6/1/07  (Bloomberg) -- Pioneer Bio Industries Corp., a Malaysian biotechnology company, will spend 1.4 billion ringgit ($400 million) to build an ethanol plant in northern Perak state that will extract the fuel from the nipah palm tree.

The company is the owner of a technology developed by Malaysian scientists that enables it to produce ethanol from the sap of the nipah tree, a coastal palm whose scientific name is Nypa Fruiticans.

Demand for alternative sources of energy has surged after oil prices rose to records in the past two years. Malaysia, the world's largest palm oil producer, has approved 75 biodiesel projects with planned investments of 7 billion ringgit, Minister for Plantation Industries and Commodities Peter Chin Fah Kui said last month.

Pioneer's plant, which has a capacity of 140 million gallons, will start production by the end of 2008 or early 2009, Chairman Md. Badrul Shah Mohd Noor told reporters today. The company will pay the Perak state government 324 million ringgit a year for the rights to harvest the sap from 10,000 hectares of the nipah plant.

He declined to comment on the source of funding for the 1.4 billion ringgit investment. Md. Badrul Shah, who owns a stake in Pioneer, also declined to name the other shareholders of the company.

The 10,000 hectares have the potential to produce 6.48 billion liters of ethanol a year and would require as much as 14.4 billion ringgit in investment for as many as 15 plants over three to five years, said project consultant Abd. Wahab Taib.

The company will seek investors to invest as much as 43.2 billion ringgit to produce ethanol from 30,000 hectares of the nipah tree, Abd. Wahab said.

Pioneer plans to sell the ethanol to customers in Japan, Korea, U.S. and Europe. The biofuel plant is a national project that is included in a five-year development plan announced by the government last year, Md. Badrul Shah said.

To contact the reporter on this story: Stephanie Phang in Kuala Lumpur at at sphang@bloomberg.net