THE recent improvement in crude palm oil (CPO) prices to the RM1,300 atonne level, from a 17-year low of just under RM700 in February, hasrendered the initiative to use the commodity as fuel for power generationnot only unnecessary, but also non-viable.

It is welcomed development, to be sure, but the Ministry of PrimaryIndustries and the industry have also suddenly found themselves faced anumber of delicate questions.

The project was part of a series of measures introduced by the Governmentto lend support to the commodity's price at a time when the industry wasdogged by overcapacity amid shrinking global demand, which saw thenation's palm oil stock surge to above one million tonnes, or about 10 percent of annual output.

Burning CPO as fuel therefore made every sense, including the fact that itwas in line with the Government's plan to introduce a multi-fuel policyfor the power sector whose plants, apart from the hydroelectric ones, arecurrently fired by gas, diesel and coal.

It was a bold idea, mooted by the minister, Datuk Seri Dr Lim Keng Yaik,himself.

And although it quickly proved to be not as straight-forward and simple asfirst thought, the project was effected with the full cooperation ofTenaga Nasional Bhd, Malaysian Palm Oil Board (MPOB) and Malaysian PalmOil Association.

Indeed, the logistics for the project were worked out without too muchproblem and under a memorandum of understanding, the Government agreed tobuy CPO from producers at RM725 per tonne and then sell it Tenaga atRM700.

The RM25 difference would come from a newly established Palm Oil PriceStabilisation Fund managed by MPOB, which is also tasked, under Cess Order2000, with collecting RM4.00 for each tonne of palm oil produced by theplantations.

Between 20,000 tonnes and 30,000 tonnes of CPO, blended with medium fueloil, were to have been burned each month by diesel-powered Tenaga Nasionalplants, or an estimated 500,000 tonnes by year-end.

Then when everything was in place to kick off the project, it wasdiscovered that only 20 per cent of Tenaga's power stations werediesel-fired and afforded modification to burn CPO.

Quick minds worked overtime and it was decided that the older power plantsin Sabah and Sarawak would be roped into the programme instead, as couldfactories which operate industrial boilers and furnaces to make productslike glass, bricks, ceramics and steel.

It was a good thing that weather and various man-made factors chose toconspire as they did about this time to push demand for palm oil sharplyhigher, and consequently the national stock below one million tonnes fromas high as 1.4 million tonnes at one point.

The "crisis" has subsided, if not entirely resolved, and the industry canponder afresh whether it could have been better prepared to face similarexternal threats without requiring a near-panic initiative the likes ofthe CPO burning project.

The minister is expected to announce the shelving of the project nextweek, and presumably also decisions on what to do with the cess collectedso far as well as the palm oil that the Government might have committed tobuy.

The fund could be used to undertake research that directly benefits theindustry, of course, and the parties involved could mutually and amicablycall off purchases and delivery of the commodity.

But have contracts been signed for the palm oil storage facilities at theports? And for the ceramics plant and a steel-making concern, and possiblyothers, which were encouraged to switch to burning CPO, who will befooting the bill for them to go back to using diesel? Remember also theconcurrent initiative to pursue counter-trade arrangements with India andChina involving payment for railway project contracts in palm oil.

Will this also be no longer pursued as fervently as before? Will theindustry simply heave a sigh of relief, enjoy its good fortune while itcan, until the next throw of the dice? Can it ever stop gambling on itsown future?

15 August 2001Business Times