Malaysian biodiesel makers seek to level playing field with Indonesia

KUALA LUMPUR/SINGAPORE: Malaysian producers of palm oil-based biodiesel will seek new incentives from their government after Indonesian makers of the biofuel were promised an increase in subsidies to counter the impact of lower energy costs.

Any move by Malaysian authorities to encourage biodiesel consumption could fuel another rally in Bursa palm futures , which jumped 9 percent last week after Jakarta said it would boost subsidies for biodiesel nearly threefold.

Representatives of Malaysia's biodiesel industry will meet the plantation industries and commodities minister Douglas Uggah Embas in Putrajaya on Thursday to discuss what could be done to help the ailing sector.

Biodiesel demand took a hit after crude oil prices tumbled more than 50 percent from a peak in June last year, wiping out profit margins for blending palm oil into diesel.

"We are unlikely to get anything similar to what Indonesians have got because Malaysia is moving away from subsidies," said one industry source who will be part of the delegation meeting the minister, noting that the government had recently removed subsidies on gasoline and diesel.

"The producers are looking for some sort of tax incentives, which would be really helpful," the source said.

The Indonesian government's proposal to ramp up biodiesel subsidies overcame the final parliamentary hurdle on Friday, an Indonesian energy ministry official said, with the increase possibly taking effect next month.

Indonesia is looking to protect its fledgling biofuel industry against lower crude prices and the increase in the subsidies could potentially boost demand for palm oil.

Last year, Malaysia abolished export tariffs on crude palm oil to boost shipments, prompting a similar move by Indonesia. Indonesia and Malaysia, the world's top two producers of palm oil - used largely as a cooking oil - account for 85 percent of global output of the commodity.

Some analysts and industry officials said Malaysia might not act quickly to buttress its bleeding renewable fuel industry.

"Indonesia's policy and its ability to act on biodiesel industry has been much more efficient than Malaysia," said one commodities analyst who declined to be named because he was not authorized to speak to the media.

While implementation of a mandatory 7 percent blend of biodiesel in Malaysian transport diesel faced major delays, for example, Jakarta's energy ministry in 2014 raised the mandate for its transport sector to 10 percent, up from 3-10 percent previously.

"Besides subsidy schemes, government incentive programmes, and the blending mandates, we definitely need more progression," said David Ng of Phillip Futures in Kuala Lumpur.

"B10 is in talks, but implementation is still anybody's guess," he said, referring to a policy that would mandate a 10 percent minimum bio content in diesel. - Reuters