Fuel is the biggest expense for the transport sector. To reduce the operating costs of Kenyan companies, entrepreneur Daniel Mugenga is transforming used vegetable oil into biodiesel that can be used by trucks and cars. Recently he discovered a way to increase his production by using marine algae and Daniel is currently fundraising on the VC4Africa website to expand his Mombasa-based business Pure Fuels Ltd.
Can you describe Pure Fuels in under 50 words?
How did you get the idea to source used vegetable oil needed to produce biodiesel?
“I have been managing operations in a family transport company with a fleet of trucks for almost seven years. Fuel is its biggest expense. Back in 2008 frequent price fluctuations and shortages led me to research alternatives. We started off using jatropha oil, but when its price went up it was no longer profitable. Having invested in the machinery, we switched to the next quickest alternative which is used cooking oil. We source it from several of the tourist hotels along the Kenyan coast.”
What are the pros and cons of biodiesel?
“Biodiesel is a superior to fossil diesel hands down. I can list several reasons why, but to sum them all up; its cheaper, good for the engine and the environment. The disadvantage is that it can’t be used in cold areas, because it gels at below 13 degrees celcius, so you have to blend it 50-50 with ‘normal’ diesel to avoid this.”
Can you tell us about your revenue model, your clients and your businessin 2011?
“Our revenue in 2011 was primarily from sale of biodiesel. We sold 210,000 liters and and raked in a revenue of $230,000. Our main customers in 2011 were 3 trucking companies and one tour-van company. This year we have been able to add a network of fuel stations, though our supplies to them have not been reliable due to insufficient feedstock.
The major problem we are facing with supply is the collection of the used cooking oil. As much as many hotels are willing to give it to us, the collection is a logistical challenge as we are using one pickup truck. The second problem is that tourism in Kenya is seasonal. So for about five months of the year, many hotels in Mombasa temporarily shut down or operate at lower capacity. Of course this is affecting the amount of waste cooking oil.
To mitigate this we are counting on our sub-producers to collect some of this used cooking oil and produce a % of the final product. Secondly, during the low tourist season, we intend to import various non-edible vegetable oils to boost our output. This will be possible through our investors contribution. Once we succeed with our large scale production of oil using marine algae then we will go with the cheapest feedstock option to maximize profit.”
Marine algae? How does that work?
“There are several species of algae of which we have been able to identify two, through some publicity in the Kenyan media we had earlier this year. A highly qualified biotechnologist with experience in this particular field contacted us and proposed this idea. Now he is part of our team and he’s in charge of R&D. We were really lucky with that. We have had success on a smaller scale, but our investor’s contribution will enable us to scale up to a commercial level. I won’t go into the details of how the extraction is done, but we could be looking at Kenya’s next cash crop.”
Tell us some more about the GXP-200 biodiesel processor you are selling?
“It is a 200 liter per 8 hour capacity processor, once you purchase it, it comes with a home training kit in the form of DVD’s, manuals, and a business plan. It is single phase and easy to operate. We designed and built it ourselves based on our years of gained experience. It’s a machine we hope can reduce unemployment in youth, women and people living with disabilities because the owner is guaranteed access to a ready market through us. We are willing to buy all of the biodiesel they produce.
We only launched it in March of this year and the following month it was recognized in an award for “Most Innovative Product 2012” at a business exhibition organized by The Small & Medium Entrepreneurial Resource Center at the KICC in Nairobi. The innovation beat hundreds of other well established companies with really good products.”
You are currently in fundraising mode on the VC4Africa website. Can you tell us more on the type of investment you are looking for; how much money do you need and how are you going to spend this?
We are seeking $240,000 (or Kshs. 20,000,000) which will go directly into increasing our output to increase our revenue. The different ways of doing so are highlighted in our business plan, but the following is to give an idea;
We have had to rely on local supply of used cooking oil which has proved to be logistically challenging. With investor support we will immediately supplement our feedstock with the importation of vegetable oil from sources we have already identified. Scaling production will allow us to satisfy the demand of our new customer i.e. the fuel station company. This could see the company triple its revenue within weeks. For our partners, the business is tangible and readily measured.
As explained before, we have had a significant breakthrough with our research on the extraction of oil from marine algae. Part of the funds will go to scaling up the capacity of this feedstock which may actually be Kenya’s next cash crop.”
You say on your VC4Africa profile that you aim to replace 2.7% of Kenya’s total diesel consumption equivalent to 30 Million liters by 2015. How did you come up with that percentage and how are you going to make this happen?
“Kenya consumes 1.1 billion liters of fossil diesel per year. 2.7% of that is 30 million liters. Kenya consumes 700,000 tons of vegetable oil and fat per year and research has shown approximately 40% or 300,000 tons of it ends up as waste.
These statistics showed us that we could not achieve this on our own and keeping the technology to ourselves will only profit us but won’t make a national impact. Since the need for energy can never be satisfied we are not afraid of competition. On the opposite: we are encouraging more people to join! Our aim is to gather a team of sub-producers in a combined effort to produce up to 10% of that 30 million liters of waste and to transform that into biodiesel. And we can achieve that number with only 1000 sub-producers producing 200 liters per week!”