CPO to fuel Tenaga's generators next month

16 March 2001 (Business Times) - Some 30,000 tonnes of crude palm oil(CPO) will go up in flames next month to power Tenaga Nasional Bhd's(Tenaga) diesel generators.

The move, one of Malaysia's initiatives to immediately increase thecommodity's consumption, was delayed because Tenaga wanted time to studythe impact of using CPO as fuel on its generators.

The palm oil industry had hoped that the programme, which it hopes wouldhelp improve prices by reducing the palm oil stockpile, would begin thismonth.

Tenaga is believed to be the only power company involved in theGovernment-initiated project that will ultimately see the utility companyutilising 500,000 tonnes of palm oil or 5 per cent of what waslocally-produced last year.

"The company had already taken steps some time ago.

It had appointed a UK-based consultant to carry out a study on thefeasibility of the project," an industry source told Business Times inKuala Lumpur yesterday.

He said Tenaga had sent a boiler from a generator to the UK to help assessthe impact of using CPO as fuel on the mechanical parts.

"Tenaga has to make additional investments, including buying heating coilsto warm up the CPO for the generator's fuel.

If the CPO is not heated, it will solidify.

And once CPO solidifies, it cannot burn.

"The source said the heating coils, which are similar to those used inelectric kettles, are not expensive.

Industry sources said at 65 sen per litre, diesel is still the best fuelto fire up generators compared to CPO at 76 sen a litre.

He said the palm oil producers involved wanted the project to startearlier to help reduce excess stocks which were contributing to depressedprices.

Malaysian palm oil stock stands at 1.4 million tonnes.

He said between eight and 15 companies are involved in the first stage ofthe project that will see 30,000 tonnes of CPO burnt next month by Tenaga.

Last week, the Government announced it would ask producers to set aside upto 5 per cent of their annual CPO output for the project.

The Government would buy this CPO at RM725 a tonne.

However, the government price is lower than the market price which is nowabove RM800 a tonne and CPO producers want the Government to offer a pricecloser to the market rate.

"To date, the Government has yet to furnish the producers with detailslike where to send the CPO, terms of payment and other operationalprocedures of the project.

"Market observers said the palm oil producers' anxiety is understandablebecause they want to clear their stocks quickly at a good price.

"But they have to understand the position of power companies as well.

Power companies have been using diesel to generate power for the last 50years.

"Naturally, they would want more time to study the effects of using crudepalm oil on their boilers and generators such as wear and tear, enginefailure, rust build-up, engine cracks and even explosions," one analystsaid.

Meanwhile, news that Tenaga will start using CPO pushed the commodity'sprices higher on the Commodity and Monetary Exchange Malaysia.

At the close of trading, CPO March contract added RM18 to RM810 a tonne,April contract gained RM8 to RM822 a tonne and May rose RM5 to RM837 atonne.

Total volume traded stood higher at 2,053 lots versus 2,039 lotsWednesday.

Open interest, however, fell to 11,868 contracts from 12,003 contractsyesterday.

On the physical side, March South rose RM5 to RM815 per tonne.