9/21/2004 - BUSINESS TIMES (MALAYSIA) - A CONSORTIUM of local privatecompanies plans to set up Malaysia's first palm oil-based diesel plantwithin the next three months, with Europe as its main target market.

"Malaysia is looking at producing palm oil-based diesel as part of effortsto improve consumption of the commodity and help lift prices to levelsmore favourable to producers," Plantation Industries and CommoditiesMinister Datuk Peter Chin Fah Kui told Business Times.

The minister, however, declined to reveal the location, investmentinvolved, sales or volume forecast.

The biofuel concept is not new. It was developed by the Malaysian Palm OilBoard (MPOB) in the last decade and will be adopting German technology.

The MPOB has been actively pursuing research and development in convertingpalm oil into palm diesel for almost 10 years. In fact, there are cars inthe country which run on crude palm oil (CPO), fitted with aspecially-built German engine called the Elsbett.

The MPOB had prepared a Cabinet paper for the initiative in January 2001.The plant is estimated to cost RM500 million and will be able to processbetween 250,000 tonnes and 500,000 tonnes of CPO a year.

"The palm diesel oil will be readily accepted by the Europeans becausethey are already familiar with the concept of 'green' oil and are morethan willing to fork out extra euros to safeguard the environment," saidChin.

He added that green oil in Europe and some other developed countries, suchas the US, is mostly derived from soyabean oil, rapeseed oil and ethanolprocessed from sunflower, sugarbeets and even potatoes.

"Europeans are willing to use the green fuel, which is clean and renewablecompared with fossil fuel which pollutes the environment and is depletingas we speak." The green fuel smells like french fries or popcorn whenburned and can safely be blended with petroleum diesel. Chin said thatover the next 20 years, the world will shift to biofuel as it becomes moreenvironmentally-conscious, and Malaysia stands to gain compared with itsEuropean counterparts because of its lower cost of production.

He said the initiative is just one of the many ways to diversify the useof palm oil downstream from just cooking oil.

Nonetheless, the proposed plant will not be given any special rate topurchase CPO. It will have to source from the local open market at currentprices.

The Energy Research Centre of the Netherlands said that as at 2001, globalproduction of biofuel was estimated at 15 million tonnes a year.

Most of the global biofuel production consists of ethanol, which totalled14.6 million tonnes in 2000. The main ethanol producers are the US andBrazil.

However, Europe is the most important producer of biodiesel in the globalmarket. Since 1993, Europe's production of biodiesel has increased almosttenfold, from 80,000 tonnes in 1993 to 780,000 tonnes in 2001.

The European biofuel market consists only of biodiesel (rapeseedmethylester and ethanol). Biofuel reduces carbon monoxide, carbon dioxide,sulfur dioxide (one of the main causes of acid rain), hydrocarbons,benzene, and particulate matter.

The European Union aims to increase the proportion of biofuel used intransport from the current 0.3 per cent to 5.7 per cent by 2010.