Can Ethiopia’s Coal Bonanza Substitute Imports?

Coal is the second-most used source of energy globally. Primarily used for power generation, it is the raw material of choice for 40Pct of electricity production worldwide. With an estimated 430 million metric tons of coal deposits in the country, the Ethiopian government is trying to utilize this resource by encouraging small- and large-scale coal producers and investors. As a result, the country has managed to satisfy 40Pct of its annual demand from the local market. However, the quality of the coal produced is of poorer quality compared with imports from countries like South Africa. Resultantly, manufacturers going local are incurring additional costs. EBR’s Ashenafi Endale explores.

Pressured by the massive amounts of unemployed youth demanding more job opportunities, Oromia Region has started handing over coal mining concessions to organized youths three years ago. Close to 170 associations have since received coal mining rights in Yayu, Ilu Ababor Zone beginning June 2018. The site, which had been under the former Metals and Engineering Corporation (MetEC) for seven years, was planned to supply coal for the Yayu Fertilizer Factory. As the construction of the fertilizer plant lagged behind, officials in Oromia decided to cancel MetEC’s right on the coal site.

Since then, the regional governments in Amhara and South have followed suit. However, Oromia leads by handing over coal mining rights to 500 youth-organized associations until June 2020. These associations and their investment partners earned ETB29 million in the last fiscal year.

“Thousands of associated youths are now mining and supplying to various industries,” explains Tesfaye Megersa, Mining Expert at the Oromia Mines and Resources Authority. “There is high demand for coal in the region as there are many cement plants.”

Unsubstantiated estimates put Ethiopia’s potential coal reserves at 430 million metric tons. Though not at the required level, the Ethiopian Geological Survey (EGS) and private companies have conducted detailed studies in some areas with results indicating that the country is greatly endowed in this regard. For instance, a study conducted by Changshi, a Chinese company, reveals that there are 179 million tons of coal reserves in Yayu. The coal production from this site alone can satisfy the nation’s demand for over 40 years.

Abundant coal deposits have also been found in areas like Gojeb, Chinda, Kindo, Halul, and Wake in South Region, in Wuchale in Amhara Region, and in Arjo, Nejo, and Mendi in Oromia Region.

By expanding coal mining in these areas, the government hopes to save the precious foreign currency the country spends importing coal. Ethiopia annually spends USD220 million to import 670,000 tons of coal, mainly from South Africa. This covers only 60Pct of the estimated demand of 1.1 million tons, with the balance fulfilled by local small-scale producers.
The Ethiopian Petroleum Supply Enterprise is the major importer and supplier of coal to the economy. National Oil Ethiopia (NOC) is a private importer. Cement, textile, marble, and ceramic factories are among the majors using coal as a source of energy.

Habesha Cement is one of the factories with a huge appetite for coal. As of two years ago, the cement factory used to consume an annual 110,000 tons of imported South African coal. Since 2019, however, the factory is satisfying its coal appetite by procuring locally. “Only Habesha Cement uses 100Pct local cement,” Frehiwot Fekadu, Communications Director at the Ministry of Mines and Petroleum, informs EBR. “Factories source up to 40Pct of their coal demand locally.”

Yet, Mesfin Abi, CEO of Habesha Cement, says local coal has poor quality owing to its high content of impurities like ash. “As a result, its energy output is less than that of purified coal imported from South Africa,” Mesfin explains. “This brings additional costs for the factory.”

The average heating value of local coal is 4,500 to 5,000 kilocalories per kilogram. On the other hand, the average energy output of imported coal is 6,000 kilocalories per kilogram. The price of the imported coal is USD147 per ton and around USD230 including logistics cost. Whereas the local coal is sold for around USD67 per ton.

“After we started using local coal, we have been consuming 160,000 tons per year. This is 50,000 tons higher when compared to the time we used imported coal,” says Mesfin. “As a result of the volume increment, the factory is forced to incur more cost, apart from high spare parts spending.”

Frehiwot agrees with the fact that local coal contains rock fragments, sulfur, moisture, ash content, and other impurities. “If purified, it can generate higher energy, equivalent to imported coal. But as it is, we are receiving a lot of complaints from factories.”

Coal resources appear to be quite widespread throughout Ethiopia, alongside the impurities. The solution for poor quality is the installation of coal washing plants in the country. This process eliminates impurities using water and mechanical techniques and is a widely used method to boost the efficiency and quality of coal.

Thus far nonexistent in Ethiopia, the owners of C&E Brothers Steel Factory who are engaged in the production of iron, steel and reinforcement bars, are installing a coal washing plant expected to begin operations within the next five months.

“By eliminating impure contents, this coal washing plant will give local coal an equivalent energy output level with South African imports,” says Mekuanint Alemu, Founder and General Manager of C&E Brothers Steel.

In addition to the quality problem, local coal prices are dramatically increasing. Haile Assegide, CEO of Derba Cement and President of the Cement Industries Association, underlies that reliable coal supplies determine the actual output of cement factories. “Although Derba Cement is using more and more local coal, price hikes are putting pressure on the company,” informs Haile. “Within the last two years, prices have rocketed from ETB3,200 to 4,975 per ton.” The plant currently satisfies 80Pct of its coal demand locally, while importing the rest.

Lack of investment, low production, and supply shortages are the main reasons behind price increments. The government’s strategy of handing over coal mining sites to youth associations could not bear fruit as they lack knowhow, machinery, technological, and managerial capacity to produce quality coal in bulk. Eyasu Mamo, Mining Expert at the Mines and Energy Agency in South Region, says the performance of the majority of small-scale coal mining sites located in the region is not satisfactory. “We have given many sites to local youth associations. This is because coal is considered a community resource and local people are allowed to extract at small-scale levels,” he says. “However, they have not even undertaken feasibility studies, let alone started production.”

“Industrial-level mining is a must if cement factories are to get consistent and quality coal,” Mesfin argues. “The government must encourage large-scale investors who can extract in bulk, purify, and supply directly to cement plants.”

According to Eyasu, small-scale coal miners do not have the required machinery to produce, store, and transport, let alone purify. “These associations cannot develop the necessary road, water, and other required infrastructure on the coal sites. They took the mining locations without preparations.”

Small-scale coal miners are registered by regional governments whereas large-scale investments are licensed at the federal level. The only large-scale local investor in the sector is the owner of C&E Brothers Steel Factory with its investment of ETB600 million on five coal mining sites located in the state of Benishangul Gumuz.
The other large-scale investor is Crypto, an Indian company. Its request for a coal mining license in Dawro, South Region is currently under progress.

Although coal is an affordable source of energy accounting for 40Pct of total global energy production, various studies depict the hazardous impacts of coal mining on the environment. In Ethiopia, such licenses are given only after the Environment, Forest, and Climate Change Commission approves that the miner has enacted all safety standards. However, small-scale localized coal mining outfits usually sideline safety protocols.

Kassahun Kelifa (PhD), on his 2017 research publication “Balancing Coal Mining and Conservation in South-west Ethiopia,” argues that coal mining in Yayu, by the former MetEC, devastated the wild coffee arabica, naturally thick forest, and biodiversity on hundreds of hectares in the area.

Another research, “The Resource Potential of Coal in Ethiopia” published by Demeke Fantaw in 2019, maintains that raising the coal industry in Ethiopia without adopting state-of-the-art technologies first, would damage the environment. Using technology including integrated gas combined cycle, carbon capture and storage, and coal-to-liquids—all capable of absorbing and reducing large amounts of CO2 and other poisonous gases and elements—is critical, according to Demeke. EBR

9th Year • Apr 16 – May 15 2021 • No. 97