PALM oil companies have stopped supplying the Government with discountedcrude palm oil (CPO) to burn as fuel for electricity generation under aprogramme introduced when the commodity's price was at a record low.

They are reluctant to continue to supply CPO at RM725 a tonne, the pricefixed by the Government for the project, because the commodity is nowfetching about RM1,100 a tonne, an industry source said.

"The CPO burning project has effectively been put on hold for lack ofsupply," he told Business Times in Kuala Lumpur yesterday.

The parties involved are expected to review the pricing, if not the entireproject.

The Malaysian Palm Oil Association (MPOA) and MPOB had signed a memorandumof understanding (MOU) in May for the plantation companies to supply theCPO to the Government, which in turn sells the CPO to Tenaga Nasional Bhdat RM700 a tonne to power up its plants.

The difference of RM25 a tonne was subsidised by a Palm Oil PriceStabilisation Fund set up to cover expenses incurred by the CPO burningproject.

The fund, set up under Cess Order 2000, collected RM4.00 for each tonne ofpalm oil produced by the country's plantations.

The project was initiated as part of efforts to reduce the palm oil stockoverhang which had ballooned to some 1.4 million tonnes at one time.

The brainchild of Primary Industries Minister Datuk Seri Dr Lim Keng Yaik,it was to have removed about 500,000 tonnes of CPO or 10 per cent of thenational output from the market by year-end.

But since July when prices started to surge and subsequently breached theRM1,000 a tonne level for the first time in 13 months, the project hasbeen taken off the burner.

It is now understood to be maintained only on a research and developmentbasis, but may still be re-activated on short notice should the marketsuddenly take a turn for the worse.

Yesterday, palm oil futures for September, October, November, December andJanuary closed at RM1,033, RM1,035, RM1,038, RM1,042 and RM1,050 a tonne,respectively.

Open interest totalled 11,980 contracts and volume was 1,463 lots.

04 September 2001Business Times