of cassava may be able to increase the yield of ethanol per kilogram of cassava. These opportunities improve the potential for an ethanol market to be competitive in the future.

Model As opposed to the sugarcane model, information on production costs for cassava is widely available, however there is doubt as to the costs involved in processing cassava chips. Unlike sugarcane, cassava must be broken down into its component starches and sugars before it can be converted into ethanol. This added expense increases costs of

24

ethanol production. The following model utilizes estimated cost of production from a cassava-ethanol program in another sub-Saharan African Country. By adapting these figures and utilizing average costs of cassava production in Ghana, an approximate value of producing ethanol-mixed gasoline can be determined.

Although RTIP has demonstrated that cassava may potentially be grown for half of the cost, this model uses conservative estimates for production costs and farm gate prices for cassava. The farm gate price for cassava is estimated to be USD 0.026/ per liter of ethanol. Given that the ethanol must be blended with petroleum gasoline to be commercially available, we factor in a percentage difference to determine the change in price. After the ex-refinery price is determined, regular taxes and transportation margins are added to calculate the minimum price for ethanol (Figure 4).

Analysis6 Using these assumptions it was determined that ethanol derived from cassava may have a cost of just over USD 0.862. It should be pointed out that the price of petroleum gasoline in Ghana is currently USD 0.860, making ethanol from cassava very close to being competitive. While there is a question regarding the production costs as they are taken from a different context, a market could exist if production costs are reduced or if there is an increase in the price of gasoline. Additionally, the model fails to include a margin for the ethanol producer and therefore must be factored into future cost analysis. However, despite these caveats, if cost assumptions are met the cassava-based ethanol industry is close to being a commercially viable form of biofuel.

6 For a full analysis of the Cassava to ethanol production costs see Appendix III

Figure 4: Minimum Blended Gasoline Price

25

In order to take advantage of this opportunity, Ghana must first reduce some of the production costs that may prevent it being competitive. Additionally, it would need to successfully introduce newer high-starch varieties and increase the average yield of small farmers. However, these improvements do not take into account the fact that cassava, unlike sugarcane, is a major food crop in Ghana. An increase in the demand for cassava could potentially raise its price, adversely affecting the population that depends on the crop for daily consumption. Additionally, the feedstock is highly susceptible to fluctuations in prices within the food and industrial starch market, Thereby, if the market food price, or starch price substantially increases, the number of small-holders willing to sell to ethanol producers is likely to fall unless the price is matched. While there is inherent potential for a cassava-based ethanol industry, factors previously mentioned prevent cassava from being a suitable feedstock for biofuel production. There is need for wide-spread improvements on yields, reduction of production costs, and further research regarding food security issues. Moreover, the experience of the Ayensu starch factory indicates the need for better market coordination to ensure sustainable and steady supply.

Conclusions Based on the models presented neither cassava nor sugarcane is capable of being economically viable at this stage. This is the case unless significant improvements in yields and costs of production are made. Additionally, government support in the form of direct tax breaks might be required if the industry is to be started.. However this is unlikely given the lack of government interest in this industry,. It is important to note that there is no established domestic market for ethanol. The assumption in the models identify a need for 2% blend of ethanol to be used as gasoline additive. However the government does not currently have plans to implement a regulation to change the use of MMT. Nevertheless, a breakthrough on the cellulosic research could potentially threaten the economic viability of the industry. If cellulosic technology is made available for commercial use the cost and efficiency of sugarcane and cassava-based ethanol is no longer competitive. Hence Ghana should focus its efforts on developing the biodiesel industry which is subject to less volatility.

BIODIESEL POTENTIAL

Unlike the ethanol industry, there is a potential to develop a biodiesel industry in Ghana given the support and interest of the government and small entrepreneurs. This section analyses the possibility of a biodiesel industry based on three identified crops: jatropha, coconut, and oil palm and three potential models of production. The first model is based on the government’s policy draft for the biodiesel industry and identifies all of Ghana as the potential market. The second model takes a sectoral approach, targeting the mining sector as the market for biodiesel. The last model deviates from the production of

26

biodiesel by identifying the potential of the export of vegetable oils to Europe. This model can be used to increase the supply of feedstock until capacity for biodiesel production is built in the country.

National Model

Biodiesel Demand The demand for biodiesel will be created by legislation which mandates a B5 blend for the year 2010 and B20 for the year 2015 for all diesel fuel in the country (Energy Commission of Ghana). Assuming fuel consumption expands in line with GDP growth expectations of 5%, it is expected that demand for biodiesel in the year 2010 will reach 63,204 metric tones (Figure 5). Such demand will increase fivefold for the year 2015, to approximately 330,431 metric tones. As mentioned before, it is imperative that current biofuel policy draft is approved by parliament for these assumptions to hold.

Figure 5 Projected Demand for Biodiesel

Assumes diesel consumption growth in line with expected 5% GDP growth

Supply Chain As seen in Figure 6, the biodiesel supply chain for this model begins with the production of the feedstock by small farmers. This is due to the government’s interest in supporting an industry that employs a large number of farmers. However, since yields tend to be lower with small scale production, it is likely that feedstock will also be bought from bigger plantations in order to meet the large demand for vegetable oil. This could be the case for coconut and oil palm, which are grown at a large and small scale in Ghana, however, no current large production of Jatropha exists today. Nonetheless, the government has plans to increase small scale cultivation of jatropha by providing land to young farmers for the production of jatropha seeds for the biodiesel industry (Kufuor 2007). Once the feedstock has been bought, the next step in the supply chain is the transportation to an oil production facility. It is likely that oil will be extracted by the biodiesel entrepreneur in order to reduce the final cost of the oil. This is achieved by eliminating the margin of a third-party oil extractor. It is particularly true for the case jatropha seeds

Projected Demand (MT)

895,5761,111,930 1,223,818

330,431

0

63,204

2005 2010 2015

Consumption BioDiesel Need

27

since no current large facilities are dedicated to the commercial extraction of its oil. However, it is likely that current coconut and palm oil producers can supply the oil directly to the biodiesel producer if the price is competitive enough.

Figure 6 - Biodiesel Supply Chain: National Model

Once the oil is obtained, it will be turned into biodiesel through a transesterification process by which a catalyst, methanol and water, are added to the oil. The biodiesel obtained will then be transported to Tema Oil Refinery for blending with diesel. Subsequently, the blended fuel will be transported to BOST storage depots across Ghana to be distributed to local gas station or retailers by oil marketers. Alternatively, the biodiesel can be transported directly to BOST depots and blended with diesel there before it is distributed by oil marketers. The task of blending could fall under the responsibility of BOST or Tema Oil Refinery depending on the legislation to be approved by Parliament.

Maximum Feedstock price for Biodiesel B100 After the biodiesel supply chain has been identified, estimated costs of production are assigned to all of production and distribution steps. In order to determine the maximum price for vegetable oil required for competitive B100 biodiesel, production and distribution costs are deducted from the price of diesel at the pump (USD 0.8201 on March 16, 2007).

Vegetable Oil Extraction

Transport Oil to Plant

Biodiesel Production Plant

Transport to Blending Facility

Blending Plant

Transport to storage depot

Storage Facility

Transport by Oil Marketers

Retailers (Gas stations)

Feedstock Production

Transport to Oil Producers

Biodiesel Supply Chain

28

Figure 7

As observed in Figure 7, the estimated ex-refinery cost of diesel in Ghana is equivalent to USD 0.5022 per liter. This implies that biodiesel ex-production plant price has to be equivalent to USD 0.5022 if it were to be competitive with diesel. Because production and transportation costs are approximately USD 0.3707 per liter of biodiesel, the maximum cost of vegetable oil is roughly USD 0.1315 per liter or USD 142.89 per ton. It is important to mention that the cost of methanol (used with the catalyst) is much higher in Ghana than in other countries such as Mozambique, increasing the overall cost of biodiesel production (correspond to 21-37% of costs). If the price were to be reduced to the level of Mozambique’s, the implied maximum cost of vegetable oil would rise by USD 0.15 per liter. It should be clarified that this paper utilizes the current cost of methanol in order to produce models that reflect the environment in Ghana today. However, it should also be mentioned that costs utilized in this model are only indicatives and do not include other costs such as land, administrative personnel, and overhead costs associated with biodiesel production.

Current Feedstock Price Analysis Current prices of vegetable oil in Ghana are higher than the implied maximum cost of USD 13.15 per liter. As observed in Table 3, estimated prices in Ghana for jatropha oil, palm oil and coconut oil range from USD 0.4183 to USD 0.9776 per liter. The reason behind the high cost of oil is that either the farm gate price for jatropha seed is too high, or the commercial value of palm oil and coconut oil is high in the food market.

Table 3 Estimated current cost of oil in Ghana

Jatropha Coconut Oil Palm Price per liter of oil $ 0.7141 $ 0.9776 $ 0.4183

Biodiesel competitive price analysis for Ghana (US Cents / lt)

82.01

12.29

22.503.00

30.6250.22 4.22 2.24 13.15

Sub

sidy

Taxe

s

Dis

tribu

tion

mar

gin

Cur

rent

Fos

sil d

iese

lpr

ice

Ex-

Ref

iner

y pr

ice

Met

hano

l/ C

atal

yst

Oth

er

Tran

spor

t of v

eget

able

oil

Impl

ied

max

cos

t of v

eg o

il

Methanol cost twice than Mozambique’s

Source: BOST, TechnoServe, and GWU Analysis

Implies $142.89/ ton

29

The price of palm oil per liter is about USD 0.4183, and reflects the international price of USD 470 per metric ton. This price has built-in margins for oil extraction, allowing a third-party to extract the oil instead of the biodiesel producer. Although production costs for palm oil are lower than USD 470, it is unlikely that the oil extractor would sell it for a lower price in order to produce biodiesel at a competitive. It is assumed that the oil extractor and biodiesel producers would maximize their profits by selling the oil to the food industry for USD 470. Therefore, the price of the oil for biodiesel production is tied to the price of palm oil in the food market. The case is similar for coconut oil which is the most expensive vegetable oil of the selected crops. The local market price for one liter of coconut oil is equivalent to USD 0.9776. Although the production cost is lower, competition with the food market does not allow reduced prices for the biodiesel industry. It is assumed that 17 nuts are needed to make one liter of oil, and the price per nut is equivalent to USD 0.04 (Rayford). Since no current price per kg of copra was available during data collection, it is assumed that the oil producer buys the entire nut for production. This increases the final price for the oil, since the total cost for nuts equivalent to one liter of oil is USD 0.7556. Transportation and extraction costs make up the remainder, USD 0.222. In the case of jatropha, an approximate cost of oil production was calculated since no official price of jatropha oil exists. In this instance, the price per kg of jatropha seed is about USD 0.11 (GoldrayBiodiesel). Assuming a conservative extraction rate of 20 percent, 4.6 kg of seeds are needed to produce one liter of oil, bringing the total cost of the feedstock to about USD 0.51 per liter of oil. Transportation and oil extraction costs make up the rest of the costs, equivalent to USD 0.203 per liter. In this case, the oil extraction is done by the biodiesel producer in order to eliminate the margin of a third-party producer. The final cost for a liter of oil is approximately USD 0.7141, or about USD 776.21 per metric ton. As observed in Table 4, if current prices for jatropha, coconut, and palm oil were to be utilized to make biodiesel, the estimated price at the pump per liter of B100 would be of USD 1.4396, USD 1.7162, and USD 1.1290 respectively. These values are not competitive with the current price of diesel (USD 0.8201 as of March 16th, 2007). Please refer to Appendix IV for more detailed costs Table 4 Estimated B100 Production Costs

