10 August 2001(Business Times) - THE project to use crude palm oil (CPO)as fuel for power generation plants must go on to maintain positive marketsentiment and provide valuable data to researchers on the viability of themove.

Traders said the project provides "feel good" market sentiments that augurwell for prices.

"It indicates to buyers that Malaysia is serious in controlling stocks andsupplies," a trader told Business Times in Kuala Lumpur yesterday.

The Government in April initiated a project to use CPO as fuel for TenagaNasional Bhd's diesel-powered generation plants by burning between 30,000and 50,000 tonnes of the commodity a month.

It was part of the Government's efforts to help reduce the excess stockand to stabilise prices of palm oil, which were languishing between RM600and RM700 a tonne then.

The aim of the project was to take away 500,000 tonnes or 5 per cent ofthe country's total output by year-end.

CPO must first either be blended with medium fuel oil, a diesel variant ordiesel at a set ratio before it can be successfully burned.

This gave rise to a hitch as almost 80 per cent of Tenaga's power plantsnationwide are gas-fired instead of medium fuel oil-fired.

As a result, both the Malaysian Palm Oil Board (MPOB) and Tenaga haveshifted their attention to Sabah which still has a heavy dependence ondiesel-powered generators.

The MPOB has also turned its attention to industrial users such as brickand glass manufacturers that rely on diesel to power their generators.

Traders said the cost involved can easily be offset by the current goodprices of palm oil.

Primary Industries Minister Datuk Seri Dr Lim Keng Yaik said last monththat the Government is committed to seeing the whole project throughbecause it provides a safety net to the industry if anything adverseshould happen.

Meanwhile, a MPOB official agreed that the project must go on because itwill provide researchers in both Tenaga and the MPOB with invaluable data.

"Now is the time to burn because if prices go down again we will be moreprepared on what to do and not finding out too late various setbacks," theofficial said.

To date, he added, a total of 4,000 tonnes of CPO has been burned in Praiand 40 tonnes of palm olein has also been burned in Sabah.

On the Malaysia Derivatives Exchange, palm oil futures contracts forAugust and October fell RM22 to close at RM1,262 a tonne and RM1,260 atonne respectively.

September and November contracts closed at RM25 and RM17 lower each atRM1,260 and RM1,268, respectively.

Total volume gained 24 lots to 2,026 lots and open interests gained 363contracts to 11,363 contracts.