10/03/2008 (The Edge Daily), Kuala Lumpur - When reports that European Union (EU) might ban biofuels derived from crops grown on some sensitive ecosystems surfaced, Malaysian palm oil players were feared to be the biggest casualties.

Being the second largest palm oil producer in the world (after Indonesia), the country has always been known to be potentially a major biodiesel producer.

Countries such as Brazil and the US are already eyeing the EU market, which is seen as lucrative after the 27-nation bloc called for biofuels to make up at least 10% of fuels used in transport by 2020.

On the local front, Malaysian Palm Oil Board chairman Datuk Sabri Ahmad in January said the country might introduce the 2%palm oil-blended diesel this year.

So far, the government has given more than 90 biodiesel licences to various companies, which could potentially churn out about 10 million tonnes of capacity.

However, according to a Reuters survey, only seven plants are running, and most of these plants are operating well below capacity. The survey also showed 14 projects with a combined capacity of more than two million tonnes having been shelved or delayed.

Reasons cited were high crude palm oil (CPO) prices, which keeps luring players into producing palm oil for more lucrative industries instead of fuel, and high cost of investment in setting up facilities for biodiesel.

According to analysts, average costs for biofuel would be about RM4,000 per tonne. Even conglomerates such as Sime Darby Bhd does not seem keen to plunge into the biodiesel industry at the moment.

When met in Sabah, Sime Darby group managing director Datuk Ahmad Zubir Murshid said the conglomerate wanted to seek more participation in palm oil downstream activities, starting with bulking and refinery processes.

“We are looking at the economic viability of developing downstream activities, including a bulking facility, which can be exported to the Far East, such as China, but no, no, we are not going into biodiesel yet.

“We will look at other palm oil related downstream activities such as oleochemical and biodiesel as we progress further,” he told The Edge.

However, with the government’s heavy publicity on Jatropha at the recent Sabah Development Corridor launch recently, industry onlookers wondered if it could bring the shine to the country’s lacklustre biodiesel industry.