Cost per Liter Jatropha Coconut Oil Palm Feedstock Cost – small farmers $0.5111 $0.7556 $0.2361 Cost of oil extraction (includes transport of feedstock and margin)

$0.2030* $0.2220 $0.1822

Biodiesel production cost (includes transport to biodiesel plant)**

$0.4076 $0.4207 $0.3928

Biodiesel Ex-Production Plant Price $1.1217 $1.3983 $0.8111 Gov taxes and Distribution margins $0.3179 $0.3179 $0.3179 Estimated Max Pump Price B100 $1.4396 $1.7162 $1.1290

*No margin for jatropha oil extraction **5% Biodiesel production margin

30

B5 Production Costs Estimated production costs for B5 blend vary for the three selected crops. As was shown before, high prices for the vegetable oil make the B100 blend uncompetitive with diesel by a range between USD 0.31 and USD 0.62 per liter. However, this difference is decreased when utilizing a B5 blend since only five percent of the cost is attributed to biodiesel. Table 5 - B5 Production Costs

Jatropha Coconut Oil Palm US$/L US$/L US$/L Biodiesel Ex-Production Plant Price $1.1217 $1.3983 $0.8111 Distribution Margin (from plant to blending) $0.0056 $0.0056 $0.0056Blending $0.0017 $0.0017 $0.0017Biodiesel Ex-Refinery cost $1.1289 $1.4056 $0.8183 Diesel Ex-refinery cost $0.5022 $0.5022 $0.5022Blended B5 Ex-Refinery cost $0.5335 $0.5474 0.5180 Taxes and Levies $0.2250 $0.2250 0.2250 Government subsidy ($0.0300) ($0.0300) (0.0300)Distribution Margin (from Tema to BOST) $0.0056 $0.0056 0.0056BOST margin $0.0111 $0.0111 0.0111 Transport margin (Oil marketers) $0.0340 $0.0340 0.0340 gross margin (distributor) $0.0722 $0.0722 0.0722 Estimated Maximum B5 Pump Price $0.8514 $0.8653 0.8360

As observed in Table 5, the biodiesel ex-refinery cost is calculated by adding transportation and blending costs to the biodiesel ex-production plant cost. Because the cost of biodiesel is higher than that of diesel, the blended B5 cost will be slightly higher than diesel alone by a range between USD 0.0166 and USD 0.0452 per liter. This implies that with current costs of production and local prices for vegetable oil, biodiesel cannot be competitive with fossil fuels without some form of subsidy (less than five US cents per liter). However, this scenario could change if vegetable oil costs were reduced, or if diesel prices were to increase significantly.

Best Case Scenario It has been observed that current prices for vegetable oil are too high if biodiesel is to be competitive with current diesel pump prices. Hence, it is important to understand the potential impact that lower priced vegetable oils have on the production of biodiesel. The following table introduces estimated costs/prices for vegetable oil under a best case scenario.

Table 6 Estimated best case scenario cost of oil in Ghana Jatropha Coconut Oil Palm Feedstock Cost $0.1574 $0.2576 $0.1759* Cost of oil extraction (includes transport of feedstock and margin) $0.1867

$0.1987 $0.1801

Price per liter of oil $0.3451 $0.4563 $0.3560 * Combined supply from small farmers and plantation

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The best case scenario for oil palm reflects a lower price for palm oil at USD 400 per metric ton (instead of USD 470 per MT). Since small farmers have costs that are higher than USD 400, it is assumed that the supply of feedstock will include larger plantations, which tend to have lower costs of production. In the case of Coconut, the new price for the feedstock would reflect only the cost of copra and not the entire nut. It is assumed that because the oil extractor would buy in bulk it will be able to obtain a lower price. By only buying the copra, the producer can save close to 70 percent in feedstock costs. After adding transportation and extraction costs, the final cost for coconut oil is estimated to be USD 0.4563 per liter or USD 495.93 per metric ton. However, since the oil extractor will seek to maximize profits reducing production costs is not enough, hence national coconut oil prices will need to decrease as well. The situation is different for jatropha oil, since this product has no competition in the food market. Prices are likely to be established between producers and buyers and will reflect the productivity of the farmer. Since the current price of USD 0.11 per kg of seed is too high for a competitive biodiesel industry, the marginal cost of production needs to be reduced, and the oil extraction rate increased. In the previous assumption, it was estimated that a jatropha tree would yield 2 kg of seeds per tree (conservative yield based on observations by ADRA). The model built, assumed 1089 trees could be planted in one hectare (3 by 3 meters space). The assumptions for the best case scenario would require significant R&D to obtain an improved variety to yield, as a minimum 5 kilograms of seed per tree. Furthermore, it is assumed that 1650 trees are planted per hectare (2 by 3 meters), and that the oil extraction rate is 30 percent (obtained by GoldrayBiodiesel). This would mean that only 3.07 kg of seeds are needed per liter of oil (compared to 4.6 kg). Because productivity will be increased, and no competition with the food market exists, the price of jatropha seeds could potentially be lowered. This scenario assumes that the price per kg is reduced by 55 percent to approximately USD 0.052. With lower feedstock costs, the price of jatropha oil decreases to USD 0.3451 per liter.

B5 Production Costs- Best Case Scenario Since the best case scenario present lower costs for vegetable oil, the production costs for biodiesel and the final pump price for B5 fuel will also be lower. As observed in Table 7, the estimated B5 pump price for the best case scenario would range between USD 0.8312 and USD 0.8379 per liter depending on the feedstock. This price would still be higher than the observed cost of diesel at the pump (USD 0.8201 per liter – March 16, 2007); however, the government could artificially make the B5 blend competitive by using a subsidy of less than two US cents per liter. Alternatively, the government could also put in place a tax break for the biodiesel percentage in the blend. In this case, it would imply a five percent tax break, equivalent to USD 0.0112. Table 8, shows the outcome of such measure.

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Table 7 - B5 Production Costs for Best Case Scenario Jatropha Coconut Oil Palm US$/L US$/L US$/L Cost of vegetable oil $0.3451 $0.4563 $0.3560Biodiesel production cost (includes transport of oil to biodiesel plant, 5% producer margin)

$0.3707 $0.3947 $0.3897

Biodiesel Ex-Production Plant Price $0.7159 $0.8509 $0.7457Distribution Margin (from plant to blending) $0.0056 $0.0056 $0.0056Blending $0.0017 $0.0017 $0.0017Biodiesel Ex-Refinery cost $0.7231 $0.8582 $0.7529 Diesel Ex-refinery cost $0.5022 $0.5022 $0.5022Blended B5 Ex-Refinery cost $0.5133 $0.5200 $0.5147 Taxes and Levies $0.2250 $0.2250 $0.2250 Government subsidy ($0.0300) ($0.0300) ($0.0300)Distribution Margin (from Tema to BOST) $0.0056 $0.0056 $0.0056 BOST margin $0.0111 $0.0111 $0.0111 Transport margin (Oil marketers) $0.0340 $0.0340 $0.0340 gross margin (distributor) $0.0722 $0.0722 $0.0722 Estimated B5 Pump Price $0.8312 $0.8379 $ 0.8327

Table 8 - B5 Pump Price - 5% tax break – best case scenario

Blended B5 Ex-Refinery cost $0.5133 $0.5200 $0.5147 Taxes and Levies $0.2138 $0.2250 $0.2250 Government subsidy ($0.0300) ($0.0300) ($0.0300) Distribution Margin (from Tema to BOST) $0.0056 $0.0056 $0.0056 BOST margin $0.0111 $0.0111 $0.0111 Transport margin (Oil marketers) $0.0340 $0.0340 $0.0340 gross margin (distributor) $0.0722 $0.0722 $0.0722 Estimated Maximum B5 Pump Price $0.8199 $0.8267 $ 0.8214

Because the amount reduced in taxation is higher than the increase in the cost of ex-refinery fuel, biodiesel made from jatropha oil has the potential of being competitive.. However, it is important to stress that this is only attained with higher productivity and lower prices for the seed. Additionally, oil palm could be a potential feedstock to be used with marginal subsidies, but only if the international price of palm oil is low.

Crude Oil Sensitivity Analysis It has been shown that with current prices of vegetable oil, the production of biodiesel (B100 and B5) is not competitive with the current price of diesel. The following graph, indicates the price of crude oil at which, each feedstock is competitive for the production of biodiesel B5 blend (keeping feedstock and biodiesel costs fixed). Please refer to Appendix VI for further information

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The first graph provides the estimated value of a barrel of crude oil needed for the price of B5 to be competitive for each scenario. The price of crude oil would need to increase between 60 and 190 percent for biodiesel produced with current vegetable oil to be competitive. However, if we take into account the best case scenario, prices of oil would need to increase by 40 to 70 percent. That means, that for jatropha to be competitive crude oil should have an average price of USD 88 per barrel, and in the case of palm oil, the price would have to be of USD 91 per barrel (assuming national price of palm oil is USD 400 per metric ton). The second graph illustrates the effect of a five percent tax break in the price of B5 fuel. As previously demonstrated, biodiesel made from jatropha (under a best case scenario) would be competitive with the current price of oil (USD 60.88 per barrel) if a tax break were given. For palm oil biodiesel to be competitive, prices of crude oil would only need to increase by 5 to 18 percent (current and best case scenarios). However, for the case of coconut, crude oil prices would need to increase significantly, about 140 percent for current costs to be competitive, or 26 percent for the best case scenario. It is important then, for the government to be prepared to provide some type of tax incentive if biodiesel is to become competitive in the near future. It can be concluded that if Ghana were to seek a biodiesel industry competitive with current diesel prices, it would have to increase productivity of jatropha, reduce the seed price by 55 percent, and provide a tax break of 5 percent on the total blended fuel. If this is not met, the best next alternative is palm oil, which would require further subsidies or tax breaks on the blended fuel if it were to be competitive. However, the price of palm oil is subject to volatility due to its demand in the food market, which can in turn influence the competitiveness of the biofuel industry.

