Development of Cogeneration Project
Mumias Sugar Company continues to invest in the Cogeneration Project, a means of producing heat and electricity from the baggasse produced in a sugar factory. The processing of sugar cane results in the sucrose being extracted and the hard part of the cane left as waste product. 100 tons of sugar cane may produce as much as 17 tons of baggasse. The Cogeneration products offer a means of converting the waste into a profitable by-product since the cost of disposing the same is very high.
Currently a third of the bagasse produced by Mumias can produce enough steam and electricity to effectively meet the factory’s requirements. Presently, Mumias exports the surplus electricity produced, also known as Combined Head and Power or CHP, at a rate of 2.2 MWh to the National Grid.
The project undertaken by the Company is aimed at substantially boosting the electrical power export through the reduction of energy wastage in the production of sugar and in the conversion and handling of electricity. The project will enable Mumias to exploit 50% of the full cogeneration potential, thus allowing Mumias to export 25 MWh to the National Grid. With the Government of Kenya’s Least Cost Power Development Plan 2006 – 2026 of May 2005, projected demand for electricity in Kenya is expected to grow from 6,561 GWh in 2005 to 13,920 GWh in 2014 giving projected annual growth in demand of 8.7% over the nine year period. Mumias is investing KShs 1.5 billion in a new 45 bar boiler and Turbine Alternators, intended to increase the current capacity to 35 MWh.
It is expected that this will be financed via a combination of debt (70%) and internally generated funds (30%). Further investment and the development of more efficient technologies will enable Mumias to exploit the remaining potential, which will prove invaluable in the future. The Cogeneration project provides Mumias with an alternative source of revenue to compliment its primary production of sugar. At present, Mumias sells its 2.2 MW production at KShs 3 a KW unit. A Mw contains 1,000 KW. Mumias operates for an average of 6,900 hours a year. Development of the Ethanol Sector
Ethanol can be produced from any biological feedstock that contain appreciable amounts of sugar or materials that can be converted into sugar such as starch or cellulose. Sugar cane and cassava are two major examples of crops with high sucrose or starch content. Brazil, the world’s largest producer of both sugar and ethanol prefers sugar cane as the raw material of choice for ethanol production. The growth of ethanol fuels as an alternative to conventional fuel commodities such as oil presents a unique opportunity for Mumias Sugar Company to diversify its product range.
Because of limited crude oil supplied and refining capacity, and rising concern over environmental degradation, there is a good market outlook for ethanol. With this in mind, Mumias Sugar Company has launched a pre-feasibility study into the viability of ethanol production. The results of the pre-feasibility study are promising. The study indicates that Mumias could convert its molasses output into 65,000 litres a day of ethanol. The annual production estimates suggest that ethanol production will not displace the sugar production but it will utilize the molasses output. Mumias sells its molasses at an average price of Kshs 1,200 a ton. A ton of molasses can be converted into 220 litres of ethanol.
Kenya consumed an estimated 1.4 bn litres of petrol and diesel products in 2005. A blend ration of 10:1 petrol/diesel to ethanol would have a market size of 140 million litres. The domestic sugar industry produced 168,124 tonnes of molasses in 2005 that could possibly be converted into roughly 37 million litres of ethanol or just 2.6% of the total petrol products. The numbers of vehicles have been increasing in the past three years. The number of new car registrations stood at 45,600 in 2005 compared to 26,000 in 2001. A bill favouring ethanol blending could reduce the import bill by USD 20 million annually at present capacity. It is not easy to estimate the possible ex-factory price of ethanol. However the most prudent benchmark is probably the pre-tax price of petrol. The price of a pre-tax litre of petrol in September 2006 was approximately Kshs.40. The Joint Venture with Tana/Athi River Authority (TARDA)
The Company is in discussions with TARDA on the development of a parcel of land for a sugar factory with capacity to crush 6,000 tons of cane a day. The joint venture may require more funding than can be provided by internal sources. The venture is expected to include co-generation and ethanol production. The venture will be supplied by a nucleus estate. The sugar cane will be grown by irrigation instead of the rain fed system currently in place in Western Kenya. The management of the venture should have more control on variables such as planting, harvesting, water supply, transport and plant maintenance. Sugar cane growth requires favorable warm temperature for optimal growth therefore the locality should also reduce the average time required to grow cane.
Newer sugar factories are usually more efficient than older varieties. The most efficient rain fed factory could possibly produce sugar at Kshs.24,000 a ton. The more efficient factories in the COMESA have production costs of less than Ksh.20,000 using irrigation. The irrigated cane is normally early maturing variety of 10 – 12 months of age. The yields from irrigated estates record from 120 – 150 tch compared to the 70 – 100 tch from rain fed farms. A regime of water control can boost sucrose content in the irrigated sugar cane to 15% compared to 13.5% average for rain fed sugar cane. Overall the costs of cane are lower for irrigated cane due to higher efficiencies. Acquisitions
Mumias is on the look out for expansion through acquisitions of sugar mills that can add shareholder value. The GoK’s desire to divest from the sugar companies may provide MSC with an opportunity to acquire one or more state owned factories. The East African Community may also offer opportunities with Uganda and Tanzania Governments respectively reducing their participation in private enterprises.
The Board of Directors and Management are cognizant of the challenges facing the industry and the Company. There are strategies in place to introduce new products such as ethanol production, expanding co-generation, new packages for various market segments, capacity expansion and modernization, investment in computer technology and improved supply chain management for overall efficiency in the Company |
