Monday September 6, 2010

Malaysia's Biodiesel industry at a standstill


Production is stagnant with very few players in operations

PETALING JAYA: The biodiesel industry in Malaysia is at a standstill stage with almost zero production, said the Malaysian Biodiesel Association vice-president U.R. Unnithan.

He said many players were not able to maintain their operations given the high cost of production and the lack of the much needed incentive and subsidies from the Government.

Of the total installed production capacity of 2.6 million tonnes, production was stagnant with very few players in operation, Unnithan told StarBiz.

The situation was also reflected in the Malaysian Palm Oil Board (MPOB)’s latest statistics which showed that biodiesel export in July was at an alarmingly low level – 137 tonnes or 95% drop from 2,518 tonnes a month earlier. It is also the lowest biodiesel export recorded so far this year.

Unithan said it was sad to see the biodiesel industry, which has been identified as one of the 12 National Key Economic Activities (NKEA) under the Tenth Malaysia Plan, was being left “unproductive”, when the Government intend to fully implement its much delayed mandatory B5 biodiesel programme by June next year.

(B5 is a blend of 5% biodiesel and 95% fossil fuel diesel)

The MBA represents 22 biodiesel producers from both local and international companies with operations in Malaysia.

“Our members in total had invested over RM21bil in terms of investment over the past three years and all have gone to waste; this put us into negative margins because of the slow action by the Government.

“It is important to quickly address this dying industry if the Government is serious about implementing the biofuel act for the country,” added Unnithan.

He also question why Malaysia cannot help to subsidise local palm-based biodiesel when countries like Thailand, Indonesia, the Philippines, Argentina and Colombia were heavily subsidising their biodiesel product.

Colombia, for example, started its biodiesel production in 2009, which is much later than Malaysia’s biodiesel production in 2007.

“However, Colombia is already progressing into B10 programme and will soon migrate to B20, where else Malaysia, still cannot even implement its B5 programme successfully,” said Unnithan.

He said given the right subsidy and incentives, biodiesel players in Malaysia could easily take up 500,000 tonnes of CPO from the domestic market thus making CPO prices to continue to be traded at stable levels.

Carotech Bhd chairman and managing director David Ho said: “To offset poor margins in biodiesel, many players including Carotech had to convert to other applications which uses the palm methyl esters.”

For Carotech, he said group was now actively involved in the extraction and sale of palm oil phytonutrients and oleochemical products.

Many biodiesel players in Malaysia were initially focusing for export. Ho said: “However, we have no advantage over the other international biodiesel players which are selling at much cheaper prices given the subsidy by their respective governments.”

He added that the situation was also not getting better at the domestic level. “Without subsidy, local biodiesel will not able to compete efficiently in terms of pricing with the existing subsidised petroleum diesel by the Government,” said Ho.

An industry observer said there was much to deliberate on the biodiesel programme, which is not viable given the current high feedstock prices.

He estimated that biodiesel would cost about 60 sen per litre more to produce than petroleum diesel when the CPO price is at RM2,500 per tonne and Tapis crude oil is at US$80 to US$90 per barrel.

“Some quarters believe that replacing petroleum diesel with biodiesel will worsen the Government’s subsidy burden rather than improve it.”

The Government’s annual consumption subsidies for petroleum fuel have been estimated at RM20bil to RM25bil. Replacing 5% of petroleum diesel with biodiesel would add about RM300mil per year to the subsidy bill, he added.

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