Figure 8 Crude Oil Senstivity Analysis - B5 Biodiesel Tax Break

$145.97

$60.38 $64.00$71.92$76.76

$109.58

$60.88

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Jatropha Best CaseJatropha

Coconut Best CaseCoconut

Palm Oil Best CasePalm Oil

Pric

e pe

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f Oil

Estimated Price of Oil needed for competitiveness Price of oil (barrel) 03/16/07

Crude Oil Senstivity Analysis - B5 Biodiesel

$87.66

$173.24

$136.85

$104.04 $99.20 $91.27

$60.88

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Estimated Price of Oil needed for competitiveness Price of oil (barrel) 03/16/07

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Mining Model

The second model moves the focus away from the national market and concentrates on a particular sector in the economy as the potential market. The most promising sector in Ghana would be the mining sector since it consumes approximately 40 percent of the national production of diesel (BOST). Furthermore, diesel represents around 42 percent of operational costs for the mining industry, and mining companies are obliged by law to ensure other economic activities are promoted in the areas where mines are located. Hence, a biodiesel industry would not only fulfill the sector’s need for fuel, but would also diversify the economic activity of surrounding communities by creating jobs in the agricultural sector.

Biodiesel Demand The demand for biodiesel is significant in this model due to large consumption of diesel by the mining equipment. It is assumed that the sector would initially utilize a B5 fuel blend for its vehicles and can later increase to B10 if needed, and if reliable supply of feedstock exists.

Assumes growth in diesel consumption in line with 5% expected GDP growth

As seen in Figure 9, biodiesel demand for the year 2010 is expected to be 23,503 metric tons. This demand nearly triplicates for the year 2015 if the blended percentage is increased to B10.

Supply Chain As observed in Figure 10, the biodiesel supply chain for the mining sector would begin with the production of feedstock by small holders and plantations owned by the mines. This is to ensure that feedstock costs are minimized since best practices tend to be developed by plantations and then transferred to small holders and small out-growers. The next step in the chain is the transportation of the feedstock to the oil extraction plant that would be located on-site (near plantation). Once the oil is extracted, it will be transported to the biodiesel production plant also located near the plantation. Once the biodiesel is produced, it will be transported to the diesel storage depot located at the mine where it will be blended with regular diesel and stored for later consumption.

Projected Demand (MT)

358,230446,551

552,921

61,436

0

23,503

2005 2010 2015

Consumption BioDiesel Need

Figure 9 - Projected Demand for Biodiesel for Mining Sector

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In this model the mining companies would outsource the biodiesel and oil extraction on-site in order to reduce transportation costs.

Figure 10 - Biodiesel Supply Chain: Mining Model

Maximum Feedstock price for Biodiesel B100 In order to determine the maximum feedstock price for the production of biodiesel B100, production and distribution costs are subtracted from the estimated price of fossil diesel at the mine. Because the mining sector buys in bulk, it receives a price lower than the national diesel pump price. This model estimates that the margin of the gas stations is eliminated due to direct distribution by oil marketers, therefore the estimated price for the mining sector is equivalent to USD 0.7479 per liter of diesel (USD 0.8201 – USD 0.0722). If biodiesel were to be competitive its mine pump price needs to be equal or lower than USD 0.7479. Subtracting the price of transportation to the mine, the ex-production plant price should be USD 0.7423 per liter. This would imply a maximum vegetable oil cost of USD 0.3770 per liter, or USD 409.82 per metric ton (Figure 11). Because biodiesel will be produced at the mine for internal consumption it is assumed that it will not be subject to taxation. The elimination of tax and distribution expenses that would occur if biodiesel were to be blended at BOST or Tema Oil Refinery (as in the national model) increases the maximum feedstock price by USD 0.2455 per liter.

Vegetable Oil Extraction

Transport Oil to Plant

Biodiesel Production Plant

Transport to Storage Depot

Blending and storage in depot

Feedstock Production

Transport to Oil Production

Biodiesel Supply Chain

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B5 Production Costs- Current costs for vegetable oil7 Given that the price of diesel and distribution are lower than in the national model, the price for a B5 fuel at the mine will also be lower. Table 9 presents the estimated price of B5 utilizing current estimated costs for vegetable oil in Ghana. The price for coconut oil and palm oil are the same as the national model, however, jatropha costs are lower since it assumes 50 percent of the feedstock will come from mine-owned plantations which have higher yields and only charges for the cost of production (plantation seed cost $0.226 vs. small farmer farm gate seed price $0.5111 per liter) Table 9 - B5 Production Costs – Current Estimated Costs

Jatropha Coconut Oil Palm US$/L US$/L US$/L Cost of vegetable oil $0.5646* $0.9542 $0.4183Biodiesel production cost (includes transport of oil to biodiesel plant, 5% producer margin)

$0.3708 $0.3653 $0.3653

Biodiesel Ex-Production Plant Price $0.9354 $1.3195 $0.7906Distribution Margin (from plant to blending) $0.0056 $0.0056 $0.0056Blending $0.0017 $0.0017 $0.0017Biodiesel Ex-Refinery cost $0.9427 $1.3268 $0.7977 Diesel Mine pump price (including tax) $0.7479 $0.7479 $0.7479Estimated B5 Mine Pump Price $0.7576 $0.7768 $0.7504

* Assumes 50% feedstock from plantation Similar to the national model, none of the crops are competitive with the estimated price of diesel equivalent to USD 0.7479 per liter. The B5 mine pump price is higher than 7 For details production costs please refer to Appedix V

Sub

sidy

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s

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Implies $409.82 MT

Biodiesel Competitive Price Analysis - Ghana (No Taxes) US cents/Lt

37.72.23.774.2

30.60.0 0.00.6

74.8

Figure 11 - Maximum Feedstock Price: Mining Sector B100

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diesel by a range between USD 0.0025 and USD 0.0289. Palm oil at a price of USD 470 per metric ton is the closest feedstock to being competitive.

B5 Production Costs- Best Case Scenario By utilizing the best case scenarios for vegetable oil costs described in the national model, the B5 production scenario for the mining sector looks more promising (Table 10). Table 10 - B5 Production Costs – Current Estimated Costs

Jatropha Coconut Oil Palm US$/L US$/L US$/L Cost of vegetable oil $0.3451 $0.4563 $0.3560Biodiesel production cost (includes transport of oil to biodiesel plant, 5% producer margin)

$0.3707 $0.3653 $0.3653

Biodiesel Ex-Production Plant Price $0.7159 $0.8215 $0.7283Distribution Margin (from plant to blending) $0.0056 $0.0056 $0.0056Blending $0.0017 $0.0017 $0.0017Biodiesel Ex-Refinery cost $0.7231 $0.8288 $0.7354 Diesel Mine pump price (including tax) $0.7479 $0.7479 $0.7479 Estimated B5 Mine Pump Price $0.7467 $0.7519 $0.7473

When comparing the B5 price with diesel pump price it can be observed that under a best case scenario both, jatropha and oil palm have the potential of being competitive. On one hand, utilizing jatropha seeds with a price equivalent to production costs (55 percent lower than current farm gate price), will result in a B5 blend that is cheaper than diesel by USD 0.0012. On the other hand, if local prices of palm oil are equivalent to USD 400 per metric ton, it is possible that the biodiesel produced will be competitive with diesel.

Crude Oil Sensitivity Analysis

Crude Oil Senstivity Analysis - B5 Biodiesel Mining Model

$57.87

$102.61

$74.25$66.92 $59.36

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Jatropha Best CaseJatropha

Coconut Best CaseCoconut

Palm Oil Best CasePalm Oil

Pric

e pe

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Estimated Price of Oil needed for competitiveness Price of oil (barrel) 03/16/07

As previously demonstrated, only the best case scenarios for jatropha and palm oil could be competitive with current prices of crude oil (USD 60.88 as of 03/16/07). However,

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palm oil could also be competitive (with current production costs reflecting USD 470 per MT) if crude oil if prices were to increase by less than 10 percent. If current farm gate price for jatropha seed were to be used (with 20 percent extraction rate), prices of crude oil would have to increase 69 percent, while in the case of coconut it would need to rise by 126 percent. Although the price of petroleum fluctuates throughout the year, it is highly unlikely that such sustained increase in cost occurs any time soon. This means that if best case scenarios are not met, the best feedstock for B5 production at the mine level is palm oil, but only if the prices are not too volatile.

Biodiesel Export Model

The third model is based on the export of the vegetable oil and not on the export of biodiesel. This is because the largest markets for biodiesel consumption have excessive production capacity and currently do not favor importation of the fuel. Nevertheless, these countries are facing bottlenecks in the availability of feedstock and are seeking to import raw materials, thereby providing a great opportunity for Ghana to become a potential supplier. This section explores such opportunity by analyzing the competitiveness of the export price of vegetable oils produced in Ghana vis-à-vis prices of vegetable oil produced in select countries.

Demand:

Potential Export Markets for Vegetable Oil The largest producers and consumers of biodiesel are Europe and the United States, with consumptions of 1,433 millions of liters and 70 million liters respectively in 2002. Both have plans to increase production capacity and use onerous taxes to deter imports of biodiesel . Import duties for biodiesel in the United States are slightly less than USD 23 per barrel (USITC 2007), while the European Union applies a 6.5% import tax (USDA 2006). Despite large production capacity, both are confronted with the challenge of obtaining sufficient feedstock to reach aggressive production targets. Estimates from the International Energy Agency indicate that about 60% of US soy production, and over 100% of projected EU oil-seed (rape and sunflower) production would be required to displace 5 percent of fossil fuels by 2010. For the year 2020 these figures increase dramatically, requiring an increase in US production of more than 120 percent, and in the case of Europe of more than 230 percent (EIA, 2004). Thus by the year 2020, more biodiesel crops would be needed than are expected to be available. Total cropland required for feedstock production in 2010 would be of 13% to 15%,, and of 30% in 2020 (IEA 2004). Clearly, the amount of cropland required to displace 10% of diesel fuel would be larger and would require major cropland reallocations towards oil-seed crops, which is a highly improbable scenario. Consequently both, the US and Europe, will be open to imports of vegetable oils for biodiesel production

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Figure 12

The European Union: a natural market for Ghanaian exports of vegetable oils As previously mentioned, the European Union is the biggest producer and consumer of biodiesel in the world. Biodiesel represents about 80 percent of the EU biofuel market. This is because the car fleet in the EU is made up primarily of diesel cars. The EU target of 5.75 percent biofuels is equivalent to around 24 million tons of biofuel. Currently, less than 2 percent of the European farmland is cultivated with crops used for biofuel production. If the EU tried to domestically grow crops to reach the established target, it would require approximately 15 to 18 million hectares of farmland. This represents roughly 15 to 17 percent of the total 103.6 million hectares of arable land in the EU25. The utilization of such a large amount of land for energy crops have been deemed undesirable by the European Commission. However, it has been proposed to produce half the biofuel from domestically grown crops and to import the other half, equivalent to 12 million tons (USDA 2006). This makes Europe a very attractive market for vegetable oil exports from Ghana.

Analysis of the Export Supply Chain Model

Figure 13: Supply Chain for Export of Ghanaian Vegetable Oil to Western Europe

Vegetable Oil Extraction

Transport Oil to Port of Export

Export to Western Europe

Feedstock Production

Transport to Oil Production

Vegetable Oil Supply Chain

Percentage increase of biofuels crop rpoduction necessary to meet projected demand

0%

50%

100%

150%

200%

250%

US 2010 US 2020 EU 2010 EU 2020

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Figure 13 The prospective supply chain for this model is presented in figure 13. The producers of feedstock will be small farmers and large plantations, while the oil extraction will be done by and independent (medium to large size) producer which will also be in charge of selling the oil in the export markets. The oil will be transported to the port of export, assumed to be Tema, and shipped in containers to Rotterdam.

