28/8/06 (The Star) -  Carotech Bhd managing director David Ho, whose biodiesel company has successfully penetrated the global market, talks to StarBiz on how to be successful in the industry.

StarBiz: Does Malaysia have a comparative advantage in the biodiesel industry?

David Ho: Yes. Malaysia is the largest producer of palm oil (Indonesia might have crept past us) in the world. Palm oil is also cheaper as raw material for biodiesel compared with soybean and rapeseed and is the most abundantly produced vegetable oil in the world. 

 
Will biodiesel be the future source of alternative energy transport?

Definitely. We see the future transport mode to be based on biodiesel hybrid vehicles (biodiesel/batteries or biodiesel/hydrogen) depending on whether such technologies can be made available to the masses at economical prices. 

Also, diesel and biodiesel are cheaper, providing 30% more mileage per litre compared with gasoline. Diesel and biodiesel cannot be replaced, based on current technologies, as many heavy-duty vehicles like trucks, buses and tractors require the “pulling power/ torque” to haul such heavy loads and petrol/ ethanol cannot provide such power as cheap as diesel/biodiesel. 

Ultra low sulphur diesels (ULSD) is more environmentally friendly than petrol and works better blended with biodiesel. 

Currently biodiesel and ULSD blend are the most favoured fuel in Europe. Today, over 70% of new vehicles registered in Europe are diesel powered. 


Carotech has expanded successfully abroad. Is it easy for local players to emulate Carotech's success?

The key to success in this industry is technology and quality. We have the first integrated biodiesel plant in the world able to produce biodiesel and phytonutrients from crude palm oil (CPO). Our patented technology allows us to achieve stronger revenue from the two divisions and at lower operating cost. 

Biodiesel is a risky business as the selling price is not correlated to prices of CPO or refined, bleached, deodorised palm olein - the raw material used. If the selling price, which is at present pegged to crude petroleum prices, falls and CPO prices continue to rise, then typical biodiesel plants would find it hard to stay afloat as the margins are squeezed. 

Based on current petroleum prices and rising trend in CPO prices, many biodiesel players would be re-evaluating their plans to enter the industry.

Carotech's technology allows us to be more resilient and able to cope with higher prices of CPO or lower prices of petroleum. 

A successful biodiesel producer must not only adopt good technology to maximise revenue and reduce costs. He must also produce high quality products consistently. 

What are the current benefits given by the Government to the industry?

The Government has announced it will accord the pioneer status or high technology status to biodiesel companies, which provides a 70% and 100% tax waiver for five years. I am not aware of any company that has obtained these incentives. Besides the normal existing incentives, the Government has not given any special incentives for biodiesel producers. 

 
What additional policies or Government support are required for local players to go global? 

To compete globally, local players need to produce high quality cost-competitive products. To have cost competitiveness a producer must achieve economies of scale in operations and this can only be achieved with a large market.

Ironically, the authorities are not promoting the use of biodiesel, as defined internationally with a chemical name of methyl ester, in Malaysia. Without a local market, our local players would have less demand for their products and need to rely heavily on the European market, which favours its local rapeseed biodiesel. 

The Malaysian Envo oil is not the equivalent of the internationally accepted biodiesel (methyl ester). Envo oil is a blend of 95% fossil diesel and 5% palm olein. 

Many markets like South Korea, the United States and European Union (EU) do not allow the use of direct vegetable oil into diesel engines. For instance, the EU standard on biodiesel (EN 14214) requires a minimum content of 96.5% methyl ester and no more than 0.2% triglycerides.

As such, we are adding 5% oil into diesel to call it biodiesel. This brings a new definition of biodiesel only seen in Malaysia!

If diesel engines can consume vegetable oil directly, why would the existing world standards on biodiesel require at least 96.5% methyl ester for it to be deemed biodiesel? We need to critically re-look at the existing policies. 

Also, diesel is now being subsidised by the Government. But there is no such subsidy for biodiesel, which mean local producers will have difficulty selling their products in the local market. 


What can local players do to help themselves? 

The local players coming into the industry will need to be extremely careful in choosing their technology and critically look into the quality of their products. In the long run, only the high quality, cost-competitive products will survive in the global arena.