Business

Tuesday October 13, 2009

Govt’s biodiesel programme hits a speedbump

By HANIM ADNAN


PETALING JAYA: The Government’s B5 biodiesel programme has hit a speedbump given the poor take-up rate by its initial target group – diesel-powered government vehicles in the Klang Valley.

A source close to the industry told StarBiz that on average less than 40 tonnes a month had been taken up so far by the Defence Ministry, the Kuala Lumpur City Hall and Selangor’s Public Works Department – much to the dismay of biodiesel producers in the country.

“Given such poor response from the government sector, it is impossible to imagine the take-up when B5 biodiesel is made accessible to the industrial sector and the public by early next year,” the source said.

The Government has projected that 500,000 tonnes of biodiesel would be needed a year upon the full implementation of the B5 programme in 2010. B5 is a blend of 5% biodiesel and 95% fossil fuel diesel.

“While the whole world seems to be going ahead with the mandatory biodiesel blending with government support, Malaysia’s own B5 biodiesel programme is not getting the full attention.

“This is particularly so in terms of capex (capital expenditure) needed to support the sustainability of palm biodiesel and the survival of the struggling local biodiesel producers,” the source said.

The source also said the Government needed to quickly iron out the biodiesel payment mechanism either via the automatic price mechanism (APM) to be regulated by the Finance Ministry based on reports from petroleum companies or the direct contract method, whereby payment is made based on reports from biodiesel producers.

Indonesia is targeting to produce 750,000 kilolitres of biodiesel a year, Thailand is allocating 600,000 tonnes of crude palm oil (CPO) for its biodiesel production, while Colombia is planning to use 500,000 of its total production of 900,000 tonnes of CPO in 2010 for biodiesel.

Indonesia, for example, has approved a biofuel subsidy payment mechanism this year. This would help support its 22 biofuel companies which have suspended production since mid-2008 due to high raw material prices and uncertain biofuel regulations.

“Malaysia should be doing the same immediately and establish its leadership in the biodiesel business,” the source said. “No other country has a greater benefit of leverage to support the CPO price through mandatory biodiesel blending and create a centre of excellence in this field.”

“The major stumbling block for local biodiesel producers will be to find buyers willing to take up the palm methyl ester (palm biodiesel), which is higher than the price of diesel itself,’’ the source added.

Palm-based biodiesel is currently sold at about RM2.80 per litre compared with about RM1.70 per litre for diesel.

Furthermore, many producers will automatically stop producing once CPO hits above RM2,000 a tonne.

Currently, there are 10 palm-based biodiesel plants in operation with a total capacity of 1.5 million tonnes per year. The Government has approved 91 palm biofuel manufacturing licences with a total capacity of 10.2 million tonnes annually.

Another stumbling block for local palm biodiesel producers will be the latest legislative move in the United States to give a tax credit of US$1 a gallon for US produced biodiesel.

It effectively says to qualify for the tax credit, biodiesel must be produced from raw feedstock within the United States.

“If this legislation goes through, Malaysian producers will be locked out of the US market as it is not viable to sell palm biodiesel without the tax credit. Even with the tax credit that is available now, it will be a struggle,” the source said.

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