Archive for August 2012

Sime Darby net profit soars to RM4.2b

KUALA LUMPUR: Sime Darby Bhd’s net profit for the year ended June 2012 rose 13 per cent to RM4.2 billion from RM3.7 billion a year ago, thanks to strong performances in its car and heavy machinery divisions, said president and group chief executive officer Datuk Mohd Bakke Salleh.

The plantation business, which typically makes up more than half of the group’s annual profits, saw a slight dip. 

In a briefing held here yesterday, Bakke said plantation net profit of RM3.2 billion was 2.3 per cent lower than the previous year because the group harvested less fresh fruit bunches. 

Erratic weather conditions, alternating between drought and heavy rainfall, stressed the oil palm trees and this had led to lower yields. Sime harvested 9.8 million tonnes of palm fruits, 3.4 per cent lower than last year’s 10.1 million tonnes.

Interestingly, the group managed to sell its palm oil at RM2,925 per tonne, marginally higher than RM2,906 per tonne in the previous year. Oil extraction rate, however, was a little bit higher at 21.8 per cent compared with 21.4 per cent, previously.

Following Indonesia’s palm oil tax restructure in October 2011, Sime’s refinery business suffered RM62.3 million in losses. This has narrowed from the previous year’s RM74.6 million loss which included an impairment of RM114 million.

Sime’s heavy machinery division experienced brisk business when it sold more mining equipment in Australia. This division chalked up RM1.4 billion in pre-tax profit, 27 per cent higher than previously, as it included maiden contribution from the newly-acquired Bucyrus business.

The property division’s operating profit inched 2 per cent to RM467 million from RM456 million.

Meanwhile, the energy and utilities division operating profit climbed 36 per cent to RM335 million, thanks to recognition of the deferred revenue from its power plant in Malaysia. Its China seaport business enjoyed higher cargo handling throughput at Weifang Port.

The healthcare division’s operating profit maintained at RM26 million, as the high number of patients was moderated by the slower nursing education sector and start-up expenses for the new Ara Damansara hospital.

Sime’s other businesses posted RM68.8 million in profits, a welcome relief from last year’s RM42 million loss. The turnaround was attributed to higher contribution from Tesco and the insurance brokerage business, which included RM29.7 million profit from the impairment of an investment sale.

For the full-year ended June 2012, Bakke highlighted Sime’s RM4.2 billion net profit surpassed its key performance indicator of RM3.3 billion by 27 per cent. 

“Return on average shareholders’ funds improved 16.6 per cent, surpassing our 13.3 per cent target. This is the second consecutive year we’ve exceeded our targets. We are well on track to realise the long-term targets outlined in our five-year strategy blueprint,” he added.

On the outlook for the current year ending June 2013, Bakke warned of challenging times as the group’s earnings are highly dependent on palm oil prices.

“Palm oil is trading at a significant discount of US$260 per tonne from soya. So, there’s still a lot of upside. But then again, there are also factors like the restructuring of Indonesian palm oil taxes that are pulling down prices,” he said.

On a positive note, Bakke is hopeful of the palm trees recovering from stress, enabling the group to harvest 10.4 million tonnes of fresh fruit bunches. This represents 6 per cent more than 9.8 million tonnes recorded in the year ended June 2012.

He then went on to say Sime is seeking to double its oil palm and rubber plantation landbank to surpass one million hectares by 2015. Currently, the group has planted 522,000ha of its 870,000 plantation landbank in Malaysia, Indonesia and Liberia.

“We’ve set aside RM7.75 billion as capital expenditure for the year ending June 2013. Of that total, about RM3 billion will go to our plantation business,” he said. “We remained focused on our growth trajectory and this includes expanding Sime’s plantation landbank in Indonesia and West Africa. We want to double up our unplanted landbank by 2015,” he said.

In Liberia, Sime holds a 63-year concession until 2072 to plant some 200,000ha with oil palms and 20,000ha with rubber. Last year, Sime Darby Plantation Cameroon Ltd (SDPCL) was established in Cameroon.

Sabah palm oil refiners to impose bigger discount

This is written by my colleague Rupinder Singh.

KUALA LUMPUR: SABAH's palm oil refiners will impose a higher discount to buy cheaper crude palm oil (CPO) beginning next month, a move likely to impact revenues of millers as well as planters in the state.

IJM Plantation Bhd chief executive officer and managing director Joseph Tek Choon Yee said refiners in Sabah want to more than double the existing discount of RM40 per tonne of CPO it gets from millers.

"Beginning September 2012, Sabah refiners are increasing the discount from RM40 a tonne of CPO to between RM80 and RM100 a tonne," Tek told Business Times recently.

