4/5/06 (Financial Times) - The Philippines yesterday inaugurated Asia’s first large-scale biodiesel plant, which can produce up to 60m litres a year of the alternative fuel from coconut oil, a big step for the poor south-east Asian country.

Chemrez Inc, a Manila-based oleochemicals maker, built the plant for 650m pesos ($12.6m, €10m, £6.9m) ahead of the passage later this year of legislation requiring petrol refiners and distributors to sell diesel fuel mix with at least 1 per cent coconut oil, and petrol containing at least 5 per cent of sugar ethanol.

The company expects initially to export up to 80 per cent of its output to Europe, the world’s biggest biodiesel market, as well as to Japan and Australia, while local petrol distributors set up the infrastructure for pre-blending the biofuel, said Jun Lao, Chemrez president.

Across Asia, governments and companies are developing plans to build biofuel plants or expand production of palm oil, sugar, jatropha and other crops that could prove to be cheaper and more sustainable alternatives to fossil fuel-based petroleum products.

In Malaysia, palm oil plantation companies, in partnership with the Malaysian Palm Oil Board, are planning to build three 60,000-tonne plants to export biodiesel.

Kuala Lumpur is also considering a law requiring petrol stations to sell biodiesel using palm oil from 2007 in an effort to reduce state diesel subsidies.

“We expect to hold the distinction of being Asia’s first large-scale biodiesel plant for only six to eight months because bigger projects, especially in Malaysia, are coming on stream later this year and early next year,” said Mr Lao.

He said global demand for biodiesel was set to rise as European Union members switched to palm or coconut oil from more expensive rapeseed in producing biofuels.

The Philippines, which buys all its crude oil requirements from abroad, saw economic growth fall to 5 per cent last year from a 15-year high of 6.1 per cent in 2004 mainly because of inflationary pressures stemming from soaring crude oil prices. The country’s trade deficit grew by almost a third to $7.5bn as its oil import bill surged.

Gloria Macapagal Arroyo, the Philippine president, welcomed the new biodiesel plant and said it represented a big step forward in the country’s efforts to find a solution to soaring world crude prices.

Unable to cut taxes on petroleum, much less subsidise gas prices because of the government’s large budget deficits, Mrs Macapagal is instead promoting private investments in alternative fuels such as biodiesel from coconut oil, ethanol from sugar and compressed natural gas.

Her cabinet recently rejected a proposal from an economic adviser to suspend the collection of the 12 per cent value added tax on petroleum products to provide immediate relief to consumers.

The move could lower the unleaded gasoline price by about a tenth but would also cost the government about 29bn pesos a year in forgone revenue, equivalent to about a fourth of its 125bn pesos budget deficit target this year.