22/10/05 (The Star) - Biofuel is being touted as the next big thing in anenergy-stingy world. Malaysia is jumping on the bandwagon with its palmoil derivative.THE country’s solution to rising fossil fuel prices, worsening airpollution and the depletion of its petroleum reserves is grown on trees -oil palm trees, that is.

All it takes is just to blend processed liquid palm oil with petroleumdiesel and, lo and behold, we have palm biofuel.

The cocktail is cheap, particularly as world oil prices rise, producesless carbon monoxide and is renewable. Really, the technology involved isnot much more complex than getting the mix right.

In fact, the first diesel engine created by Rudolf Diesel in 1897 ran onpeanut oil.

Diesel-powered vehicles can switch to palm biofuel without anymodifications to the engine and any deterioration in performance. If theNational Biofuel Policy, to be unveiled next year, goes according to plan,users can fill up their vehicles with palm biofuel at petrol kiosks in2007.

Once implemented, Malay-sia is expected to reduce diesel imports by500,000 tonnes a year based on current usage.

"Depending on the price, the country is going to save millions of ringgiton subsidies. The Government has spent some RM16 billion on petrol anddiesel subsidies," says Plantation Industries and Commodities MinisterDatuk Peter Chin. At about RM1,400 per tonne, palm oil is also cheaperthan imported diesel which costs between RM1,700 and RM2,000 per tonne.

Besides cleaner emissions and renewability, the use of palm biofuel canhelp support the price of crude palm oil, of which Malaysia is the world’sbiggest producer.

Malaysian Palm Oil Association chairman Datuk Sabri Ahmad says biodieselis the "safety valve" for crude palm oil, which until recently has beendogged by fluctuating prices.

After the recent interest generated by biofuel, CPO prices bounced fromRM1,350 early this year to nearly RM1,450.

The case for using biodiesel also gains currency against the backdrop ofthe country’s fast-depleting petroleum reserves. At last count, thesereserves amount to 4.8 billion barrels, which can last another 16 yearsunless new discoveries are made.

But while it makes economic sense to introduce palm biofuel at the pumps,it is at the global level that the commodity can gain a reputation asrenewable liquid gold.

Many signatory countries to the Kyoto Protocol are rushing to reduce theirgreenhouse gas emissions by 2012.

In the European Union, the diesel consumed must consist of 5.75 per centbiodegradable oil by 2010, up from the 2.5 per cent now.

All these could spell an upswing in demand for palm biofuel, especiallysince production of other agricultural oils like rapeseed and soyabean hasbeen stretched.

"If Malaysia can export 750,000 metric tonnes of biodiesel per year, wecan earn RM1.7 billion," says Sabri, who is also group chief executive ofGolden Hope Plantations Bhd.

Palm oil is also highly competitive. Sabri says one hectare of oil palmcan produce five tonnes of oil, compared to soyabean and rapeseed, whichcan only produce half a tonne.

The production costs of palm oil is also about 40 per cent lower thanother biofuel sources.

The Malaysian Palm Oil Board wants a share of this lucrative pie. It issetting up joint-ventures to build two biodiesel plants in Port Klang andone in Pasir Gudang - presumably for easy access to the two ports.

The first major overseas supply deal, with German-based train operatorPrignitzer Eisenbahn (PE) Arriva to fuel its locomotives, is beingnegotiated.

But Malaysia still has a long way to go to become the Saudi Arabia ofbiofuel.

Even at the local level, palm biofuel is not yet attractive to vehicleowners despite its environmental-friendly properties for one reason:price.

Right now, palm biofuel costs more than subsidised diesel at the pumps.

Pan Malaysia Bus Operators’ Association president Datuk Ashfar Ali saysunless there is a significant price difference, vehicle owners have nocompelling reason to switch.

"But if the Government reduces its subsidy for diesel and makes biofuelrelatively cheaper, then it’s a different story. For many businesses, itis about the bottom line.

"But there is also the question of availability. Look at what happened toNGV (natural gas for vehicles). It is only largely available in the KlangValley and that, too, only at selected kiosks. That is why buses are notusing NGV now."

Tariff structures in the EU countries, Japan and the United States arealso putting palm biofuel at a disadvantage.

Last August, TSH Resources group managing director Datuk Kelvin Tan hadpointed out that palm oil-based biofuel was not enjoying the same taxrebates as rapeseed, soyabean or sunflower.

Palm oil has also been the target of consumer campaigns in the West. Thelast one, which started in the United Kingdom, blamed rising demand forpalm oil for the loss of the orang utan’s natural habitat.

Lobby groups in the developed countries have a knack for making theirGovernments cave in to pressure and the graphic portrayal of maimed orangutans is but one such attempt.

M.R. Chandran of Oilpalmworld Sdn Bhd, which runs a business-to-businesspalm oil exchange, says that sometimes it feels like a Catch-22 situation.On the one hand, palm biofuel is considered an environmental-friendlyproduct, but on the other, there is a perception that increased demandcauses the destruction of natural resources.

Chin, however, allays fears that more forests will be cleared andhillslopes slashed to make way for oil palm plantations and exportearnings.

He adds that Malaysia will focus on improving farm management, adoptinggood husbandry practices and increasing processing efficiency.

Despite the mounting opposition, the EU is not expected to keep palmbiofuel at arm’s length for long.

With rapeseed and soyabean oils unable to meet demand and World TradeOrganisation (WTO) rulings prohibiting unfair tariffs, it is only a matterof time before palm oil competes on a level playing field with itstraditional rivals.

But will Malaysian vehicles make a beeline for biofuel in 2007 or, forthat matter, will petrol companies want to sell what is now a moreexpensive product than conventional diesel?

"We are drafting several legislations, including the Biodiesel Bill.Issues like price, proportion of blending involved and whether to compelpetrol companies to sell the blend will be addressed," says Chin.

He declines to say to what extent the Government is prepared to make palmbiofuel more competitive by reducing diesel subsidies.

"The biggest challenge is to convince consumers to accept biofuel. Theministry will undertake a major public relations exercise to educate thepublic on this," says Chin.

For now, he says, the Government wants to focus on laying the groundworkfor the country to capture a big slice of the biofuel market, in andespecially outside the country.

"It is a big thing. Demand will increase in the future and we do not wantto lose out."