14/10/2009 (The Star Online) - IN three short years, the fledgling palm biodiesel industry in Malaysia is fast heading for a bust.

Many operators are now struggling as the steep price of crude palm oil (CPO) is cutting into their profit margins and leaving them with not enough cash to operate.

In fact, CPO prices at above RM2,000 per tonne are wiping out cash reserves just as the first batch of biodiesel is produced, especially by new market entrants.

While there are still no reported cases of biodiesel plant closures in Malaysia except for a drastic slowdown in production, casualties of the biofuel hype are fast on the rise on the overseas front.

Many biofuel producers in the United States, Germany and Australia have been filing or contemplating bankruptcy due to escalating feedstock costs on the back of the global economic crisis.

On top of the financial problems, many ethanol plants are only operating at 50% capacity and previously-announced plants are being stalled or stopped completely.

Given the not-so-rosy outlook overseas, is the reality hitting home for local biodiesel producers?

Of the total 91 approved biofuel licences approved by the Government, only 10 plants are in operation in Malaysia.
The survival of local biofuel producers is in question, compounded by the “exportâ€Â challenges faced in the form of subsidised US biodiesel to European Union (EU) which distorts prices and trade, the EU energy directive on greenhouse gases emission as well as the latest legislative move by the United States to give a tax credit of US$1 a gallon for US-produced biodiesel.

The Government has projected that 500,000 tonnes of biodiesel would be needed a year upon the full implementation of the B5 programme in 2010. (B5 is a blend of 5% biodiesel and 95% fossil-fuel diesel).

However, the poor take-up rate of less than 40 tonnes per month by the initial target group, diesel-owned government vehicles in the Klang Valley, is a big blow to most biodiesel producers.

Critical areas such as financing mechanism, logistics, infrastructure cost, blending facilities and the transportation of palm biodiesel still have not been seriously addressed by the Government despite the mandatory implementation for all diesel-engine vehicles in Malaysia to use the B5 by 2010.

For example, palm methyl esters (palm biodiesel) needs to be taken from the factory to the mixing depot where it is mixed with diesel.

The blend will then be sent to the petrol stations, but there is still not enough mixing depots to undertake the blending of B5.

Some quarters are blaming petroleum companies for being reluctant to help build dedicated mixing depots and enable some of their retail stations to supply B5.

It has also been said that oil companies are willing to help biodiesel suppliers but they are concerned about who would bear the costs incurred by the mixing depots.

To settle this issue amicably, the Government will need to fork out a reasonable level of capital expenditure for the setting up of more mixing depots nationwide.

For now, the Klang Valley supply depot is used as the nerve centre to blend the B5 and distribute it to various sub-depots at government agencies like the Kuala Lumpur City Hall and the Defence, Works and Health Ministries.

In Malaysia, users of diesel-engine vehicles are mostly found in places like Port Klang, Johor Baru, Kuantan, Lumut, Sandakan and Lahad Datu.