15/05/2012 (The Star) - A proposal to set up a Consortium of Independent Producers and Refiners of Malaysia (CIPROM) is being deliberated as one of the strategies under the Government's palm oil policy reforms, said a source close to the plantation industry.

The source said CIPROM could be one way for the Government to counter the Indonesian low palm oil export duty regime which made the Malaysian independent palm oil refiners' business uncompetitive following the supply of “cheaper incoming” crude palm oil (CPO) and “competitive outgoing” refined palm products such as RBD (refined, bleached and deodorised) palm olein from Indonesia.

He said the idea would be to link independent local palm refiners, especially those without upstream activities, with local independent CPO producers in a consortium and for them to sell as “a marketing pool”.

“Therefore, independent producers have their associated refineries with whom they are going tolled refining.

“Toll refinery return will be on cost plus basis (refining cost plus margin) which can keep the refineries fully-utilised and operate viably,” the source told StarBiz on the sidelines of the MPOB Palm Industry Labour seminar yesterday.

Furthermore, growers could also cross subsidise refiners by supplying CPO at RM500 lower than the market price.

He suggested that the consortium share capital could be 45% each for independent refiners and producers while the remaining 10% be held by government agencies with a launching grant of about RM50mil for the next three years.

He also pointed out that the proposed local consortium would emulate the Canadian Wheat Board model of pool marketing or the original Malayan Palm Oil Pool System in terms of pricing and oil extraction rate.

“This will mean over 51 refineries mostly members of the Palm Oil Refiners Association of Malaysia (PORAM) and local independent palm oil producers with three million to five million tonnes of CPO feedstock could join forces via pool marketing and have the quantum to compete with local integrated plantation companies as well as Indonesia oil palm plantation players in the world market.

In Malaysia, local integrated plantation players like Felda, IOI Corp Bhd and Sime Darby Bhd were not as badly affected by the lower palm oil export tax structure in Indonesia as “they have their own upstream and refining operations.”

Unlike integrated plantation groups, independent refiners are dependent on local and imported CPO feedstock especially from Indonesia.

Last year, Malaysia imported 1.30 million tonnes of CPO, mainly from Indonesia, to support its refining utilisation rate.

By opting for CIPROM, the source said the Government will not need to abolish the duty-free CPO quota and reduce the CPO export duty structure.

It would increase the cess collection among big planters as proposed by some quarters.

A London-based consultancy firm hired by MPOB has suggested several options, including for Malaysia to continue maintaining its current policy while increasing its CPO export quotas slowly, and to match in full the incentives by the Indonesian export tax structure by adapting Malaysia's current CPO export tax rules to offset the advantages enjoyed by Indonesian exporters.