10/12/2008 (Alibaba.com), Kuala Lumpur - Malaysia will sell palm biodiesel at domestic fuel pumps by January 2010, Commodities Minister Peter Chin said on Wednesday, adding that the government was in talks with independent power producers on burning palm oil as biodiesel.

"By January 2010, palm biodiesel will be available at all the pumps nationwide, of course within reasonable delivery distance," Chin told reporters.

The use of biodiesel in transport and industry is part of a slew of measures to boost faltering palm oil prices, which have tumbled nearly two-thirds on a combination of surging stock levels and funds fleeing commodity plays in the wake of the global financial crisis.

The benchmark February palm oil contract on the Bursa Malaysia's Derivatives Exchange rose 1.9 percent to 1,585 ringgit ($439) at 0622 GMT.

Malaysia, the world's second-largest producer of crude palm oil, has implemented mandates for biodiesel and will give aid to the industry to replant as part of the package of measures to boost demand for crude palm oil and curtail oversupply.

Asked whether the government is in talks with independent power producers (IPPs) regarding burning palm oil as biodiesel, Chin said "Yes."

He declined to say how much palm oil the IPPs, which include YTL Power, Sime Darby, Tanjong Plc and MRCB, could use as biodiesel.

"We were told Tenaga Nasional does not use diesel generators anymore. Maybe the IPPs can. So we will look at these industrial people firstly because they have been using diesel," said Chin.

Malaysia expects to use 500,000 tonnes of crude palm oil for transport and industries in 2009, Chin said.

In 2006, Malaysia took the lead in developing Asia's biodiesel industry and granted licenses to more than 90 firms to set up plants with grandiose visions of introducing palm biodiesel into the domestic fuel market.

But until recently, sky-high prices and a preference to divert palm oil into the more lucrative food industry saw the government dragging its feet. Now palm biofuel would have to compete with cheap domestic petrol diesel, one of the lowest priced in Asia as the government still pays out subsidies from oil and gas export revenues.

Malaysia consumes 10 million tonnes of diesel a year. ($1=3.614 ringgit)