Malaysia palm-fuel project successful, says official

Malaysia palm-fuel project successful, says official

KUALA LUMPUR (Reuters): Crude palm oil (CPO) mixed with medium
fuel oil has been successfully burned as industrial fuel by
Malaysia's state utility Tenaga Nasional Bhd, an industry
official said on Wednesday.

"The burning works very well," said M.R. Chandran, chief
executive of the Malaysian Palm Oil Association (MPOA), which
groups the private sector of the oil palm plantation industry in
the world's largest producer country.

The government will officially launch the burning of CPO as
industrial fuel at Tenaga's plant in Prai district in northern
Penang next Monday, but commercial burning had already started,
said Chandran.

"This is only the official launch. But in the meantime, the
burning has already started," he added.

Last week, a total of 5,000 tons of CPO mixed with medium fuel
oil (MFO) were loaded into vessels for shipment to Prai from
Malaysia's main port, Port Klang, Chandran said.

"Commercial burning commenced after the blending of...CPO and
medium fuel oil on April 3 in Port Klang. The following day,
commercial burning had commenced in Prai. We are hoping to burn
about 400,000 tons this year," he said.

At 0920 GMT on Thursday, benchmark third-month June crude palm
oil futures were quoted at 844 ringgit ($222.10) a ton after
trading as low as 830 ringgit on overnight losses on the Chicago
Board of Trade (CBOT) and poor exports.

"You may say there was some covering sparked by news about the
burning. But in general, everybody knows the government will burn
the CPO," said one trader in Kuala Lumpur.

"There are even jokes whether the government really burns the
CPO. Some say the government is actually burning diesel oil,
which is claimed to be CPO," he added.

The MPOA is working together with the government to promote
the use of CPO as fuel in order to help ease stocks. Its members
have supplied the initial 50,000 tons of CPO to be used by Tenaga
at a price of 725 ringgit ($190.78) a ton.

The Malaysian government is trying to convince the skeptical
market that CPO mixed with medium fuel oil, a type of diesel oil
used by Tenaga to run boilers and generators, can be burned just
like diesel to create energy.

Crude palm oil will be mixed with medium grade fuel oil in
equal proportion to make it liquid enough to be supplied for
burning. Tenaga plans to burn 50,000 tons of CPO as fuel each
month starting in April.

"There is no need for the market to remain skeptical at all.
That's my view. There is no repercussion to Tenaga boilers, like
people have been reporting," said Chandran.

"What people are forgetting is whenever you use a naturally-
formed oil like vegetable oil, it is safer. And in fact the
maintenance and the upkeep and all that will be far
better...because you are using vegetable oil," he added.

Malaysia wants to improve palm oil prices to 950 ringgit
($250) a ton this year by taking at least one million tons of oil
from the market, which saw record high stocks of 1.52 million
tons last November because of poor exports.

Malaysia aims to burn around 400,000 tons of crude palm oil as
industrial fuel and replant 200,000 hectares of plantation areas,
which yield 600,000 tons.

"Burning of vegetable oils is also being done in western
countries. Rapeseed is being burned in Europe, soyoil is being
burned in the U.S. and also in South America.

"We have done extensive trials on this prior to (burning),"
Chandran said.

The Malaysian government has said it would purchase the
remaining 350,000 tons of crude palm oil at market price.

The CPO to be supplied to Tenaga is priced at 700 ringgit a
ton and the difference will be subsidized by a fund obtained
through a tax on all CPO produced. The government aims to take in
up to 90 million ringgit through cess collection.