It is learnt that Sabah's discounts of RM40 a tonne was a business agreement from before, when oil from there had to be shipped to refineries in Peninsular Malaysia.

"This higher discount is introduced by the refiners and will mean millers get lower sales proceeds. It will eventually cascade down to the planters as well," Tek said.

He said that in such a monopolistic situation the millers have no choice but to accept the "forced" discount. "In a way, if this continues, it will affect us (IJM) as well. We will make less RM40 to RM60 a tonne of crude palm oil that we produce from September onwards," he added.

The new discount to be imposed would translate to a loss of RM8 to RM12 a tonne of fresh fruit bunches effective next month. According to Tek, the additional discount is only imposed by Sabah refiners only.

The refiners' action is a result of Indonesia imposing a duty structure since October 2011 has dragged CPO prices down by lowering export taxes for processed palm oil products. Indonesia's move was put in place to boost its downstream activities but this has inadvertently affected Malaysia's palm oil refining industry as well.

IJM Plantations chief financial officer and executive director Purushothaman Kumaran said it makes no sense for refiners to introduce a higher discount at this juncture.

Just last month, he said, the Government allowed the export of another two million tonnes of duty-free CPO to prevent a build-up in stocks that could weigh on prices. The additional quota was a temporary response to Indonesia's change in its duty structure, which has pressured the competition.

However, he said, the planting industry associations and the government are already looking into the matter.

Felda Global not in talks with Sarawak Plantation

KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV) is not in talks to buy a stake in Sarawak Plantation Bhd.

In its filing to the stock exchange yesterday, the plantation giant said: "FGV is not in discussion with any party on acquiring a substantial stake in Sarawak Plantation Bhd."

FGV was correcting a news report alleging it is eyeing Sarawak Plantation that has 51,965ha of plantation landbank, of which 57 per cent is planted with oil palms. The news report claimed FGV wants to buy a substantial stake in Sarawak Plantation, which is currently controlled by its biggest shareholders Datuk Abdul Hamed Sepawi and the Sarawak State Government.

FGV operates 343,521ha of oil palm estates in Malaysia that produce 5.2 million tonnes of fresh fruit bunches. Last year, high rubber prices prompted its 10,308ha rubber estates to yield 7,269 tonnes of cup lumps for sale to industrial users.

FGV's 49 per cent-owned associate Felda Holdings Bhd is a force to be reckoned with, having milled 3.3 million tonnes of crude palm oil last year. This gives it a seven per cent global market share.

When contacted yesterday, a clearly exasperated FGV spokesperson said: "When FGV said it is pursuing various strategies to expand upstream business, it is a general statement. It does not refer to Sarawak Plantations (or, for that matter, any other organisation) specifically."

He then alluded to FGV's prospectus stating that some RM2.2 billion of RM4.5 billion raised at the recent initial public offering will go to the purchase of suitable agriculture assets in Indonesia, Cambodia and Myanmar.

Win-win solution to palm oil dilemma?

KUALA LUMPUR: Palm Oil Refiners Association of Malaysia (Poram) and Malaysian Estate Owners’ Association (MEOA) – representing both upstream and downstream stakeholders – suggest that the government lowers the current 23 per cent crude palm oil tax (CPO) to 8 per cent instead of increasing duty free CPO export quota.

This proposal is seen as a win-win solution to the present palm oil dilemma.

Recently, the Plantation Industries and Commodities Ministry announced the export of another two million tonnes of duty-free CPO by the end of next month – a move that many refiners see as throwing good money after bad.

This is because this decision will result in the government forgoing some RM4 billion in tax collection by allowing the export of up to 5.5 million tonnes of duty-free CPO.

In separate interviews with Business Times yesterday, a refiner and MEOA expressed their consensus to stem the losses and solve the current dilemma. As palm oil prices continue to fall in the last four months, the refiner said it is naive to assume that by pushing palm oil exports, stock levels will come down and this would prompt palm oil prices to jump. 

“Stock management is one thing, but there’s also the strengthening of the US dollar,” a refiner spoke on condition of anonymity. Does the government think they can really push prices up by pushing CPO exports?” he questioned.

He highlighted that a stronger US dollar is believed to have been hammering commodity prices, from energy to agricultural products. A stronger greenback makes commodities like palm oil more expensive to investors. When buyers have to pay more, the demand for palm oil decreases and that forces the prices to come down.

It is time the government take a more discerning approach.

The refiner suggested that by mirroring the tax margin between Indonesia’s CPO and refined palm oil, Malaysia’s refiners can at least stand a chance to compete based on existing infrastructure and plant efficiency.

