In a bid to alleviate its dwindling foreign currency reserves, the Ethiopian government has implemented a series of measures, including expanding restrictions on non-essential imports to even non-luxury items such as fuel-powered vehicles.
This shift towards import substitution not only aims to foster long-term domestic industry development but also offers a short and medium-term solution to the country’s two-pronged foreign currency shortage. One prime instance is the transition from relying on coal imports to boosting domestic production.
Ethiopia currently finds itself burdened with an annual expenditure of a staggering USD 300 million on imported coal, further straining its already limited forex reserves, which now cover just three weeks or less of imports.
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With an annual demand standing at 1.5 million tons, coal is a crucial energy source for the country’s cement, iron, ceramic, and textile industries. However, this reliance on foreign sources has left the nation vulnerable to volatile international markets and economic fluctuations.
The government’s 10-year development plan outlines ambitious goals for the establishment of heavy industries, including steel, chemical, and machinery, all of which heavily depend on a consistent and abundant energy supply primarily sourced from coal.
To reduce this reliance on imported coal, the Ministry of Mines issued licenses to local investors to produce coal within the country, with the goal of completely replacing coal imports with locally sourced production within the next three years.
Former Minister of Mines, Takele Umma, announced in January 2022 granted licenses to eight local investors to refine domestic coal, aiming to enhance its quality and reduce impurities.
Initially targeting complete substitution of coal imports by the end of 2023, these local investors were given a one-year ultimatum to achieve self-sufficiency. The companies were expected to beneficiate 4.2 million tons of coal. However, the harsh realities of the mining industry’s complexities have proven this goal to be far from attainable.
Presently, Ethiopia still depends on imports for 35 percent of its annual coal demand, according to Bisrat Kebede (PhD), general director of the Mineral Industry Development Institute under the Ministry of Mines, highlighting the challenges on the path to self-reliance.
Domestic coal production has met 65 percent of the country’s demand so far, with over 380 licensed producers, mostly small-scale operations, located in regions such as South Ethiopia, Southwest Ethiopia, Benishangul Gumuz, and Oromia.
However, only a fraction of these licensed producers, approximately 40, are actively engaged in production.
To address this gap, the General Director says the Ministry of Mines under the leadership of Habtamu Tegegne has recently collaborated with various stakeholders to develop a strategic document aimed at effectively utilizing domestic coal resources and substituting imports. This document includes a comprehensive survey of existing coal production areas and laboratory analysis of coal samples to ensure quality.
“The primary motivation behind this initiative is to conserve foreign currency expenditure on coal imports and to create job opportunities in the domestic mining sector,” said Bisrat.
Coal, the second-most used source for power generation globally, remains a key player in the world’s energy landscape. In 2022, a staggering 36 percent of the world’s electricity was generated from this fossil fuel, with its significance continuing to grow in many parts of the world.
China stands out as the largest consumer of coal, relying on it for nearly 60 percent of its electricity supply. Other major coal users include Germany, where coal-fired power plants contributed 33.3 percent to the country’s electricity generation, and the United States, where coal accounted for 19.7 percent of electricity production in 2022, down from 54.6 percent between 1990 and 2022.
India, another prominent player, relied on coal for a striking 73 percent of its total electricity generation, while Vietnam’s average coal dependency stood at 38 percent in 2022. South Africa, a key coal supplier to Ethiopia, generated over 80 percent of its electricity from this fossil fuel. These figures demonstrate the enduring importance of coal in powering nations’ industrialization and economic growth.
The importance of coal in industrialization cannot be overstated. It played a pivotal role in enabling the Industrial Revolution by providing abundant energy to power machinery, particularly through the utilization of steam engines. This marked a significant shift from reliance on wind and water to coal for generating mechanical energy.
Sufficient coal reserves are essential for industrial growth, as industries heavily rely on coal-derived energy to fuel their operations. In Ethiopia, around 250 million tons of coal deposits exist in regions like Chilga, Jima, Kamashi, and Dawro, albeit with some limitations in terms of quality and distribution.
Despite declines in coal consumption in certain regions like the US and Europe, global coal consumption reached an all-time high in 2023, driven by increasing demand from countries like China, India, and Southeast Asia.
Exploring the potential benefits of coal as a viable substitute for diesel oil, researchers suggest that it could offer advantages such as foreign currency savings for Ethiopia. However, significant challenges such as high ash and sulfur content, as well as sporadic distribution of deposits, hinder the realization of this potential.
Several hurdles stand in the way of Ethiopia’s import substitution goals. Challenges encountered in scaling up domestic coal production include issues related to poor production quality, backward production methods, underdeveloped supply chain logistics, licensing, and management, according to Bisrat.
The major problem is the relatively low quality of domestically produced coal. A substantial portion of domestically produced coal falls short of the quality standards required by industries like cement production, necessitating value addition processes that can add complexity and cost.
Many Ethiopian coal producers still rely on rudimentary mining methods, hindering efficiency. Lack of modernization of these techniques affects the scale-up of coal production, according to Bisrat.
The lack of proper infrastructure, particularly in transportation, presents a significant obstacle, says Bisrat. Difficulty in transporting extracted coal from production sites to factories, as well as limited access to electricity, hinders mining operations.
As the engines of Ethiopia’s industrial attempts to roar to life, it is inevitable that its insatiable appetite for fuel turns to coal. But this crucial energy source is plagued by a persistent problem: quality.
“The scarcity of qualified professionals like geologists and mining engineers hampers exploration efforts and hinders the development of new, efficient mines,” explains Bisrat.