Competitiveness Analysis for Exports of Ghanaian Vegetable Oils to West European Markets After identifying Europe as a potential export market for Ghana, the competitiveness of Ghanaian vegetable oils were analyzed. For this analysis, costs of production were calculated to obtain the CIF (Cost Insurance and Freight) price in Rotterdam. This was compared with export prices of similar vegetable oils produced in other countries. According to the Malaysian Palm Oil Board, which tracks the prices of selected oils and fats, in the month of January 2007, the price of Palm oil, CIF North West Europe was USD 599 per metric ton, while coconut reached USD 731 per MT. These prices were used as a benchmark for the oils produced in Ghana; it is important to clarify that there are currently no international prices for jatropha oil; therefore rapeseed oil prices were utilized as the benchmark. The CIF price for Ghana can be obtained by adding export brokerage costs (approximately 5 percent of the value of the vegetable oil) and shipping cost (Tema to Rotteram) to the current cost of vegetable oil (described in the previous two models). As seen in Table 11, jatropha and coconut are not competitive against international benchmark costs. This is due to high production cost for jatropha and high local market prices for coconut. Table 11: Cost structure for Ghanaian oils for export with current costs and feedstock farm gate prices

Ghanaian Vegetable Oils Sales Price CIF Rotterdam in USD/MT (using current costs and farm gate prices) Feedstock/Oil Jatropha Oil Concount Oil Palm Oil Cost of Feedstock 439 53% 821 68% 50 9% Cost of transport fruit to oil extraction plant 45 5% 181 15% 62 10% Cost of oil extraction 170 20% 35 3% 74 13% Oil cost 653 1037 185 Oil producer margin 46 6% 25 2% 285 48% Estimated sales price in national market 699 1063 470 Transport oil to export port (Takoradi - Tema) 24 3% 24 2% 24 4% Broker costs 35 4% 54 4% 24 4% Export Taxes 0 0% 0 0% 0 0% Export Price FOB Tema 759 1141 518 Export Transport Tema - Rotterdam 70 8% 70 6% 70 12% Sales Price CIF Rotterdam 829 100% 1211 100% 588 100%

In contrast to jatropha and coconut, results for palm oil are favorable. The export price of USD 597 per MT is highly competitive when compared to our benchmark prices. This is a conservative calculation because the assumptions made were based on a farm gate price

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for the vegetable oil of USD 470 per MT. However, the price can fluctuate based on seasonality effects and international prices. At the time of the on ground assessment, research, the market price of palm oil was approximately 400 USD/MT (BOPP), providing an opportunity for Ghanaian farmers and oil producers to capture higher revenues in the export market. The best case scenario for the export model, utilizes assumptions based on lower production costs and lower farm gate prices obtained through productivity gains in yields and oil extraction rates, and/or lower international market prices (same as in previous models). The results of the analysis, presented in Table 12 show that with the best case scenario, jatropha and oil palm become competitive with prices of USD 515 per MT and USD 322 per MT respectively. This is in comparison to the lowest benchmark price of palm oil of USD 599 per MT. This makes the export market of vegetable oil an attractive option for Ghana. Table 12: Cost structure for Ghanaian oils for export markets using best case scenario costs and vegetable oil prices

Feedstock/OilCost of Feedstock 171 33% 50 16%Cost of transport fruit to oil extraction plant 33 6% 62 19%Cost of oil extraction 170 33% 74 23%Oil cost 374 496 74% 185Oil producer margin 26 5% 50 7% 33 10%Estimated sales price in national market 400 546 218Transport oil to export port (Takoradi - Tema) 24 5% 24 4% 24 7%Broker costs 20 4% 27 4% 10 3%Export Taxes 0% 0 0% 0 0%Export Price FOB Tema 445 597 252Export Transport Tema - Rotterdam 70 14% 70 10% 70 22%Sales Price CIF Rotterdam 515 100% 667 100% 322 100%

(using best case scenario costs and farm gate prices)Jatropha Oil Concount Oil Palm Oil

Ghanaian Vegetable Oils Salese Price CIF Rotterdam (USD/MT)

It is important to reiterate the need to meet production assumptions for the case of jatropha if exports of oil derived from this feedstock are to be competitive. However, even if productivity gains are not achieved for the oil palm industry, Ghana will still be competitive in the global market given the trend of steady increases in the international market prices (Figure 14). Aside from potential competitiveness in terms of production costs, Ghana has a comparative advantage over main producers, such as Malaysia and Indonesia, to export to Western European markets due to close proximity and favorable trade agreements, such as the Cotonou Agreement8. This treaty between the European Union and the group of 8 The Cotonou Agreement was signed in June 2000 in Cotonou , the capital of Benin, by 79 ACP countries and the then fifteen Member States of the European Union. It entered into force in 2002 and is the latest agreement in the history of ACP-EU Development Cooperation.

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Figure 14: Palm Oil Prices (2005 to 2006) Source: FAO African, Caribbean and Pacific states (ACP countries), provides import tax exemptions for vegetable oils, like coconut and palm oil, into Europe under provision 15139.

Conclusions from Biodiesel Analysis

Three prospective models for the development of this industry have been presented. First, the national model identifies all consumers of diesel in Ghana as a potential market for biodiesel. The demand for the industry is created through mandatory replacement of conventional diesel, and retail and distribution occur through existing channels for fossil fuels (oil marketers and gas stations). The second model takes a sectoral approach and targets the mining industry, which heavily depends on diesel for its operations, as the initial market. Once switching to biodiesel is proven to be successful; other sectors such as public transportation will follow. For the model to be successful, on-site production of biodiesel is required to reduce transportation and distribution costs. Lastly, the export model explores the potential of exporting vegetable oil, rather than biodiesel, to European markets which face insufficient supply of raw materials. This model could initially be utilized to build the supply of feedstock to be later used in domestic biodiesel production. It is likely that biodiesel produced will be utilized in a B5, B10, or a B20 blend as opposed to B100. This is because long term effects on efficiency and energy losses are unknown for vehicles running on B100. Furthermore, consumers, such as mine companies, have warranty and insurance restrictions that limit the type of fuels that can be used in their heavy equipment. The results of these analyses show that using current production costs and farm gate prices palm oil is the only feedstock that can be competitive, but only in the case of

9 Jatropha oil is not currently traded in international markets and there fore is not yet included in the Cotonou Treaty, however the expectation is that it will receive similar treatment to other vegetable oils.

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export. Without improvements in productivity and reduction in prices, jatropha, has no potential of being competitive in a biofuel industry. Nevertheless, if assumptions are reached, jatropha has a potential of being competitive in all three models. The case is different for coconut, since the feedstock is not competitive in any of the models. This is mainly due to two reasons, first the ‘lethal yellowing disease’ which has already exterminated 1/3 of the coconut palm stock in Ghana, but most importantly because the market price of the coconuts are highly uncompetitive compared with the production costs of jatropha and palm oil fruit.

DEVELOPMENTAL IMPACT

Through previous analyses four models were identified as having the potential of building competitive industries. This section analyzes their developmental implications in terms of agricultural income generated, total agricultural employment generated and hectares required for biodiesel farming. The total income generated in USD was calculated by multiplying feedstock income per hectare times the number of hectares needed to meet the biodiesel demand in each model. The only exception is the export model, for which the export price per metric ton of oil was multiplied times the number of tons that would be consumed in the national model (this is an estimate, however the potential is larger and is limited by the ability of producers to increase production volumes and compete in price). The second indicator measures the employment created in the agricultural sector. However, this estimate does not include other jobs created in throughout the biodiesel supply chain. Lastly, the number of hectares needed for feedstock was used to measure the environmental impact. It is assumed that the higher the requirement of land the more negative impact on the environment, as more wild forest would have to be allocated to agricultural production. Table 13: Summary of Developmental impact for each value chain model

Model & Crop

Agriculture Income Generated - USD

Labor Created in the Agricultural Sector

Environmental Impact

(Hectares Needed) Palm Oil Mining $ 9,401,080 12,773 17,031 Ha

Palm Oil Export $ 23,502,700 31,933 42,577 Ha

Jatropha National $ 11,917,233 74,888

(4 months harvesting) 27, 958 Ha

Jatropha Mining $ 4,766,893 29,955

(4 months harvesting) 11, 183 Ha

Table 13 summarizes the findings of the developmental impact analysis. In general, palm oil generates higher income when compared to Jatropha in similar models. In the mining model, palm oil generates an estimated $9,401,080 USD per year, while Jatropha generates approximately half of that. When comparing the national model for jatropha with the export model of palm oil (assume the consumption of the same volumes of vegetable oil), it is observed that palm oil generates an income almost twice as large as jatropha, with $ 23,502,700 USD and $11,917,233 USD respectively. Regarding the

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impact on labor, Jatropha in general generates almost 3 times more employment than palm oil. In the mining sector jatropha generates 11,183 permanent jobs, and 29,955 jobs during the four months of harvesting season, while palm oil creates 12,773 permanent jobs. In the national model jatropha creates around 27, 958 permanent jobs and 74,888 jobs during the harvesting season, while palm oil creates approximately 31,933 permanent jobs. Another advantage of using jatropha is that women can participate in the harvesting; this is not the case for palm oil because harvesting is labor intensive and is usually done by males. Regarding implications for the environment, Jatropha has the least negative impact because it requires the least amount of land for both the mining and national model, with 11183 and 27958 hectares respectively. Whereas palm oil requires approximately one third more of land with 17,031 hectares for the mining model and 42,577 hectares for the export model. Other aspects of the developmental impact that must be considered, independently of the selected model, are the positive impact in the foreign reserves and the reduction on CO2 emissions. Although calculating these impacts was outside the scope of this project, it is known that, by substituting fossil fuels with biodiesel produced locally, Ghana will import less crude oil, which will have a positive impact on the country’s foreign reserves. Debates in the scientific community remain on whether the total energy balance in the use of biofuels is positive or not. However, scientists agree that the use of biofuels for transport has a positive impact on the reduction of CO2 emissions. This not only improves the environment in Ghana, but may also open the possibility to enter the carbon credits market in the future.

