BANGI, Oct 9 (Bernama) -- Malaysian Palm Oil Board has been instructed totighten the criteria of approving applications from millers to increasethe capacity of palm oil mills.

"It is the policy now to encourage only millers with good track recordincluding an oil extraction rate (OER) of at least 18 percent to increasetheir operations," Primary Industries Minister Datuk Seri Dr Lim Keng Yaiksaid.

He said it has been brought to his knowledge that many mills haveinstalled their capacities higher than their approved annual throughput,stressing that this is not a healthy development and should be curbed.

The oil palm milling industry should not repeat the mistake of excessiveover capacity experienced by the refining sector in the 1970s, he said ata dialogue session with the milling sector here on Thursday.

Dr Lim said that through close monitoring of demand and supply of freshfruit bunches (FFB) in the approval of licences, the capacity utilisationrate has been at a level of 80-90 percent for the past 12 years.

Currently, there are 374 oil palm mills operating in Malaysia with totalannual throughput of 74.4 million tonnes, 67 percent of those mills arelocated in Peninsular Malaysia.

Dr Lim was happy to note that 135 or 38 percent of the mills have achievedOER of 20 percent and above last year, with the majority of 80 millsposting an OER of above 21 percent.

In 2001, only 40 mills achieved OER of above 21 percent. Last year theindustry average OER was 19.91 percent.

The minister also urged the millers to look seriously into upgradingtechnology as it is the only way to maintain the industry's competitiveedge and to position Malaysian palm oil on a sustainable footing.

He said that Malaysia has the planting materials that could double theaverage production per hectare to eight tonnes from four tonnes.

"We have the clone for planting materials but in order to get new plantingmaterials in we must replant," he said.

He added that the rate of replanting had slowed down compared with twoyears ago when the government offered a RM1,000 per hectare incentive.

Malaysia currently has 3.4 million hectares of oil palm areas, and thisincluded about 300,000 hectares with oil palm of above 25 years that haveyet to be replanted.

"Once the areas are planted with the new clone, the potential of themdoubling their productivity is there," he said.

He said that the palm oil industry need to achieve an average yield ofaround 8.8 tonnes per hectare per year in order to remain competitive inthe years ahead because of the rising cost within the country andcompetition from low cost producers overseas.

Dr Lim said that the plam oil industry outlook is very positive with crudepalm oil price now at RM1,500 per tonne, but there is not enough effortsput into marketing.

He said that crude palm oil price is still sold at about US$150 per tonnediscount to soyabean oil.

-- BERNAMA