09/03/2011 (The Star Online) - The Government's plan to subsidise palm oil-based biofuel of between four and six sen per litre may not be sufficient, says an analyst.

“This is because the feedstock cost (palm methyl ester) is quite high. Palm oil-based biofuel production cost is about 15 sen per litre and the Government is only willing to subsidise up to six sen. Who will bear the rest of the cost?” the analyst told StarBiz yesterday.

It was reported yesterday that the Government would subsidise palm oil-based biofuel at the pump to keep the price at the same level as diesel which is now selling for RM1.80 per litre.

Citing two industry sources with knowledge of the plan, the report said the Government would be paying between four and six sen per litre for a 5% blend of palm-based biofuel with diesel.

It added that the Government would implement the biofuel mandate (B5 blend programme) from June 1 as planned, starting with the central states.

This will take out roughly 100,000 tonnes of palm oil from the market by end-2011. At the same time Malaysia's palm oil production is forecast to rise to 17.6 million tonnes this year.

The local biodiesel sector reached a standstill last year with zero production as many players were unable to maintain operations due to the high cost of production as well as the lack of incentives from the Government, according to Malaysian Biodiesel Association (MBA).

MBA, which represents 22 biodiesel local and international companies with operations in Malaysia, reported that they were churning out fewer than 100,000 tonnes compared with their combined installed capacity of 2.6 million tonnes.

Biodiesel producers in the country have so far invested more than RM21bil in the sector over the last three years.

The Government had introduced the B5 blend programme that involved the blending of 5% biodiesel with 95% fossil fuel.

The first phase of the B5 blend programme has covered most of the Klang Valley involving government vehicles owned by City Hall and the Defence Ministry.