(First published in Stabroek Business News September 2005 and now with a 2010 Conclusion)
By Peter R. Ramsaroop, MBA
Introduction
In September 2005, Guyana signed an agreement with neighbouring Brazil to provide us with the technology used to produce ethanol. Ethanol, simply put, is a high-octane fuel produced from sugarcane that can be used as an alternative or additive to petrol.
With the European Union’s decision to halt preferential pricing to ACP countries, this technology certainly offers us another viable means of sustaining our sugar industry. However, if we play our cards just right, ethanol could be more than just a quick fix in the face of a scary fiscal situation. It would be wise for us to aggressively pursue this alternative given the declining prices we are going to be getting in our historic sugar markets, to stem the potential job losses for sugar workers from a declining sugar industry, and to reduce our dependence on imported fossil fuels which consume a significant proportion of our foreign exchange earnings.
Brazil, the world’s leading producer of sugar, is also the world’s leading producer of ethanol. The country started out on a small scale simply to make itself less dependent on the rising cost of petrol; the type of fuel that keeps our cars on the streets each day. However, as the demand for ethanol consistently grew, Brazil became a model for research and use of this new fuel.
In fact, demand for ethanol in Brazil is so high that it is expected that two out of every three new cars sold will be Flex cars, short for flexible fuel. Flex fuel is a mixture of 85% ethanol and 15% petrol. A Scottish newspaper had published an article about the agreement between Brazil and Guyana. This article quoted the then new president of Ford Brazil as saying, “Demand has been unbelievable. I am hard pressed to think of any other technology that has been such a success so quickly.”
Could we get ahead of the trend?
When we signed the ethanol cooperation agreement with Brazil in 2005, I asked if it was that Guyana was actually on the front end of a trend that could solidify our economic future in the global market. If ethanol production and use is actively promoted as part of a strategic investment plan for Guysuco, ethanol could hold great promise for Guyana.
The immediate benefits would be internal. Most new and many older vehicles are capable of running on E10 – a mixture of 10% ethanol and 90% unleaded gasoline. Much of the gasoline sold in the US is E10. From the very start, Guyana can start using this mixture with ethanol that is produced right here in the country. This can both help stabilize fuel prices as well as reduce our gasoline imports.
In time, as in Brazil, we can start to use gasoline with a higher mixture of ethanol – further decreasing our dependence on high priced oil. High fuel cost has a rippling effect on our citizens as it affects more than just driving, impacting for example the cost to send our children to school, thus reducing any discretionary dollars our families may have. Hence the immediate influence of ethanol production on our economy could be quite positive.
The rapid development of an ethanol industry would be a positive factor for Guyana through job stability and new job creation in the sugar industry which is the backbone of our economy at present. The Economist magazine had reported that Guyana will be the least affected of the Caribbean countries by the sugar crisis arising from the gradual reduction of the price paid for sugar by the EU because our cost of production is significantly lower, there is still an expected drop in demand because we have to compete with other major sugar producers like Australia and Brazil. (Author’s Note: 2010 – The Economist was wrong in its prediction given government mismanagement of the sugar industry.)
Therefore, the immediate demand for sugar cane to produce ethanol would likely soften the blow to our sugar market and save many jobs that would otherwise be lost. Further, there will also be jobs created to process the sugarcane into ethanol. An economic diversification programme should be undertaken immediately to include other industries such as non-traditional agriculture and technology. This is where the National Development Strategy proposed in 2001 would have been useful if it had been implemented and had the government understood the need to reorient our economy to meet the challenges of competing in a low carbon, low impact global market.
The US currently uses about four billion gallons of ethanol per year and that is expected to increase significantly as oil prices continue to increase and as Flex cars become available for use with higher levels of ethanol like E85. Another plus to consider is that ethanol is also environmentally friendly when used as a fuel. These are all factors that can be selling points for the future export of ethanol from Guyana.
One more unexpected phenomenon in Brazil is that Flex cars are seeing a higher resale value than cars fuelled by petrol. It seems that many are now viewing Flex cars as the wave of the future and the process of weeding out the remaining 100% petrol cars is already in full swing.
If this is true and the trend carries over to other countries now strapped by oil prices, Guyana stands a chance of cashing in on its colonial heritage of being a major sugar producer by simply applying some modern technology and innovation. However, the ever-looming question remains as to whether current GuySuCo management will actually be able to implement an ethanol production stream.
Unless the government is aggressively working with the private sector in true public/private partnership and is truly ready to encourage investment to get this new technology up and running, we could be looking at one more dynamic potential economic sector not exploited as we watch another opportunity pass us by. The time for creating and implementing a plausible ethanol production strategy is now because ethanol could well be Guyana’s ticket for a more diversified economy and an infusion of jobs and wealth for our citizens.
2010 conclusion
The world is not going to wait for Guyana to get its ethanol production act together. However GuySuCo management seems to have its head stuck in the mud as in its plan for revitalisation of the sugar industry, it has, in its wisdom recommended that investment in ethanol production be pushed down the road rather than fast tracked.
Had Guyana implemented these plans since 2005 we would be in a position now to save on oil imports. With an E10 policy Guyana could save approximately US$15 mill each year. The savings will be greater when oil prices increase again to above US$100/barrel. By saving on oil imports we also diminish our dependence on Venezuela (the PetroCaribe Agreement), which claims 5/8 of Guyana’s land. The Demerara and West Berbice sugar estates could be saved and jobs created and preserved. Had we done this we could be thinking today about moving beyond E10. We could have been in a position to look at other forms of renewable energy. The AFC does not believe in a silver bullet approach to renewable energy – we prefer a portfolio of renewable energy sources such as ethanol (from sugar and eventually from feed stocks), bio-diesel (from coconut), co-generation from bagasse and coconut shells/husks, localized small and medium scale hydro and wind energy for places like Wakenaam and Leguan. This is what distinguishes our green policies from the LCDS. The LCDS is a silver bullet approach which depends on receiving US$580 million per year.
Until next time “Roop”
Send comments to peter.ramsaroop@gmail.com