“Let’s say the tax gap between crude and refined oil in Indonesia is 8 per cent, Malaysia’s CPO tax can be lowered to match that gap of 8 per cent from the current 23 per cent,” he said, adding this will allow oleochemical, specialty fats producers here buy crude palm kernel oil at competitive prices from refiners.

MEOA president Boon Weng Siew concurred with the refiner.

“When CPO tax is lowered from 23 per cent to 8 per cent, it will still be reasonable for our local boys to ship out CPO to their overseas refineries. We don’t need to have that duty-free CPO export quota then,” Boon said. 

He added that the government should do away with the current punitive windfall tax and have the proceeds of the 8 per cent CPO tax to subsidise cooking oil instead.

“Poram, Malaysian Palm Oil Association (MPOA) and ourselves are getting together to work out a pricing formula for growers to ensure fair supply of CPO to the independent refiners, so as to mitigate the impact caused by the Indonesian palm oil tax restructure,” he added.

Boon noted that palm oil prices have been on a four-month downtrend. In the last three weeks, it dipped below the “feel-good” psychological level of RM3,000 per tonne again. Yesterday, the third month benchmark CPO futures on Bursa Malaysia Derivatives Exchange traded RM2 higher to close at RM2,865 a tonne.

The downtrend in palm oil prices can be attributed to the restructuring of Indonesian palm oil taxes to attract downstream investments. 

Since August 2011, the Indonesian government widened the tax gap between crude and refined palm oil. This made CPO and crude palm kernel oil very cheap for downstream businesses there. On top of that, processed palm oil in the form of cooking oil, soaps and detergents shipped out from Indonesian shores are tax free.

The tax restructure bumped up Indonesia’s annual refining capacity to 23 million tonnes. By the end of 2013, another 12 million tonnes is expected to come onstream, bringing the total annual capacity to 35 million tonnes.

While refiners in Indonesia are laughing all the way to the bank, those in Malaysia are bleeding red ink.

As Indonesia widened the tax gap between crude and refined palm oil, refiners in Malaysia like Wilmar Group, Mewah Group, IOI Corp, Kuala Lumpur Kepong, Sime Darby and Felda Group began to lose money. The wider the tax margin between crude and refined palm oil in Indonesia, the more pain is inflicted on refiners here.

Dompok: More CPO exports in the best interest of all

KUALA LUMPUR: THE Plantation Industries and Commodities Ministry has stressed that the temporary increase in duty-free crude palm oil (CPO) export quota is in the best interest of all stakeholders.

They include from upstream (growers, millers and smallholders) to the downstream (refiners, processors, traders and exporters).

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok reiterated that the increase is an interim measure to manage stocks and ensure remunerative prices for the producers.

"The government is mindful that the palm oil sector has many stakeholders. This move is the best way for everybody," Dompok told reporters here after launching a ministerial- level Merdeka celebration yesterday.

The minister was commenting on the government's recent move to raise CPO export quota by an additional two million tonnes, making it a total of five million tonnes in 2012, or 30 per cent of total CPO production in Malaysia.

This is to address the falling market share contributed by Indonesian export tax structure on palm oil products and also as a stock management tool.

Palm Oil Refiners Association of Malaysia said the increase in CPO export quota is worsening the loss of money the downstream sector is experiencing, which was triggered by the restructure of Indonesian palm oil export taxes in October 2011.

Due to the increased quota on CPO exports, Malaysia's refining capacity usage has decreased to 60.8 per cent for the January-June 2012 period, compared to 72.9 per cent for the same period in 2011.

On another note, Dompok said nothing has materialised between Malaysia and Indonesia on talks to work out a common policy on export tariffs of the edible oil.

FGV reshuffling subsidiaries into 4 clusters

This is written by my colleague Zaidi Ismail.

KUALA LUMPUR: FELDA Global Ventures Holdings Bhd (FGV) is reorganising the 88 subsidiaries in its stable into four clusters to make it leaner and more efficient.

FGV president and chief executive officer Datuk Sabri Ahmad said the restructuring was part of the group’s 40-point initiatives to be implemented 100 days after its listing two months ago.

“The creation of the clusters is part of our plan to increase efficiency. We are setting things into motion in our bid to become one of the world’s top five agribusiness groups by 2020,” Sabri told Business Times recently.

The clusters are plantations, downstream, sugar and Felda Holdings Bhd. The latter is FGV’s associate company.

FGV’s businesses and subsidiaries, which are spread out over 10 countries, are currently not compartmentalised and controlled directly by FGV and Felda Holdings.

Felda Holdings alone has 44 subsidiaries. It is 49 per cent-owned by FGV and 51 per cent-owned by Koperasi Permodalan Felda Malaysia Bhd (KPF).

