Malaysia, Indonesia to Mandate Use of Biodiesel Early in 2009

Kuala Lumpur, Malaysia | January 05, 2009 by D-8 Secretariat

Biodiesel as alternative energy resource gains momentum for D-8

Malaysia and Indonesia, which jointly account for 85% of global palm oil production, will implement the blending of biofuel into fossil diesel early next year (2009), the two countries said in a joint communication.

Malaysia will implement the blending of 5% palm-based methyl ester with fossil diesel beginning February next year, according to a statement released Friday by the Malaysia’s Ministry of Primary Industries and Commodities.

Indonesia, on the other hand, will mandate 1% blending in the public transportation sector and a minimum of 2.5% blending in the industrial and commercial sectors starting January 1, the statement said. Currently though, 5% of diesel is being blended with biofuel in these sectors.

The announcement came after Indonesia’s Minister of Agriculture Anton Apriyantono and Malaysia’s Minister of Plantation Industries and Commodities Peter Chin met last Thursday in Jakarta to discuss bilateral cooperation in strengthening commodity prices, in particular palm oil and rubber.

Both countries were of the view that appropriate measures needed to be taken to ensure stable prices, in particular for palm oil. These measures included managing palm oil stocks and reducing supply through replanting programs, which have been successfully implemented previously to address falling palm oil prices, the statement said.

Besides the implementation of biofuel programs, both countries also agreed to accelerate replanting of oil palm trees, which are above 25 years old in a bid to reduce palm oil supply from both countries; to increase domestic demand of crude palm oil by developing downstream activities in both countries; to jointly engage major importing countries of palm-based methyl ester in addressing non-tariff barriers; and to manage their palm oil stocks through the exchange of data on production and stock level.

The ministers also expressed concern on the non-tariff barriers for palm oil being imposed by major importing countries, such as the European Union and the US. These include the recent proposal by Germany on the exclusion of the use of palm oil for biofuel.

Both ministers expressed disappointment on this development, despite efforts by the industry in their respective countries to produce sustainable palm oil under the framework of the Roundtable Palm Oil, the statement said.

“These restrictive policies have created an uneven playing field and depressed the prices of palm oil compared with rapeseed oil. Taking cognizance of these market access impediments contributing towards reduced consumption of palm oil for both food and non-food purposes, Indonesia and Malaysia are already implementing policies, which encourage increased domestic utilization of palm oil such as in the biofuel and power generation sub-sectors,” it said.

Malaysia’s crude oil prices have plummeted by 60% over the last eight months to current levels of around Malaysian Ringgit 1,655/mt ($459), pulled lower by a buildup in stocks and slumping demand. Palm oil producers have been appealing to the government to take measures to shore up prices.

Malaysia, which produced 15.82 million mt of crude palm oil in 2007 versus Indonesia’s 16.8 million mt, hasn’t sold any biofuel at home. Most of its biofuel output is exported to Europe and the US. The mandatory 5% of domestic diesel consumption in Malaysia to be replaced by palm-based methyl ester is expected
to create new demand for about 500,000 mt of palm oil per year, Chin had said last month.

Malaysia and Indonesia has expressed its interest in biofuel cooperation among D-8 member countries in the Working Group for Energy this year in Cairo, Egypt.

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