THE Government is pulling the plug on the project to use crude palm oil(CPO) as fuel for power generation following the sharp improvement in thecommodity's prices of late.
The recommendation is made by parties involved in the project which waskicked off by Tenaga Nasional Bhd and palm oil industry players only inthe middle of the year.
"A thorough study on the matter has been conducted and a proposal for theproject to be shelved indefinitely has been forwarded to the Government,"a source told Business Times in Kuala Lumpur yesterday.
"Primary Industries Minister Datuk Seri Dr Lim Keng Yaik has agreed withthe recommendation and will make an official announcement soon," he said.
CPO burning will however continue on a research and development (R and D)basis, and the Government may reactivate the project anytime it is deemednecessary.
It is understood that Dr Lim will make the announcement at the four-dayInternational Palm Oil Congress 2001 in Kuala Lumpur on August 20.
The Government had in May initiated the project with the cooperation ofTenaga, Malaysian Palm Oil Board (MPOB), and the Malaysian Palm OilAssociation.
Mooted by Dr Lim, it was aimed at reducing the national palm oil stockoverhang which had stayed above one million tonnes for some two years.
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 plants,or an estimated 500,000 tonnes by year-end.
But the project quickly ran into a snag, which was that only 20 per centof Tenaga's generators use diesel as fuel.
It was decided then that the CPO would be burned by the mostlydiesel-fired power plants in Sabah and Sarawak, and also by industrialboilers such as those operated by the glass, brick and cement-makingfactories.
Still, it was worthwhile pursuing as palm oil prices had at the time sunkto below RM700 a tonne due to high production and intense competition fromsoyabean oil, rapeseed oil and sunflower oil, among others.
But a couple of months after the project was launched, things suddenlylooked much brighter for the sector, with prices surging past RM1,000 onJuly 12 for the first time in 13 months.
Although some distance from the record RM2,700 a tonne seen in 1998, thecommodity has trended up to the RM1,250 level since.
"The main objective was to reduce palm oil stock which stood at 1.4million tonnes in January.
"As at end-July, it has dropped to 921,825 tonnes.
The industry feels that the project can now be shelved at least for thetime being," said the source.
In any case, plantation companies are no longer keen to sell palm oil tothe Government for the project at the earlier agreed price of RM725 atonne.
"And why should they, when the commodity can fetch 50 per cent more on theopen market?"Under the memorandum of understanding on the project, theGovernment was in turn to sell palm oil to Tenaga at RM700 a tonne, withthe remaining RM25 made up for by a newly set up Palm Oil PriceStabilisation Fund.
This fund is operated by MPOB.
Under Cess Order 2000, plantation companies have to pay RM4.00 for eachtonne of palm oil they produce.
"It is felt that the Government continuing collecting the cess as fundswill be needed to finance ongoing R and D," said the source.
The CPO burning has in fact received encouraging response from theestimated 200 industries which utilise boilers in their operations, hesaid.
For example, a pottery operation in Sungai Siput, Perak, had switched 100per cent to using CPO, partly because the fuel, unlike diesel, does notleave strong traces of sulphur in the products.
"A steel factory has also expressed satisfaction in the fact that smootherlooking zinc sheets can be produced when using CPO," he said.
On the Malaysia Derivatives Exchange yesterday, palm oil futures closed atRM1,258 a tonne for August, RM1,230 for September, RM1,231 for October andRM1,232 for November.
Traders said the national palm oil stock's dip below 1 million tonnes forthe first time in more than a year was well-received by the market.
14 August 2001Business Times
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