This document presents the proposed South African Biofuels Industrial Draft Strategy, outlining Government approach to addressing policy, regulations and incentives. Internationally, biofuels are growing, due mainly to higher oil prices, concerns with environment and government policies, regulations and incentives that support this indigenous and renewable fuel source over fossil fuels.

Sustainable supply of biofuels requires low cost, high yield and surplus agricultural production. The Biofuels draft strategy aims to achieve a biofuels average market penetration of 4.5 %, of liquid road transport fuels (petrol and diesel) in South Africa by 2013, which is achievable without excessive support by utilising surplus agricultural capacity. Until this target is achieved, licensed biofuels producers will have a linked licence condition for petroleum wholesalers to accommodate qualifying production volumes at Basic Fuel Price (BFP), which is the import parity price for local petroleum producers and is an element of fuel price mechanism, related pricing, less discounts for added handling costs.

The existing fuel levy exemption and support mechanism should continue and be adjusted, if necessary, and as shown possible, to assist the target being achieved. Further support to establish this industry would come from targeting of existing agricultural support programmes. If the oil price were below $ 45/bbl, biofuels producers would need some form of additional support, and for prices above $ 65/bbl, the biofuels industry would pay in, slightly reducing pump price increases. This would be catered for by the Central Energy Fund (CEF) Act

Equalization Fund Levy as a balanced hedge with consumers, and at minimum expected oil price of $ 35/bbl would require fuel price support of less than 1.2 SA cpl. Government agencies should be urged to invest in projects that facilitate the development of this infant industry, particularly linked to Black Economic Empowerment (BEE) participation and for higher risk projects supporting development of new crops on currently underutilised arable land.