CESS collected to support the crude palm oil (CPO) burning project,amounting to RM1.2 million, will go to the Malaysian Palm Oil Board (MPOB)to finance the ongoing research and development (R and D) of the project.

An industry source said with the commercial aspect of this project (whichis to be shelved) the MPOB will be given the task to continue with its Rand D to develop the CPO burning initiative while its prices remainvibrant.

"The plantation companies, which contributed to the RM1.2 million via cesscollection, will not get the money.

MPOB will use it for R and D on the crude palm oil burning initiative," hetold Business Times in Kuala Lumpur yesterday.

The source said plantation companies will continue paying the cess of RM4a tonne to MPOB even after the commercial basis of the project has beenshelved.

Called the Cess Order 2000, the companies are required to contribute toMPOB a cess of RM4 a tonne for the crude palm oil they produce.

The cess was introduced when the Government, in May, initiated the projectwith the cooperation of Tenaga Nasional Bhd, MPOB and the Malaysian PalmOil Association (MPOA).

Mooted by Primary Industries Minister Datuk Seri Dr Lim Keng Yaik, it wasaimed at reducing the national palm oil stock overhang which had stayedabove one million tonnes for some two years.

Between 20,000 tonnes and 30,000 tonnes of crude palm oil, blended withmedium fuel oil (a diesel variant) were to have been burnt each month bydiesel-powered Tenaga plants, or an estimated 500,000 tonnes by year-end.

But the project took a backseat when it did not anticipate that only 20per cent of Tenaga generators use diesel as fuel.

It was then decided that crude palm oil would be burnt by the diesel-firedpower plants in Sabah and Sarawak and by boilers such as those operated byglass, brick and cement making factories.

Still it was worthwhile pursuing the initiative as crude palm oil priceshad at that time sunk to below RM700 a tonne due to high production andintense competition from soyabean oil, rapeseed oil and sunflower oil,among others.

But a couple of months after the initiative was launched, prices surgedpast RM1,000 mark on July 12 for the first time in 13 months.

Although it is a far cry from the all-time high of RM2,700 a tonne in1998, the commodity has trended up to RM1,250 a tonne since.

"MPOB will not scrap the Cess Order 2000 because it is duty-bound to carryon with the project R and D to gather invaluable data and study itslong-term viability.

"Should prices fall again, MPOB will be better prepared for burning crudepalm oil and not be caught flat-footed like before," he said.

He said MPOB will likely source crude palm oil at the current market priceand not at the price of RM725 a tonne agreed to previously.

"I don't think MPOB will have much of a choice because no plantationcompany will sell at RM725 a tonne when prices have risen 50 per cent," hesaid.

MPOA supplies the Government with crude palm oil at RM725 a tonne under amemorandum of understanding signed in May.

The Government in turn will sell it to Tenaga at RM700 a tonne, with thedifference of RM25 made up for by the cess collection.

"In the event of the Cess Order 2000 facing a shortage, I don't think MPOBwill have much of a choice but to use its own finances to buy crude palmoil at market price.

"With the possibility of a shortage of funds, it is very remote becauseMPOB is not going to need that much crude palm oil.

Let's say they only need 1,000 tonnes a month to be burnt.

Based on current prices of RM1,300 a month, it will cost a total of RM1.3million.

"Malaysia's crude palm oil production averages one million tonnes a monthand based on the cess collection of RM4 a tonne, the fund will total atRM4 million which is more than sufficient to cover R and D costs," heconcluded.

Meanwhile on the Malaysia Derivatives Exchange yesterday, palm oil futurescontracts for August, September, October and November each gained RM12,RM35, RM32 and RM31 to close at RM1,270 a tonne, RM1,265 a tonne, RM1,263a tonne and RM1,264 a tonne respectively.

Total volume gained 612 lots to close at 2,423 lots and open position rose98 contracts to close at 11,581 contracts.

15 August 2001Business Times