Biofuel Mandate to Start in June 2011

Malaysia has asked petroleum companies to bear the extra cost of selling diesel blended with palm oil from June next year to kick-start sales of the green fuel after a four-year delay.

The world’s No. 2 palm oil producer has struggled to implement a mandate to push the blended fuel and support the palm oil industry that was first introduced in 2007 as the government was reluctant to subsidise biofuel blends to match diesel prices at the pump.

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said yesterday that the green fuel, a blend of 5 per cent palm and 95 per cent diesel petroleum, will be introduced in stages in the central states in Peninsular Malaysia.

“The (biofuel mandate implementation) will support palm oil prices and enable planters, especially the smallholders, to reap economic benefits,” Dompok said in a statement.

Eventually, the mandate will be extended to other states and take up half a million tonnes of the country’s total annual crude palm oil production. No time-frame was given.

Traders said the announcement briefly supported Malaysian crude palm oil futures before market players turned their focus to lower crude oil and soyaoil markets.

“The government has been flip-flopping over this issue. It gives a good support base for the market, but it remains to be seen if it will actually be implemented,” a trader with a local brokerage said.

Dompok said the government will bear the cost of developing six petroleum depots with blending facilities at a cost of RM43.1 million.

Petroleum companies, including state oil firm Petroliam Nasional Bhd and oil majors like Royal Dutch Shell, ExxonMobil and Caltex, will have to subsidise palm-based biofuel blends at the pump, he said.

Petroleum diesel retails at RM1.70 a litre, a price regulated by the government and among the lowest in Asia. Any increase in petroleum prices is politically sensitive.

Local biofuel manufacturers say blending 5 per cent palm biofuel into diesel increased prices by RM0.02 to RM0.06 a litre over petroleum diesel.

Dompok said Malaysia has approved 56 licences for biofuel production, for a total capacity of 6.8 million tonnes.

Last year, the country produced 227,457 tonnes of palm-based biofuels that garnered export earnings of RM604 million. – Reuters

Source: Business Times

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