CONCLUSIONS AND RECOMMENDATIONS

Based on the research and findings, six major conclusions were reached and are outlined below. 1. There is no potential ethanol industry for Ghana in the short-term Based on the models presented in the report neither cassava nor sugarcane is capable of being economically viable at this stage. This is the case unless significant improvements in yields and costs of production are made. The advancement of a sugarcane-based ethanol industry in the short term is not likely, since there is no large-scale production of sugarcane at this time. In order for the industry to be competitive in the long-term, Ghana would need to achieve production cost on the same scale as Brazil. In addition, a cassava-based ethanol industry might not be adequate in the short-term because of unreliable supply that has negatively affected the starch industry. Moreover it is important to consider the possible effects that an increase in demand of cassava might have on food security (since higher demand tends to increase the price in the food market). It is important to note that there is no established domestic market for ethanol. The assumption in the models identify a need for 2% blend of ethanol to be used as gasoline additive. However the government does not currently have plans to implement a

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regulation to change the use of MMT. Finally, a breakthrough on the cellulosic research could potentially threaten the economic viability of the industry. The introduction of this technology would eliminate any need for cassava or sugarcane, since cellulosic methods are more efficient and cheaper Recommendation: If Ghana were to develop an ethanol industry it must make certain ethanol production costs remain low to ensure competitiveness. Additionally, it would need to successfully introduce newer high-starch cassava varieties and increase the average yield of small farmers. This is also applicable to the sugarcane industry, which should aim to achieve costs of production comparable to Brazil. Furthermore, government support in the form of direct tax breaks might be required if the industry is to be started. 2. There is potential for a biodiesel industry to be developed in Ghana Production models demonstrated that there is a potential for the biodiesel industry in Ghana. With enough R&D jatropha can competitively meet both the national and the mining sector demand for B5 fuel However, if productivity is not increased and prices are not reduced, the crop will not be competitive unless the government provide subsidies of under USD 0.05 per liter of B5. Palm oil however, can compete at an international level and has the potential of being exported to European countries, or used for national food consumption when the prices are higher. Nevertheless, when the price is low, palm oil could potentially be utilized to meet the needs of biodiesel for the mining sector. Recommendation: In order for the industry to be successful, the productivity of jatropha needs significant R&D to improve productivity in order to reduce average costs of production and farm gate price. Without clear indications that these targets can be met, jatropha oil should not be utilized for biodiesel production unless prices of crude oil are high enough, or the government is prepared to subsidize the increase in cost. If improvements cannot be made, further research is needed to develop other potential applications of the oil, which can include its use in rural electrification schemes.

In the case of palm oil, the industry should continue to be expanded and be developed. Given that the prices are subject to fluctuation, the oil might not be recommended as the primary source of biodiesel production. However farmer could sell their crops to national or international food markets when prices are higher, or compliment the biodiesel industry when prices decline. It is likely that for the industry to become competitive it will require initial support from the government not only to create a demand for the product, but to provide financial incentives (such as tax breaks), and if necessary subsidies like in the case of Brazil.

3. The cost of Methanol, an important component in the production of biodiesel, is extremely high when compared to other African countries, thereby affecting the production costs of biodiesel in Ghana.

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The cost of methanol represent between 21 and 37 percent of total cost of biodiesel production in Ghana . The price is higher than in Mozambique, increasing costs of production and reducing the overall competitiveness of the industry. If the price were to be reduced to the level of Mozambique's, the implied maximum cost of vegetable oil would rise by USD 0.15 per liter. Recommendation: Further research is required to determine the cause for high prices of methanol in Ghana. It is strongly encouraged that the Government aim to reduce the price of methanol by providing tax incentives or eliminating any tariffs imposed on it. 4. The expansion and development of the biofuel industry will have positive developmental impacts on the economy, the people and the environment in Ghana. These impacts can be seen in the palm oil export model, where the highest level of income is generated. In the jatropha national model the highest amount of labor can be achieved. And in a jatropha mining model, the least amount of land is required. In addition, the biofuel industry has the potential to positively impact foreign reserves, because less oil will need to be imported. And finally, the use of biofuels decrease the amount of CO2 emissions, thereby creating a sustainable industry that is friendly towards the environment. 5. Jatropha is a good candidate for the main crop to be used in biodiesel

production because the farm gate price is not affected by the market volatility. Recommendation: Although Jatropha seems to be an ideal crop; intensive research and development needs to be undertaken to increase potential yields, and decrease average production costs so as to lower farm gate price for the seed.

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REFERENCES

_________(2007),Agricultural Development Bank, Personal Interview, March 15th Adamako, Samuel Y. (2007) Tema Oil Refinery, Personal Interview, March 15th Ahenkorah, A. K. Ofosu (2007) Energy Commission, Personal Interview, March 14th Amoah, Dan (2007), National Petroleum Authority, Personal Interview, March 14th Bonsu, ____(2007), President’s Special Initiative, Personal Interview, March 13th (BOPP) Benso Oil Palm Plantation. Personal Interview. March 2007 Environmental Protection Agency [EPA] (1999), “Achieving Clean Air and Clean Water: The Report of the Blue Ribbon Panel on Oxygenates in Gasoline”, http://www.epa.gov /otaq/consumer/fuels/oxypanel/r99021.pdf Environmental Protection Agency (EPA) “Comments on the Gasoline Additive MMT” http://www.epa.gov/otaq/regs/fuels/additive/mmt_cmts.htm . Consulted April 2007. Eurostat (2006) “Fuel Consumption Statistics”, http://epp.eurostat.ec.europa.eu/ EU Parliament (2006), “Decision No 1639/2006/EC of the European Parliament and of the Council of 24 October 2006 establishing a Competitiveness and Innovation Framework Programme (2007 to 2013)”, EUR-Lex, European Communities

EU Parliament (2003), “Directive 2003/30/EC of the European Parliament and of the Council of 8 May 2003 on the promotion of the use of biofuels or other renewable fuels for transport”, EUR-Lex, European Communities Food and Agriculture Organization (FAO). Data and Statistics. Consulted April 29, 2007. http://www.fao.org/es/esc/prices/PricesServlet.jsp?lang=en&ccode Frimpong-Boateng, Jojo (2007), GoldRay Biodiesel, Personal Interview, March 13th. Energy Commission [GEC] (2005), “National Bio-Fuels Policy Recommendations” (Draft Copy) Ghanaweb (2007), “Sugar Factory for Northern Ghana”, http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=122516 International Energy Agency (IEA, 2004). Biofuels for Transport: An International Perspective. OECD.

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(IOI Group, 2006). Market Outlook 2006. Loders Crocklaan Information Service. Kufuor, Kofi (2007), National Microfinance and Small Loan Center, Personal Interview March 13th Ohene-Amoah, Rex (2007), BOST, Personal Interview, March 15th Reuters (2006), “Brazil Could Double Ethanol Output by 2014-Unica”, http://www.reuters.com/article/economicNews/idUSL0447785720070205 Root and Tuber Improvement Programme [RTIP] (2004), “Interim Evaluation”, Republic of Ghana, Root and Tuber Improvement Programme, Report # 1533-GH United Nations Environmental Program [UNEP] (2006) “Report of the GEF-STAP Workshop on Liquid Biofuels”, Nairobi United States Department of Agriculture [USDA] (2006a) “GAIN Report on the EU Biofuels industry”, USDA, Washington, DC United States Department of Agriculture [USDA] (2006b) “The Economic Feasibility of Ethanol Production from Sugarcane in the United States”, USDA, Washington, DC United States Department of Agriculture [USDA] (2002) “The Energy Balance of Corn Ethanol: An Update”, USDA, Washington, DC United States Department of Agriculture (USDA 2006). EU-25 Biofuels Annual2006. US Department Of Agriculture. GAIN Report Number: E36122 United States International Trade Commission. (USITC 2007) “Harmonized Tariff Schedule” http://www.usitc.gov/tata/hts/bychapter/index.htm . Consulted January 2007. World Bank (2005), “The Potential for Biofuels for Transport in Developing Countries”, World Bank, Washington, DC

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APPENDIXES

APPENDIX I

Crop Selection Criteria Weight Criteria Score

6 Yield compared to other producers mt/ha 3 18 3 18 9 54 3 18 3 18 3 18 3 18 9 above median, 6 close median, 3 below median9 Yield litres per hectare gal/ha 3 27 9 81 3 27 9 81 6 54 9 81 3 27 9 above median, 6 close median, 3 below median6 Is it massed produced in Ghana 9 54 3 18 9 54 3 18 9 54 6 36 9 54 9 mass produced, 6 some prod, 3 min prod6 Is there potential for growth in Ghana? 6 36 9 54 6 36 9 54 6 36 6 36 6 36 9 high, 6 medium, 3 low6 Time for first harvest 9 54 9 54 6 36 9 54 9 54 9 54 3 18 9 <= 1yr, 6 2-3 yr, 3 > 3 yr3 Can it be intercropped 6 18 3 9 9 27 3 9 6 18 9 27 6 18 9 intercrop with cash crops, 6 non cash crop, 3 no6 Need technology transfer? 3 18 6 36 9 54 3 18 6 36 6 36 9 54 9 minimal or no, 6 some , 3 a lot9 High-low input (water, fertilizer, man power) 3 27 9 81 9 81 9 81 9 81 9 81 3 27 9 low, 6 medium, 3 high3 by-product potential? 6 18 6 18 3 9 9 27 3 9 6 18 3 9 9 high, 6 medium, 3 low6 potential applications? 3 18 3 18 3 18 6 36 3 18 3 18 3 18 9 fuel, 6 low value, 3 food and other)6 Generation 6 36 9 54 6 36 3 18 9 54 6 36 9 54 (1st- sugar 9, 1st- starch, biodiesel 6, 2nd- 3)3 Environmental impacts 6 18 3 9 6 18 9 27 6 18 6 18 6 18 9 positive, 6 neutral or low, 3 negative6 Threats to crops 6 36 6 36 3 18 6 36 3 18 9 54 3 18 9 low, 6 medium, 3 high

Total 378 486 468 477 468 513 369

Bananasweet Potatoweet SorghuETHANOL CROPS

Maize Sugar Cane Cassava Cellulosic

Weight Criteria Score

6 Yield compared to other producers mt/ha 9 54 9 54 6 36 6 36 6 36 9 54 6 36 9 above median, 6 close median, 3 below median9 Yield litres per hectare gal/ha 9 81 9 81 9 81 9 81 6 54 3 27 9 81 9 above median, 6 close median, 3 below median6 Is it massed produced in Ghana 9 54 9 54 3 18 6 36 9 54 6 36 3 18 9 mass produced, 6 some prod, 3 min prod6 Is there potential for growth in Ghana? 6 36 6 36 9 54 9 54 6 36 6 36 9 54 9 high, 6 medium, 3 low6 Time for first harvest 3 18 6 36 9 54 6 36 9 54 9 54 9 54 9 <= 1yr, 6 2-3 yr, 3 > 3 yr3 Can it be intercropped 6 18 6 18 6 18 6 18 6 18 6 18 3 9 9 intercrop with cash crops, 6 non cash crop, 3 no6 Need technology transfer? 9 54 9 54 3 18 9 54 6 36 6 36 3 18 9 minimal or no, 6 some , 3 a lot9 High-low input (water, fertilizer, man power) 3 27 9 81 9 81 9 81 9 81 3 27 9 81 9 low, 6 medium, 3 high3 by-product potential? 3 9 6 18 6 18 9 27 3 9 6 18 3 9 9 high, 6 medium, 3 low6 potential applications? 3 18 3 18 3 18 6 36 3 18 3 18 6 36 9 fuel, 6 low value, 3 food and other)6 Generation 6 36 6 36 6 36 6 36 6 36 6 36 3 18 (1st- sugar 9, 1st- starch, biodiesel 6, 2nd- 3)3 Environmental impacts 6 18 6 18 9 27 9 27 6 18 6 18 6 18 9 positive, 6 neutral or low, 3 negative6 Threats to crops 9 54 3 18 9 54 6 36 3 18 9 54 9 54 9 low, 6 medium, 3 high

Total 477 522 513 558 468 432 486

Jatropha Peanut Soy AlgaeBIODIESEL CROPS

Oil Palm Coconut Castor Oil

APPENDIX II

Ethanol from Sugarcane Given the fact that there is currently no large scale production of sugarcane or ethanol currently being undertaken in Ghana, one must look at other sources to at least come up with some kind of approximation. This appendix will demonstrate how the conclusions concerning Ghana were developed using costs for the United States (as taken from a USDA study) and Brazil (as taken from the World Bank). The United States Model Currently, no U.S. plants are producing ethanol from sugar feedstocks. Corn is the feedstock of choice in the United States primarily due to its low prices (kept artificially so due to massive subsidies) and its relative abundance. However, the USDA has estimated the potential costs involved with producing ethanol from sugar. This data was used to estimate costs for Ghana not because the numbers would be similar, but rather that without numbers for Ghana or any other African nation, there is need to use the data which is most complete. In this instance it is the United States.

