Malaysian local biodiesel producers rely on government own diesel engine vehicles to consume their stocks. Until when? We should look at the mass consumers as well.
Biodiesel programme at the crossroads
By HANIM ADNAN @ theStar
HAMPERED by poor offtake and excalating cost of subsidy, the Government’s highly promoted B5 mandate – the blending of 5% biodiesel with 95% diesel – now stands at the crossroads.
Seen initially as one of the national strategic measures for better palm oil stock management with full implementation by January 2010, the B5 mandate is now being closely scrutinised by the Government for a possible reduction to B3 mandate soon.
This latest decision however does not “blend” well with local palm oil biodiesel producers which have long suffered in silence over the snail phase progress of the B5 mandate.
Despite making huge investments in their biodiesel plants here, many felt that their plight were overlooked.
Some quarters says the poor take-up rate on average of about 40 tonnes per month by initial target group – diesel-powered government vehicles in the Klang Valley – itself speaks for the lack of attention by the Government to boost the B5 mandate.
At the same time, local biodiesel players are facing tough times trying to market their product overseas especially in the United States and the EU which impose tough legislations on imported biodiesel as means to protect their home-grown biodiesel feedstocks and biodiesel players.
The reduction from B5 to B3 itself is seen as a new stumbling block for local biodiesel producers to operate economically in the domestic market amid the current competitive environment.
Local players, however, stand to wait a bit longer for the final decision on B3 mandate as the important Cabinet Committee on Palm Oil Competitiveness (CCPO) meeting to be chaired by Prime Minister Datuk Seri Najib Tun Razak scheduled on Nov 24 had to be postphoned to Jan 12 next year.
It is believed that Plantation Industries and Commodities Minister Tan Sri Bernard Dompok will be submitting a proposal on the reduction from B5 to B3 at the CCPO meeting to be attended by high powered palm oil government officials including the Malaysian Palm Oil Board (MPOB) and Malaysian Palm Oil Council and Malaysian Palm Oil Association.
Malaysian Biodiesel Association (MBA) vice-president U.R. Uunithan maintains that ideally, the B5 mandate should remain.
“The biodiesel fraternity so far had invested over RM2.2bil for 27 plants nationwide.
“It will be a sad situation if the B5 mandate is reduced to B3 as this translate into a usage reduction to 300,000 tonnes of biodiesel per year versus the targeted 500,000 tonnes per year under B5,” he tells StarBizWeek.
Uunithan says MBA has met up with the relevant authorities including MPOB, Finance Ministry and Plantation Industries and Commodities Ministry to voice out its concern over the poor progress in the usage of biodiesel in the country.
“We are already at the losing end. Currently, only five plants are in operation and some had to stagger their production due to poor takeup rate in Malaysia and overseas market,” he adds.
He also questions the Government’s proposal for B3. Of the 2.7 million tonnes installed capacity for biodiesel in Malaysia, using just 300,000 tonnes or less than 10% of the capacity per year is not acceptable, he says.
“The volume itself is too small for biodiesel producers to operate. It does not have the economies of scale, let alone allowing producers to make decent margins,” adds Uunithan.
He says that given the trend in biodiesel mandates in other countries are mostly government-led, local biodiesel producers will not have the final say and need to abide by the Government’s decision should it plan to introduce the B3 mandate next year.
It is reported that should the Government keeps the B5 mandate, it will need to fork out about RM250mil per year in terms of subsidy to blend and distribute the biodiesel.
Until now, many petroleum companies are not showing full commitment to assist the Government in terms of cooperating to set up blending facilities for biodiesel.
Meanwhile, MPOB director-general Datuk Dr Mohd Basri Wahid said at the recent International Palm Oil Congress 2009 that the Government was set on extensively promoting the usage of palm methyl ester (PME) biodiesel for the domestic market.
In fact, the PME biodiesel and oil palm replanting activities are the strategic measures identified by the Government to ensure reliable national palm oil stock management and act to a certain extent as a CPO pricing mechanism.
“It is a challenge to promote B5 but given the high cost of subsidy involved, the Government will consider B3 instead,” adds Basri.
So far, there is no full decision on B3 until the CCPO meeting to be held in January next year. Malaysia currently produces almost two milllion tonnes of palm biodiesel per year.
However, production volume so far this year was under 10% of the total installed capacity of the local biodiesel plants in operation, says Basri.
‘’Despite the approved 91 biodiesel licences, the number of plants built and in operation is still low given the high feedstock costs.”
As at end-August, some 167,846 tonnes of local palm biodiesel had been exported compared with a total of 182,108 tonnes exported in the whole of 2008.