The Ethanol Option

Dec 28, 2008 Features / Columnists, Ravi Dev

---

In the effort to lower the overall costs of production in the Demerara sugar plantations, over the past month, we have stressed the necessity for reconceptualising the operations as units within a sugarcane industry.

Since all the downstream consumer or industrial products depend on the sugarcane feeder stock, the need to produce the latter at the lowest possible cost has to be brought to the centre of any strategy to create a viable industry.

While the administration recognises the need for shaking up the present management team from their complacency, there has to also be a complete reorganisation of that team to deal with the new orientation. The field operations will have to be given greater weight in the allocation of management responsibilities and consequently a commensurate increase in management status and remuneration.

The field will have to be accepted as the place where “the action is” – especially in the Demerara Plantations, where the soils and rainfall (heavy) are least favourable for the cultivation of sugarcane. We will have to retain or regain some “old head” field managers who will ensure that we do not embark on inappropriate innovations such as “high density planting” taken from the totally different Australian experience.

Corruption, which eats away at least a quarter of the profits of the industry, must be tackled vigorously.
To receive the maximum selling price for the sugar produced in Demerara – the packaged variety from the Enmore Packaging Plant – we suggested that we get our act together on the value conferred on it under the Geographical Indications protection conferred by the WTO TRIPS agreement.

Surely we can obtain the necessary financing for the initiative from the billions of dollars GuySuCo expends for “marketing” to the EU market – secured and maintained through government ministrations – and to Caricom, at a loss. Demerara Sugar is a potent name and must be recaptured from the sugar pirates of the world.

We envisage that if our GI rights are secured, we will have to actually increase the production of sugar from the Demerara Plantations. This can most easily be accomplished by working out a comprehensive plan to induce farmers on the East Coast back into sugarcane cultivation: the acreage in that region can be doubled while providing much-needed employment for the underemployed.

While GuySuCo may not want to diversify outside of sugarcane, maybe the administration can introduce the small scale farmers (also those on the West Bank) to the practice of intercropping, which is practised in several sugar producing countries such as China and Egypt. The cash crops generated should lower the farmers’ costs considerably and in the case of legumes, add to the fertility of the land.

In the diversification drive, it was proposed to use of the press-mud and wash, which are waste products in the production of sugar and alcohol, for the production of bio-gas (methane). The technology has already been introduced by DDL in Guyana.

The generation of electricity from bagasse, it was suggested, ought to be made a standard feature of every sugarcane unit operation, which will have to be consolidated for economies of scale. The government should establish national goals for the production of electricity that can be sold to the national grid.

Mauritius is presently providing enough electricity from bagasse that would satisfy our total demand from not much more sugar production than the 400,000 tons we are projecting as our goal. We would also benefit from carbon credits. Bagasse is also used to make paper and “chip board”, and we should invite private investment in these technologies.

Finally, there is the ethanol option. The production of anhydrous ethanol from molasses or sugarcane juice is an established technology that is well within our present skill capabilities gleaned from our production of alcohol for spirits. The ethanol is used as a fuel, mixed with gasoline in varying percentages.

A 10% alcohol mix can be introduced into the engines of vehicles without any modification of the latter. It is proposed that we establish a refinery at the site of whichever factory is closed in the West Demerara operations, which will utilise all the molasses produced by the Demerara Plantations to produce ethanol.

Our national gasoline consumption is approximately 110,000 M litres annually, so for a 10% substitution we will need 11M litres annually. From the exhausted molasses of 1 ton of sugar cane, 8.8 litres of ethanol can be produced therefore from the average 1.2 million tons of sugar cane produced from the Demerara plantations we could obtain 10.6 M litres. With increased productivity and farmers’ cane from the East Coast, we could supply all our present potential use of 10% ethanol substitute from the Demerara Plantations.

One study showed that using an US$83 per ton cost for molasses, the cost of producing 1 litre of ethanol would be close to US39 cents. A plant with this production capability would have cost US$6.5 million in 2005 and employ probably one hundred persons. With gasoline plunging below US$50 per barrel – which we see as a medium term baseline – our retail cost presently is US61cents per litre.

If we were to sell the substituted ethanol at the same price of gasoline, the Ethanol Operation would be earning US22 cents per litre or US$2.32 million per year. Even with operating expenses the plant would easily pay for itself in five years. In addition to the profits earned, there would be the conservation in foreign exchange.

We’re not suggesting that any of the proposals we have made are going to be easy to implement: the human resource challenge in Guyana by itself is daunting enough.

But it is because of those challenges that we have to, as the Minister of Agriculture recently proposed, think outside of the box. The Skeldon Modernising Project has stretched the government’s capital spending to the limit and for several of the projects, private investment may be necessary.

The level of sustained high agricultural attention demanded by the Demerara Plantations may need unique partial divestment that could see the land parcelled out in units of fields of 100 acres each to workers/farmers.

The manufacturing units could also be divested, with workers rewarded with Employee Stock Ownership Plans (ESOPs). The bottom line, however, is that the survival of the sugar cane industry demands fundamental changes – immediately.

---

---