Table Gamma: US Production Costs of Sugar to Ethanol

Cost Breakdown (US)* US$/lb raw sugar US$/Liter US$/Gallon

Percent of Production Costs

Cost of Feedstock Production $0.08 $0.3237 $1.2253 50.83%Feedstock Producer Margin $0.02 $0.0673 $0.2547 10.56%Farm Gate price $0.10 $0.3910 $1.4800 61.39%Costs of Ethanol Production:

Cane Transportation $0.0133 $0.0518 $0.1961 8.14%Processing

Labor $0.0123 $0.0478 $0.1809 7.51%Fuel $0.0022 $0.0085 $0.0323 1.34%Chemicals $0.0014 $0.0054 $0.0205 0.85%Electricity $0.0015 $0.0057 $0.0214 0.89%Materials and Supplies $0.0055 $0.0216 $0.0817 3.39%

Repairs and Maintenance $0.0168 $0.0654 $0.2474 10.26%Total Variable Processing Costs $0.0528 $0.2062 $0.7804 32.37%

Administrative Labor $0.0039 $0.0152 $0.0575 2.38%Administrative non-Labor $0.0063 $0.0245 $0.0929 3.85%

Total Administrative Costs $0.0630 $0.0397 $0.1504 6.24%Total Costs for Ethanol Production $0.1632 $0.6369 $2.4108 100.00%Producer Margin Distribution Margins $0.0211 $0.0800 Taxes and Storage Fees (CA) $0.1110 $0.4200 Taxes (Federal) $0.0476 $0.1800 ex pump price of ethanol (no producer margin) $0.8165 $3.0908 ex pump price of gasoline US (3/16/07) Source: USDA 2006b $0.8137 $3.0800

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As seen in the preceding chart, converting ethanol from sugar is costly in the United States, largely due to the high price of the feedstock which is over 60% of the production costs when including margins. These costs also point to the fact that production in the United States is actually economically feasible under these circumstances. However corn is a cheaper alternative in the US despite higher processing costs, and the margins for sugarcane are rather low and therefore untrustworthy if the price of oil goes down. The Brazil Model While one may use much of the above to estimate costs for Ghana, Brazil is the benchmark by which Ghana has to be judged. The reason to do this is because Brazil is by far the best producer of ethanol from sugarcane in the world. However it must be noted that any comparison of a sugar industry to Brazil is probably unfair. As the UNEP has stated:

The uniqueness of the ethanol program in Brazil must be stressed, however. The price of sugar-cane in Brazil is much lower than in other major sugar producing countries, because of exceptionally favorable climate and soil conditions making irrigation hardly necessary…To date, none of the leading sugar-cane producing countries have been able to achieve the same low cost of production as the Center-South region of Brazil. More than one-half of the total world sugar production occurs in areas where the cost of production is close to three times that in Brazil. (UNEP 2006:23).

Yet even taking this into consideration, any effort to promote sugarcane based ethanol will have to at some level compare with Brazil as they are the world leader and the competitor Ghana will have to deal with in any exporting scheme. The first thing to understand about the level of production in Brazil is the sheer volume of it. As the world’s leading producer of ethanol, a substantial amount of acreage is dedicated for the ethanol fuel industry (Table Delta). The most important number in this table is ethanol produced per hectare. This points to the sheer productivity as Brazil has managed to produce nearly twice the amount of ethanol per hectare than any other nation (UNEP 2006). Brazil has been relatively reluctant to give out its exact costs, but the figures estimate the cost of sugarcane per liter of ethanol produced ranges around $0.14-$0.27 with the real cost likely nearer the latter number. Brazil has also stated that it is constantly trying to improve yields and that it will attempt to improve yields by 100% over the next 10 years (Reuters 2006). Using the high estimate of Brazil’s commodity price of $0.27, it can be demonstrated why they are able to produce ethanol at such a reduced cost. We can even compare the costs for both hydrous ethanol, a fuel derived almost exclusively from feedstock, and E25,

Table Delta Brazil Sugarcane Acreage & Production (2005)* Brazil Sugarcane Acreage (Acres) 2,160,000Brazil Sugarcane Acreage (Ha) 5,400,000Total Production (L) 12,500,000,000Production (L/Ha) 2,315*Acerage indicates land used for ethanol production only Source: USDA 2006b

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a blend of 25% ethanol and 75% petroleum gasoline. In the first case (Table Epsilon), we see that Brazil is able to keep production costs below the costs of the feedstock, which even at $0.27/liter, are far more competitive than those for other countries. Compared to United States production costs we see that Brazil’s advantage not just lay in its cheap costs for feedstock but in production as well. Looking at a blended fuel, the story is similar. In this case we see that despite having the added cost of having to mix ethanol with petroleum gasoline, Brazilian E25 at the pump is less expensive than the current ex refinery price of gasoline (Table Zeta). However here in this cost breakdown we see one possible reason fro Brazil’s success. As this table shows in the cost breakdown of petroleum gasoline, the excessive taxes and levies placed upon this far outweigh the same tax burden that is placed on ethanol. So while it is still true that Brazil no longer directly subsidizes its ethanol industry, it does alter the market so as to give ethanol a favorable position in the market. This policy has clear implications for Ghana, as this is the means by which Brazil has been able to cultivate a domestic market. If even the world leader in ethanol production requires policy to make ethanol more attractive to its consumers, then the lesson is that policy is the key to making progress in the biofuel industry.

Table Epsilon Hydrous Ethnanol Costs with Taxes and Duties US$/Liter PercentageEthanol commodity price 0.27 55.10%Taxes and duties 0.06 12.24%Ex-distillery ethanol price 0.33 67.35%Freight cost 0.012 2.45%Distributor's acquisition cost 0.342 69.80%Distributor margin 0.021 4.29%Delivery freight cost 0.004 0.82%Taxes and duties 0.059 12.04%Price charged by distributor 0.426 86.94%Retail margin 0.062 12.65%Taxes and duties 0.002 0.41%Total Retail Price 0.49 Total Taxes and Duties 0.121 24.69%Source: World Bank 2005

Table Zeta E25 blend costs with taxes and duties Gasoline costs US$/Liter % Gasoline commodity price 0.366 Taxes and Duties 0.554 Ex-refinery price 0.921 Ethanol costs Commodity price of anhydrous ethanol 0.27 Freight cost for anhydrous ethanol 0.008 Anhydrous ethanol output price 0.278 Blended Costs Gasoline freight cost 0.001 0.11%Distributor’s cost for E25 acquisition 0.761 85.79%Distribution margin 0.029 3.27%Delivery freight 0.004 0.45%CPMF 0.006 0.68%Distributor’s price 0.797 89.85%Retail margin 0.086 9.70%Retail price 0.887 Source: World Bank 2006

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The Ghana Model Having established the need to use costs from the United States and benchmarking against Brazil it is possible to construct a model for Ghana that determines what the maximum feedstock price might be in order for Ghana to be competitive in the world ethanol market. In this case one starts from the ex-pump price of petroleum gasoline, as the price of ethanol becomes competitive when its cost match that that of its petroleum counterpart (Table Eta). Then by applying Ghanaian taxes and duties, the ex-refinery cost of petroleum gasoline is reached. By applying United States production costs (and acknowledging that such costs are likely to be higher in Ghana), it is demonstrated that under these circumstances, the maximum cost for sugarcane feedstock in Ghana would be roughly $0.28, one penny more than what was assumed in the Brazilian model. Considering the current lack of a viable sugar industry in Ghana at the moment, it is not realistic to believe that Ghana would be able to produce sugarcane feedstock at a level of efficiency on par with that of Brazil.

Table Eta Ghana Ethanol Pricing US$/Liter GHC/Liter Current price of petrol (ex pump) $0.8603 7,743.00 Gross margin (distributors) $0.0722 650.00 Transport margin (oil marketers) $0.0340 306.00 BOST Margin $0.0111 100.00 Distribution Margin $0.0056 50.00 Government subsidy -$0.0325 -292.09 Taxes and Levies $0.2435 2,191.72 Current ex Refinery Price $0.5264 4,737.37 Production Costs* Administrative Labor $0.0152 136.80 Administrative Non-Labor $0.0245 220.50 Total Administrative Costs $0.0397 357.30 Repairs and Maintainance $0.0654 588.60 Processing

Labor $0.0478 430.20 Fuel $0.0085 76.50 Chemicals $0.0054 48.60 Electricity $0.0057 51.30 Materials and Supplies $0.0216 194.40

Total Processing Costs $0.1544 1,389.60 Cane Transportation $0.0518 466.20 Maximum Feedstock Cost $0.2805 2,524.27 Sources: Anehe-Omoah 2007; Ahenkorah 2007; USDA 2006

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APPENDIX III

Ethanol from Cassava Unlike sugarcane, cassava is grown in great quantities in Ghana. In fact it is most likely the largest crop in Ghana in terms of actual production with an estimated annual production of over 10 million Metric Tonnes (RTIP 2004). Not only is it widely grown, but cassava is also fairly inexpensive throughout the country. As a result it may be that cassava is Ghana’s most viable crop in terms of potential ethanol production. The Model While costs for sugarcane must be estimated based on production in other countries, cassava costs have been estimated and utilized by the Ghana Root and Tuber Improvement Programme. However there are still no ethanol production costs and therefore estimates based on similar operations in sub-Saharan Africa must be used. The first step is to determine the maximum feedstock cost involved with the production of Cassava. Using costs obtained through similar programs, it is shown that the maximum cost is approximately $0.17 (Table Theta). This compares favorably with an average cost of dried cassava of $0.12.

