Ethiopia inks bioenergy pact to cut fuel bill

Ethiopia’s state Minerals Corporation signed a memorandum of understanding with UK-based Sunbird Bioenergy on 24 October 2025 to develop an integrated bioenergy programme spanning ethanol, biomass power and related green-industrial inputs. The accord signals Addis Ababa’s intent to leverage domestic feedstocks—sugarcane molasses, bagasse, and starch crops—to curb imported fuel dependence and stabilise foreign-exchange pressures after a volatile year for the birr (ETBUSD).

Officials briefed that the MoU envisages a phased approach: fast-track rehabilitation of dormant distillery capacity linked to state sugar estates; new build modular ethanol units near high-yield cane zones; and co-generation upgrades using bagasse to displace diesel-fired captive power. Initial pilots target transport-fuel blending at E10–E15, with scope for E20 as supply and vehicle compatibility improve. The programme would also explore biomethane for industrial heat and, at a later stage, green-chemicals precursors for fertiliser value chains.

The macro case is straightforward. Fuel imports are a persistent drain on FX reserves; even with BRENT hovering in the high-80s, Ethiopia’s petroleum bill ties up scarce dollars and amplifies inflation pass-through when the DXY is firm. Substituting a measurable share of gasoline with locally produced ethanol could flatten the country’s external-financing requirement, while bagasse-based power helps stabilise grid reliability for industrial parks. For a landlocked economy managing logistics through Djibouti, every barrel displaced domestically reduces transport bottlenecks and price volatility.

Execution, not concept, is the critical risk. Ethiopia’s sugar sector has suffered from periodic under-investment, agronomy shortfalls and factory downtime. Reviving distilleries demands agronomic yield gains, irrigation reliability, and working-capital lines in hard currency for enzymes, catalysts and spares. Blending mandates must be sequenced with standards and distribution upgrades, ensuring engine-compatibility guidance for a vehicle fleet dominated by used imports. Land-use governance will determine whether second-generation feedstocks—agricultural residues and energy crops on marginal land—scale without food-security trade-offs.

Financing contours point to blended capital. Sunbird typically deploys a mix of sponsor equity, development-finance debt and concessional climate funds; the Minerals Corporation can contribute offtake certainty, land access, and regulatory fast-tracking. Carbon-credit revenue may sweeten project returns if monitoring, reporting and verification systems meet Article 6 or voluntary-market standards. A credible tariff for co-generated power and a transparent excise framework for ethanol will be decisive for bankability.

Regional precedents offer lessons. Southern Africa’s ethanol programmes show that consistent cane supply, robust logistics and predictable pricing floors anchor investor confidence more than headline blending targets. For Ethiopia, early wins will likely come from rehabilitating existing mills and tying distilleries to industrial-park demand where power and steam integration lower unit costs.

If pilots commission within 12–18 months, Ethiopia could edge toward a structural reduction in its imported fuel share by 2027, modestly easing pressure on ETBUSD while creating rural jobs along cane and residue value chains. Success would broaden the Minerals Corporation’s remit beyond extractives into transition-aligned industry, aligning with policymakers’ aim to convert resource-base advantages into energy-security and FX resilience.