Can M’sia Revive Biodiesel, Reduce Palm Oil Stock and Raise CPO Price?

MANY were taken by surprise by the recent launch of Biodiesel Malaysia Sdn Bhd, a consortium endorsed by the Government to spruce up the country’s fledgling biodiesel industry.

Why this sudden interest to push for a new biodiesel set-up when the existing pioneering ones are still struggling to take off smoothly since the biodiesel hype of the mid-2000s?

For now, Biodiesel Malaysia’s stakeholders are top plantation government-linked companies Felda Global Ventures Holdings Bhd (FGVH) with 32% and Sime Darby Bhd with 23%.

While still in its preliminary stages, the consortium, however, is expected to kick off within the next two months, initially utilising the biodiesel facility owned by Sime Darby on Carey Island, Selangor.

Also, the Government is strongly encouraging major plantation companies, petroleum companies and existing palm oil-based biodiesel producers to take up the remaining 45% stake in Biodiesel Malaysia.

So, will Biodiesel Malaysia be the answer to the Government’s three-pronged strategy of reviving the biodiesel sector, reducing the palm oil stock which still sits above the two-million-tonne mark, and helping stabilise the current downtrend in crude palm oil (CPO) prices?

Many are aware that the country’s biodiesel project can only be commercially viable when the price of the main feedstock, CPO, is low. But then, the Government is also aiming for the biodiesel project to help increase the CPO price by way of reducing the high inventory level.

So, when the CPO price increases, the operations of Biodiesel Malaysia would need to be heavily subsidised.

In fact, a subsidy of as high as RM1bil per year would be needed to support the consortium’s initiatives.

Therefore, a cost-benefit analysis should be done, as the biofuel sector has been known to be a stop-and-go industry mired in uncertainty.

At the end of the day, what would be the cost benefit and long-term viability of the biofuel consortium project?

Most interesting would be to gauge the response among other plantation companies in taking up the remaining 45% stake in Biodiesel Malaysia to enable the local biofuel market to take off successfully.

However, more importantly, who is going to fork out the subsidy? Will it be the Government, the biodiesel consumers, or, inevitably, the oil palm plantation industry, which is heavily taxed at the moment?

It has been envisaged that the necessary taxes would be imposed by the Government, falling on the industry players eventually. Consumers, on the other hand, would not be willing to pay up since they enjoy the subsidy on diesel and petrol.

Roughly calculated on the RM1bil subsidy divided by the 20 million tonnes of CPO produced annually, the oil palm sector would have to fork out about RM50 new tax or cess for every tonne of CPO, in addition to the current 46% total tax being paid, say industry sources.

Biodiesel Malaysia would also be involved in the Government’s plan to implement the B10 biodiesel programme (90% diesel and 10% palm oil) nationwide by the middle of next year.

Let’s just say that from the one million tonnes of biodiesel produced, 500,000 tonnes are for the domestic market while the remaining 500,000 tonnes are for the export market. Is there such a market potential for Malaysian palm biodiesel overseas?

Can Malaysia compete with the European Union (EU), the United States or Brazil in the biofuel export market?

The US and EU are also heavily subsidising their biofuel industry and at the same time blocking any attempts by palm oil-based biodiesel from entering their markets by using the issue of high greenhouse gas emissions from oil palm plantations.

Having said that, while there is currently an anti-dumping action to be taken against palm biodiesel from Indonesia by the EU, exports of palm oil-based biodiesel from Malaysia, on the flip side, have been on the rise of late.

According to sources, the plants of five biodiesel players, namely Carotino, Sime Darby, Kuala Lumpur Kepong, Platinum Biofuels and AM Biofuel, have already been running at full capacity over the past two months.

  • Deputy news editor Hanim Adnan is finally seeing some light at the end of the tunnel for biodiesel players this year with this latest initiative by the Government.

Source : The Star

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