Table Theta Maximum Costs for Competitiveness of Ghanaian Cassava Ethanol Program

US$/Liter

GHC/Liter

Current price of petrol (ex pump) $0.8603 7,743.00Gross margin (distributors) $0.0782 703.52Transport margin (oil marketers) $0.0368 331.19BOST Margin $0.0111 100.00Distribution Margin $0.0056 50.00Government subsidy -$0.0325 -292.09Taxes and Levies $0.2435 2,191.72 Current ex Refinery Price $0.5176 4,658.66Production Costs Inputs (Chemical) $0.0048 43.19Electricity $0.2072 1,865.16Labour 30 workers $0.0047 42.58Cassava Transport $0.0210 189.00Total Input costs $0.2378 2,139.93Cost of Drying $0.1100 990.00Maximum Feedstock Price $0.1699 1,528.73Average Feedstock Price $0.1177 1,058.87Sources: Ahene-Omoah 2007; RTIP 2004; Technoserve

This only shows part of the story, however, due to the lack of producer margins factored into this model. There is also another cost factor in that ethanol must be mixed with

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petroleum gasoline in Ghana (as of this report there are no flex-fuel cars available on the Ghanaian market). Assuming a blend of E10 (10% ethanol mixed with 90% petroleum gasoline) and taking the farm gate price of cassava and adding both farmer margins and estimated costs of drying the cassava into chips to be converted to ethanol, we see that the cost of a liter of ethanol would be just over $0.82 per liter (Table Iota). This again compares favorably with the current price of petroleum gasoline in Ghana and demonstrates that an E10 mixture may be viable if some costs can be reduced.

Table Iota Costs of Producing Ethanol from Dried Cassava (Dry Chips Model)) Feedstock Costs: US$/Liter GHC/Liter

Land Rent $0.0227 204.55 Planting Material $0.0061 54.55 Labor $0.0537 482.85 Implements and Other Materials $0.0031 27.55

Feedstock Cost $0.0855 769.49 Cost of Drying $0.1100 990.00

Farmer Margins $0.0322 289.39 Farmgate Price $0.2277 2,048.87 Transportation to Ethanol plant $0.0293 264.00 Production Costs Inputs (Chemical) $0.0048 43.19 Electricity $0.2072 1,865.16 Labour 30 workers $0.0047 42.58 Cassava Transport $0.0210 189.00 Total Input costs $0.2378 2,139.93 Ex Distillery Price (Break even) $0.4948 4,452.80 Mix with 90% Gasoline at GHC 4,659 $0.5153 4,638.07 Blending Costs $0.0024 21.24 Gross margin (distributors) $0.0782 703.52 Transport margin (oil marketers) $0.0368 331.19 BOST Margin $0.0120 108.23 Distribution Margin $0.0060 54.12 Government subsidy -$0.0325 -292.09 Taxes and Levies $0.2435 2,191.72 Pump Price of E10 $0.8618 7,756.00 Sources: Ahene-Omoah 2007; Technoserve

From this analysis, it would appear that cassava has potential to become an economically workable crop for the production of biodiesel. However, it must be pointed out that the production costs are estimates and therefore may not accurately reflect costs that would be encountered in a Ghanaian context. Additionally, while the production of ethanol from cassava may appear to be feasible, the experiences of the Ayensu starch factory have to also be taken into consideration. Nevertheless, if nothing else this analysis demonstrates a need to critically examine the potential of cassava and determine what factors need to be in place for this production to become a viable industry.

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APPENDIX IV

NATIONAL MODEL JATROPHA

Estimated Cost of Jatropha biodiesel B100 SME Best case scenario - 5 kg @ 30%

US$/L GHC/L % of Cost 1650 trees % of CostFeedstockCost of Maintenance (equivalent to 1 liter of oil) $0.3302 2,971.60 0.1574Farm gate price for seeds equivalent to 1 liter of oil $0.5111 4,600.00 35.50% 0.1584 15.33%Transport Cost $0.0460 414.00 0.0307Oil 0.00oil extraction cost $0.1570 1,413.00 0.1560Estimated cost of jatropha oil per lt $0.7141 6,427.00 49.61% $0.3451 33.38%Cost to Transport Feedstock (Takoradi-Accra) $0.0224 201.60 1.56% 0.0224 2.17%Biodiesel Production Financing* $0.0081 72.90 0.56% 0.0081 0.78%Depreciation $0.0115 103.50 0.80% 0.0115 1.11%Electricity $0.0026 23.84 0.18% 0.0026 0.26%Labor $0.0034 30.23 0.23% 0.0034 0.32%Causstinc Soda $0.0059 52.80 0.41% 0.0059 0.57%Methanol $0.3003 2,702.50 20.86% 0.3003 29.05%Margin for Biodiesel Producer $0.0534 480.72 3.71% 0.0166 1.60%ex Production Plant Price $1.1217 10,095.09 $0.7159Gov and DistributionTaxes and Levies $0.2250 2,025.00 15.63% $0.2250 21.77%Government subsidy ($0.0300) -269.87 -2.08% ($0.0300) -2.90%Distribution Margin (from Production plant to BOST) $0.0056 50.00 0.39% $0.0056 0.54%BOST margin $0.0111 100.00 0.77% $0.0111 1.07%Transport margin (Oil marketers) $0.0340 306.00 2.36% $0.0340 3.29%gross margin (distributor) $0.0722 650.00 5.02% $0.0722 6.99%Estimated Biodiesel Pump Price B100 $1.4396 12,956.22$ 100.00% $1.0338 100%

Estimated price of jatropha oil per MT 776.21$

Estimated Cost of B5 Blend SME Best case scenario - 5 kg @ 30%US$/L GHC/L % of Cost

Biodiesel Ex-Production Plant Price $1.1217 $0.7159Distribution Margin (from plant to blending) $0.0056 50.00 $0.0056Blending $0.0017 15.30 $0.0017Biodiesel Ex-refinery cost $1.1289 $0.7231Diesel Ex-refinery cost $0.5022 $0.5022Blended B5 Ex-refinery cost $0.5335 62.66% $0.5133 61.75%Gov and DistributionTaxes and Levies $0.2250 2,025.00 26.43% $0.2250 27.07%Government subsidy ($0.0300) -269.87 -3.52% ($0.0300) -3.61%Distribution Margin (from Tema to BOST) $0.0056 50.00 0.65% $0.0056 0.67%BOST margin $0.0111 100.00 1.30% $0.0111 1.34%Transport margin (Oil marketers) $0.0340 306.00 3.99% $0.0340 4.09%gross margin (distributor) $0.0722 650.00 8.48% $0.0722 8.69%Estimated Biodiesel Pump Price $0.8514 2,926.43$ 100.00% $0.8312 $1.0000

58

COCONUT NATIONAL MODEL Estimated Cost of coconut biodiesel B100 Current Small Holder Production Best Case

US$/L GHC/L % of CostFeedstockCost of Maintenance (equivalent to 1 liter of oil) $0.2576 2,318.30 $0.2576Farm gate price for nuts equivalent to 1 liter of oil $0.7556 6,800.00 44.02% $0.2576Transport Cost $0.1662 1,496.00 $0.1662Oil oil extraction cost $0.0324 291.97 $0.0324Cost of producing coconut oil $0.9542 8,587.97 $0.4563Estimated sale price of coconut oil per lt $0.9776 9,000.00 56.96% $0.4563Cost to Transport Feedstock (Takoradi-Accra) $0.0224 201.60 1.31% 0.0224Biodiesel Production Financing* $0.0081 72.90 0.47% $0.0081Depreciation $0.0115 103.50 0.67% $0.0115Electricity $0.0026 23.84 0.15% $0.0026Labor $0.0034 30.23 0.20% $0.0034Causstinc Soda $0.0059 52.80 0.34% $0.0059Methanol $0.3003 2,702.50 17.50% $0.3003Margin for Biodiesel Producer $0.0666 599.29 3.88% $0.0405ex Production Plant Price $1.3983 12,585.06 $0.8509Gov and DistributionTaxes and Levies $0.2250 2,025.00 13.11% $0.2250Government subsidy ($0.0300) -269.87 -1.75% ($0.0300)Distribution Margin (from Production plant to BOST) $0.0056 50.00 0.32% $0.0056BOST margin $0.0111 100.00 0.65% $0.0111Transport margin (Oil marketers) $0.0340 306.00 1.98% $0.0340gross margin (distributor) $0.0722 650.00 4.21% $0.0722Estimated Biodiesel Pump Price B100 $1.7162 15,446.19$ 100.00% $1.1688

Estimated price of coconut oil per MT 1062.6087 495.927

Estimated Cost of B5 Blend GhanaUS$/L GHC/L % of Cost

Biodiesel Ex-Production Plant Price $1.3983 $0.8509Distribution Margin (from plant to blending) $0.0056 50.00 $0.0056Blending $0.0017 15.14 $0.0017Biodiesel Ex-refinery cost $1.4056 $0.8582Diesel Ex-refinery cost $0.5022 $0.5022Blended B5 Ex-refinery cost $0.5474 63.26% $0.5022Gov and DistributionTaxes and Levies $0.2250 2,025.00 26.00% $0.2250Government subsidy ($0.0300) -269.87 -3.47% ($0.0300)Distribution Margin (from Tema to BOST) $0.0056 50.00 0.64% $0.0056BOST margin $0.0111 100.00 1.28% $0.0111Transport margin (Oil marketers) $0.0340 306.00 3.93% $0.0340gross margin (distributor) $0.0722 650.00 8.35% $0.0722Estimated Biodiesel Pump Price $0.8653 2,926.27$ 100.00% $0.8201

59

PALM OIL NATIONAL MODEL Best Case

USD/Lt % of totalFeedstockCost of FeedstockCost of transport fruit to oil extraction plant Cost of oil extraction OilEstimated oil cost 0.3560Transport oil to biodiesel plant (Takoradi - Accra) 0.0224 BiodieselFinanacing 0.0081 Depreciation 0.0115 Electricity 0.0026 Labor @ minimum wage (30,000 cedis/day) 0.0034 Caustic Soda (including transport) 0.0059 Methanol (including transport) 0.3003 Marging for biodiesel producer 0.0355Biodiesel Ex-production plant cost - B100 0.7457 Taxes and Levies 0.2250 Government subsidy (0.0300) Distribution Margion (from Tema to Bost) 0.0056BOST Margin 0.0111 Transport margin (oil marketers) 0.0340 Gross margin (distributors) 0.0722 Ex-pump price B-100 1.0636

B - 5Distribution Margin (from production plant to blending) 0.0056Blending Cost 0.0017 Ex refinery price of Biodiesel 0.7529 B5 at 5% 0.0376 Diesel at 95% 0.4771 Ex refinery price of B-5 0.5147 Taxes and Levies 0.2250 Government subsidy (0.0300) Distribution Margion (from Tema to Bost) 0.0056BOST Margin 0.0111 Transport margin (oil marketers) 0.0340 Gross margin (distributors) 0.0722 Ex-pump price of B5 0.8327