Obtaining financing, particularly bank loans, also proves challenging for many domestic coal producers. Additionally, lack of access to foreign currency for equipment purchases constrain the scale-up of domestic coal production.
The industries that rely most heavily on coal’s heat-generating power include metal, metallurgy, chemical, fertilizer, and cement. In Ethiopia, the cement sector stands out as the primary consumer of this fossil fuel.
Cement factories rely heavily on coal to generate the intense heat required for baking cement. The machinery within these factories demands temperatures as high as 1,400 degrees Celsius to effectively blend raw materials like limestone, clay, and sand, as well as to bake the resulting clinker nodules into cement.
However, the quality of locally sourced coal often falls short of the mark. “Local coal often fails to produce the necessary heat levels,” an anonymous industry expert who works in one of the local cement factories told The Reporter. To compensate, cement factories employ a workaround: Initially heating machinery with oil and higher-quality imported coal to achieve the required temperature, then switching to lower-quality local coal to sustain the heat.
This delicate balancing act comes with significant risks.
Insufficient heat poses multiple risks including inadequate mixing and baking of raw materials, incomplete drying of baked cement (clinker nodules), and potential damage to machinery.
To tackle these challenges, the expert stresses the need for coal beneficiation. “This process involves removing moisture and impurities like pollutants and ash from locally sourced coal to enhance its thermal efficiency and reduce emissions when burned.”
Refinement typically comprises coal washing, crushing, drying, and desulfurization. Washing and crushing eliminate non-combustible materials, reducing ash content and enhancing energy output. Drying eliminates moisture, increasing coal’s heating capacity and combustion suitability. Additionally, desulfurization reduces sulfur content, mitigating emissions during burning.
However, implementing such refinements demands modern technologies and substantial financial investment, which poses significant challenges for local investors, according to the expert.
Moreover, the expert says that the security situation in the country disrupts coal supply chains, as evidenced by a recent incident at the Mugher Cement Factory, where fears of road closures prompted a sudden influx of coal-laden vehicles.
In a far corner of western Ethiopia, a coal refinery is quietly revolutionizing the country’s industrial landscape.
Yo Holdings Trade and Manufacturing plc, a subsidiary of C&E Brothers Steel Factory, has emerged as Ethiopia’s pioneering coal washer plant.
Through an initial investment of a staggering 600 million birr, the company has directed its focus toward coal refinery and beneficiation, to enhance the quality and efficiency of coal. By skillfully blending and effectively eliminating unwanted impurities such as soil, clay, dust, ash, stone, and shell, this refinement process caters to a wide array of industries.
While some industries, like paper and carton factories, can make do with raw, unprocessed coal that produces lower heat, heavy industrial sectors such as cement production demand a higher-quality coal, boasting a calorific value exceeding 5,000 units.
The company’s operations encompass both purification and blending, ensuring a consistent heating capacity that mitigates the risk of machinery damage due to heat fluctuations.
However, situated in the Benishangul Gumuz region, the plant faces a series of formidable security concerns that hinder the smooth transportation of coal to consumers in Addis Ababa. Despite this challenge, Yo Holdings manages to produce an impressive 150 tons of beneficiated coal per hour, operating for eight hours each day and yielding a total of 1,200 tons.
While cement factories constitute an overwhelming 98 percent of the company’s customer base, it has also sets its sights on cultivating partnerships with other industries, including paper, steel, textile, glass, and ceramic. By actively promoting the transition from traditional fuel sources to coal, Yo Holdings aims to foster sustainable practices throughout Ethiopia.
Anthracite, bituminous, sub-bituminous, and lignite are the four distinct types of coal, characterized by varying carbon content. Anthracite, with its superior carbon concentration, reigns as the most coveted variant, while lignite holds the lowest position on the spectrum.
Even though Ethiopian coal naturally falls into the inferior-quality bituminous and lignite categories, the purification process effectively elevates its heat-generating potential.
According to Tewodros Fikre, the marketing director at Yo Holdings, the company adheres to a strict standard of supplying coal with a minimum calorific value of 5,000, effectively meeting the demands of various industries.
However, Yo Holdings faces a host of challenges, including security and transportation issues, skilled labor in the form of mining engineers, and foreign currency shortages that hinder the procurement of spare parts.
To import these crucial components, the company requires an annual sum exceeding USD 200 million.
In an ambitious move, Yo Holdings is also set to expand its operations with the inauguration of a new washer plant in southern Ethiopia next year.
Bisrat told The Reporter that the Ministry of Mines togtehr with the Mineral Industry Development Institute is actively engaged in addressing the existing challenges and aims to ensure independence in coal imports within the next three years. The comprehensive plan involves implementing measures to enhance coal quality and modernize mining practices.
While certain areas yield coal suitable for direct use, Bisrat explained that the majority of regions necessitate value addition through processes like beneficiation.
With just two coal washer companies operating within the country, the domestic demand for clean coal and the concept of import substitution remain far from being adequately met. As the world grapples with the complexities of the energy transition, coal remains a contentious player. Balancing the need for energy security, economic growth, and environmental responsibility poses a daunting challenge for nations heavily reliant on coal.
As Ethiopia’s industrial engine continues to roar, the quest for a reliable, high-quality coal supply remains a critical challenge. Overcoming the obstacles of limited expertise, financing, and supply chain disruptions could be essential to ensuring the country’s industrial growth can be sustained on a foundation of sustainable, efficient energy.
