2/10/95 (Business Times) - THE Government's strong push for development ofbiodiesel will produce two immediate benefits - reducing dependence onfossil fuel and stabilising palm oil prices.

Prime Minister Datuk Seri Abdullah Ahmad Badawi said the Government isjoining the private sector in setting up three palm oil biodieselcommercial plants with a total capacity of 180,000 tonnes, principally forexport.

"Biofuel based on palm oil can reduce the nation's dependence on petroleumand also has lucrative export potential," Abdullah, who is also Ministerof Finance, said in his Budget 2006 presentation in Parliament.

A policy to widen production and use of biofuel aimed at encouragingcommercialisation efforts in its technology by local research institutionsis being planned. Within this year, the Government will formulate aNational Biofuel

Policy, which will encompass the formulation of a national industrialbiofuel Act as well as the provision of various incentives to encourageprivate sector involvement. The biofuel Act will be tabled in Parliamentnext year.

Chairman of Malaysian Palm Oil Association (MPOA) Datuk Sabri Ahmad hopesthe incentives for biofuel producers would include a rebate on corporatetax as venturing into the biofuel sector would require a huge capitalexpenditure.

"The savings from the reduction of subsidy for fossil fuel can bechannelled to biofuel production. Incentives are necessary as the price ofCPO is higher than that of diesel," he said.

He added that the biofuel sector would provide a new stream of revenue notonly for the palm oil industry but also the country.

Sabri expressed confidence that the demand for biofuel would increasetremendously because fossil fuel prices had reached record high and werestill rising against a slower discovery of new reserves.

Sabri said although for a start the Government would set the biofuel mixat 5 per cent of processed palm oil and 95 per cent of diesel on a pilotbasis, a total of 500,000 tonnes of palm oil would be used for thispurpose each year.

"About RM100 increase in the price of crude palm oil will translate into aRM1 billion additional revenue for the country," he said.

Abdullah, meanwhile, also said that Malaysia must reduce its dependency onoil, particularly through the development of alternative energy resources,such as natural gas, biodiesel and solar.

Abdullah said Malaysia has gas reserves of 85 trillion sq ft and since gasis an environment-friendly fuel, its usage must be encouraged. Tofacilitate vehicle owners to use gas, the number of retail gas stationscurrently totalling 51 will be doubled by 2007.

To encourage trucks and buses to utilise gas, it is proposed that importduty and sales tax exemption be given on chassis with engines of monogastrucks and buses as well as conversion kits. A grant of RM50,000 per buswill also be provided for each monogas bus acquired until the end of 2008.Tax incentives will be given for the expansion of the gas reticulationnetwork.

Currently, companies generating energy from environment-friendly renewableresources, such as biomass, hydropower not exceeding 10 megawatts andsolar energy are eligible for tax incentives. The Government proposes thatthe existing incentives for production of energy from renewable resourcesbe enhanced by increasing the level of tax exemption under pioneer statusfrom 70 per cent to 100 per cent for 10 years, and the rate of investmenttax allowance from 60 per cent to 100 per cent for five years The periodto apply for these tax incentives is to be extended until December 312010. In addition, import duty and sales tax on equipment used for theseactivities, which will expire on December 31 2005, has also been extendedto December 31 2010.