Farm gate PriceUSD/Lt % of total

0.41830.0224

0.0081 0.0115 0.0026 0.0034 0.0059 0.3003 0.0386

0.8111 0.2250

(0.0300) 0.0056

0.0111 0.0340 0.0722 1.1290

0.00560.0017 0.8183 0.0409 0.4771 0.5180 0.2250

(0.0300) 0.0056

0.0111 0.0340 0.0722 0.8360

Farm gate Price

60

APPENDIX V

MINING SECTOR MODEL

JATROPHA Estimated Cost of Jatropha biodiesel Mixed 50% Best case scenario - 5 kg @ 30% - 1650 t

% of CostFeedstockCost of Maintenance (equivalent to 1 liter of oil) $0.1574Farm gate price for seeds equivalent to 1 liter of oil = 4.45 kg 0.3668$ $0.1584Transport Cost 0.0408$ $0.0307Oil oil extraction cost $0.1570 $0.1560Estimated cost of jatropha oil per lt $0.5646 $0.3451 47.85%Cost to Transport Feedstock (Takoradi-Accra) 0.0224 0.0224 3.11%Biodiesel Production Financing* $0.0081 $0.0081 1.12%Depreciation $0.0115 $0.0115 1.59%Electricity $0.0026 $0.0026 0.37%Labor $0.0034 $0.0034 0.47%Causstinc Soda $0.0059 $0.0059 0.81%Methanol $0.3003 $0.3003 41.64%Biodiesel producer margin $0.0166 $0.0166 2.30%ex Production Plant Price $0.9354 $0.7159Gov and DistributionTaxes and Levies $0.0000 $0.0000 0.00%Government subsidy $0.0000 $0.0000 0.00%Distribution Margin $0.0000 $0.0000 0.00%Blending $0.0000 $0.0000 0.00%Biodiesel producer margin $0.0000 $0.0000 0.00%Transport margin (biodiesel plant to storage/blending) $0.0049 $0.0053 0.74%gross margin (distributor) $0.0000 $0.0000 0.00%Estimated Biodiesel Pump Price B100 $0.9403 $0.7212 100.00%

Estimated price of jatropha oil per MT 776.21$ 375.12$

Estimated Cost of B5 Blend Mixed Best case scenario - 5 kg @ 30% - 1650 tUS$/L

Biodiesel Ex-Production Plant Price $0.9354 $0.7159Distribution Margin (from plant to blending) $0.0056 $0.0056Blending $0.0017 $0.0017Biodiesel Ex-refinery cost $0.9427 $0.7231Diesel Mining Pump Price including taxes $0.7479 $0.7479Blended B5 Ex-refinery cost $0.7576 $0.7467Gov and DistributionTaxes and Levies $0.0000 $0.0000Government subsidy $0.0000 $0.0000Distribution Margin (from Tema to BOST) $0.0000 $0.0000BOST margin $0.0000 $0.0000Transport margin (Oil marketers) $0.0000 $0.0000gross margin (distributor) $0.0000 $0.0000Estimated Biodiesel Pump Price $0.7576 $0.7467

61

COCONUT MINING MODEL Estimated Cost of coconut biodiesel B100 Ghana Ghana no margin

US$/L GHC/L % of CostFeedstockCost of Maintenance (equivalent to 1 liter of oil) $0.2576 2,318.30 $0.2576Farm gate price for nuts equivalent to 1 liter of oil $0.7556 6,800.00 $0.2576Transport Cost $0.1662 1,496.00 $0.1662Oil oil extraction cost $0.0324 291.97 $0.0324Estimated sale price of coconut oil per lt $0.9542 0.00 71.34% $0.4563Cost to Transport Feedstock (Takoradi-Accra) $0.0224 201.60 1.67% $0.0224Biodiesel Production Financing* $0.0081 72.90 0.61% $0.0081Depreciation $0.0115 103.50 0.86% $0.0115Electricity $0.0026 23.84 0.20% $0.0026Labor $0.0034 30.23 0.25% $0.0034Causstinc Soda $0.0059 52.80 0.44% $0.0059Methanol $0.3003 2,702.50 22.45% $0.3003Margin for Biodiesel Producer $0.0262 $0.0111 235.51 1.96% $0.0111ex Production Plant Price $1.3195 11,875.24 $0.8215Gov and DistributionTaxes and Levies $0.0000 0.00 0.00% $0.0000Government subsidy $0.0000 0.00 0.00% $0.0000Distribution Margin $0.0000 0.00 0.00% $0.0000Blending $0.0017 15.14 0.13% $0.0017Biodiesel producer margin $0.0111 99.90 0.83% $0.0111Transport margin (biodiesel plant to storage/blending) $0.0053 48.00 0.40% $0.0053gross margin (distributor) $0.0000 0.00 0.00% $0.0000Estimated Biodiesel Pump Price B100 $1.3376 12,038.28$ 101.13% $0.8396

78.85% 12.27%Estimated price of coconut oil per MT 1,037.20$ 495.93$

Estimated Cost of B5 Blend Ghana GhanaUS$/L GHC/L % of Cost

Biodiesel Ex-Production Plant Price $1.3195 $0.8215Distribution Margin (from plant to blending) $0.0056 $0.0056Blending $0.0017 $0.0017Biodiesel Ex-refinery cost $1.3268 $0.8288Diesel Mining Pump Price including taxes $0.7479 $0.7479Blended B5 Ex-refinery cost $0.7768 100.00% $0.7519Gov and DistributionTaxes and Levies $0.0000 $0.0000Government subsidy $0.0000 $0.0000Distribution Margin (from Tema to BOST) $0.0000 $0.0000BOST margin $0.0000 $0.0000Transport margin (Oil marketers) $0.0000 $0.0000gross margin (distributor) $0.0000 $0.0000Estimated Biodiesel Pump Price $0.7768 $0.7519

62

PALM OIL MINING MODEL

USD/Lt % of totalFeedstockCost of Feedstock Cost of transport fruit to oil extraction plant Cost of oil extraction OilEstimated oil cost 0.3560Transport oil to biodiesel plant (Takoradi - Accra) 0.0224 BiodieselFinanacing 0.0081 Depreciation 0.0115 Electricity 0.0026 Labor @ minimum wage (30,000 cedis/day) 0.0034 Caustic Soda (including transport) 0.0059 Methanol (including transport) 0.3003 Biodiesel Ex-production plant cost 0.7102 Taxes and Levies - Government subsidy - Distribution Margin - Biodiesel Producer Margin 0.0111 Transport margin (oil marketers) - Gross margin (distributors) - Ex-pump price B-100 0.7283

B - 5Transport to blending 0.0053Blending Cost 0.0018 Ex refinery price of Biodiesel 0.7354 B5 (at 5%) 0.0368 Diesel (at 95%) 0.7105 Ex pump price at the Mine of B-5 0.7473 Taxes and Levies - Government subsidy - Distribution Margin - Transport margin (oil marketers) - Gross margin (distributors) - Ex-pump price B-5 0.7473

Farm gate priceUSD/Lt % of total

0.41830.0224

0.0081 0.0115 0.0026 0.0034 0.0059 0.3003 0.7725

- - -

0.0111 - -

0.7906

0.00530.0018 0.7977 0.0399 0.7105 0.7504

- - - - -

0.7504

Farm gate price

63

APPENDIX VI

PRICE COMPETITIVENESS WITH CRUDE OIL No tax for biodiesel produced

Jatropha BC Jatropha Coconut BC Coconut Palm Oil BC Palm Oil

Biodiesel Ex-Refinery Cost 1.0921 0.7231 1.3811 0.8582 0.7977 0.7354

Diesel Ex-Refinery cost 0.5022 0.5022 0.5022 0.5022 0.5022 0.5022

Taxes and Distribution 0.2457 0.2457 0.2457 0.2457 0.2457 0.2457

Percent % difference 168.54% 95.06% 226.09% 121.96% 109.92% 97.51%

Approx. Price of oil (barrel) 03/16/07 60.88$ 60.88$ 60.88$ 60.88$ 60.88$ 60.88$

Estimated Price of oil needed (barrel) Price of oil 3/16 * % difference needed 102.61$ 57.87$ 137.64$ 74.25$ 66.92$ 59.36$

Pump diesel price (march 16) 0.7479 0.7479 0.7479 0.7479 0.7479 0.7479needed Diesel Ex-Refinery Cost (Lt) 0.8464$ 0.4774$ 1.1354$ 0.6125$ 0.5520$ 0.4897$

New Diesel pump price (B5) 1.0921 0.7231 1.3811 0.8582 0.7977 0.7354

No Tax break

JatrophaBest Case Jatropha Coconut

Best Case Coconut Palm Oil

Best Case Palm Oil

Biodiesel Ex-Refinery Cost 1.1289 0.7231 1.4291 0.8582 0.8183 0.7529

Diesel Ex-Refinery cost 0.5022 0.5022 0.5022 0.5022 0.5022 0.5022

Taxes and Distribution 0.3179 0.3179 0.3179 0.3179 0.3179 0.3179

Percent % difference 224.79% 143.99% 284.57% 170.89% 162.94% 149.92%

Approx. Price of oil (barrel) 03/16/07 60.88$ 60.88$ 60.88$ 60.88$ 60.88$ 60.88$

Estimated Price of oil needed (barrel) Price of oil 3/16 * % difference needed 136.85$ 87.66$ 173.24$ 104.04$ 99.20$ 91.27$

needed Diesel Ex-Refinery Cost (Lt) 1.1289$ 0.7231$ 1.4291$ 0.8582$ 0.8183$ 0.7529$ New Diesel pump price (B5) 1.4468 1.041 1.747 1.1761 1.1362 1.0708Diesel price @ pump 03/16 0.8201 0.8201 0.8201 0.8201 0.8201 0.8201

Tax Break only for Biodiesel (5% cut)Jatropha BC Jatropha Coconut BC Coconut Palm Oil BC Palm Oil

Biodiesel Ex-Refinery Cost 1.1289 0.7231 1.4291 0.8582 0.8183 0.7529

Diesel Ex-Refinery cost 0.5022 0.5022 0.5022 0.5022 0.5022 0.5022

Taxes and Distribution 0.3066 0.3066 0.3066 0.3066 0.3066 0.3066

Percent % difference 179.99% 99.18% 239.77% 126.09% 118.14% 105.12%

Approx. Price of oil (barrel) 03/16/07 60.88$ 60.88$ 60.88$ 60.88$ 60.88$ 60.88$

Estimated Price of oil needed (barrel) Price of oil 3/16 * % difference needed 109.58$ 60.38$ 145.97$ 76.76$ 71.92$ 64.00$

liters per barrel (including refinery cost) 121.23 121.23 121.23 121.23 121.23 121.23needed Diesel Ex-Refinery Cost (Lt) 0.9039$ 0.4981$ 1.2041$ 0.6332$ 0.5933$ 0.5279$

New Diesel pump price (B5) 1.2218 0.8160 1.5220 0.9511 0.9112 0.8458Diesel price @ pump 03/16 0.8201 0.8201 0.8201 0.8201 0.8201 0.8201

MINES

NATIONAL MODEL -

NATIONAL MODEL -