Sabri said each cluster would be headed and managed by its respective heads of department who will be reporting directly to him.

Plantations will be headed by its head of global plantations Fairuz Ismail, downstream by head of downstream business Martin Rushworth, sugar cluster by MSM Malaysia Holdings Bhd chief executive officer Chua Say Sin and Felda Holdings by Sabri himself.

“The clusters, however, will not be listed on their own in the future,” Sabri said, adding that only FGV and MSM would remain as the listed entity.

Other businesses such as catering by Felda D’Saji Sdn Bhd, Felda Travel and its trading arms will remain under KPF.

Due to the realignment, some of its 23,000 workforce would be redeployed. Each cluster will also have its own set of key performance indicators. The train had stopped at the station for quite a while. It’s time to rumble again.

TH Plantations profits to stay flat

KUALA LUMPUR: TH Plantations Bhd's earnings for the second half of this year are expected to stay flat as palm oil prices are likely to trade rangebound, MIDF Research said.

Yesterday, the third month benchmark crude palm oil price on the Malaysia Derivatives Exchange traded unchanged to close at RM2,918 per tonne.

Palm oil prices have been on a four-month downtrend. In the last two weeks, it dipped below the "feel- good" psychological level of RM3,000 per tonne again. The decline can be attributed to the restructuring of andonesia palm oil taxes that seek to attract downstream investment there. 

Apart from that, a stronger US dollar is believed to have been hammering commodities prices, from energy to agricultural products. A stronger greenback makes commodities like palm oil more expensive to investors. When buyers have to pay more, the demand for palm oil decreases and that forces the prices to come down. 

MIDF Research, in its notes to investors yesterday, said TH Plantations had incurred higher production cost in the second quarter-ended June 2012 as a result of the costlier fertiliser. The group also had to spend extra money to contain pest and disease outbreaks in its Sarawak and Pahang estates.

"We believe the ongoing intensive fertiliser programme will continue to drag margins within these two years," the research house said. 

TH Plantations' second quarter earnings for the period ended June 2012 declined 38.2 per cent to RM19.89 million from a year ago, no thanks to lower harvest of oil palm fruits and higher production cost. 

The research house noted the group's earnings came in below expectation, accounting for only 30 per cent of full-year forecast.

In maintaining its "neutral" call on the group, MIDF Research kept its forecast of TH Plantations stock price unchanged at RM2.40. The target price was derived from next year's forecast price-to-earnings ratio of 15 times.

In the longer term, the research house expects TH Plantations to rake in higher earnings in view of its recent landbank expansion to 90,671ha, with 57,407ha already planted with oil palms.

Playing second fiddle no longer

MALAYSIA, which is the world's second largest palm oil producer, has always looked up to Indonesia, the world's number one producer of the green commodity.

As the big brother, Indonesia should look after and take care of its younger sibling during both good and bad times. But lately, the signals that Kuala Lumpur has been getting from across the strait have been anything but supportive.

The oil palm industry has been suffering since October 2011 after Indonesia put in place a duty structure to boost its downstream activities by lowering export taxes for processed palm oil products. As a result, crude palm oil prices have softened and could deflate further.

The Palm Oil Refiners Association of Malaysia (Poram) said its members are crying foul as the playing field is no longer fair. The situation is made worse when the government recently announced that it would increase the duty-free quota for crude palm oil (CPO) exports by another two million tonnes, a move that is widely frowned upon by palm oil downstream players.

This not a surprise to me because when it comes to selling palm oil, Indonesia has always undercut Malaysia by selling it at US$10 (RM31.60) a tonne cheaper.

No problem there as everybody should compete in a fair marketplace. But Indonesia's actions could affect the sustainability of oil palm over the next 100 years and beyond.

Weak CPO prices brought about by an ally is no good for all palm oil producers in the world.

Malaysia has toiled in this industry for 40 years by sheer grit, sweat and sometimes the blood of its smallholders.

To quote Poram chief executive officer Mohammad Jaaffar Ahmad: "Because of this export duty structure, which will affect downstream activities in Malaysia, does it mean we should just hand it over to Indonesia after having built up the market for the past 40 years?"

Malaysia has also set up its own research and development agency as well as regulatory body - the Malaysian Palm Oil Board - and the private sector-driven Malaysian Palm Oil Council.

With all due respect to Indonesia, the republic's oil palm sector does not even compile and collate industry data on a regular basis. All Indonesia has done all the while is to follow the trail blazed by Malaysia.

It is time the Plantation Industries and Commodities Ministry stood up and solve our downstream business grievances. There is only so much that we can take. For starters, both countries should work out a common policy on export tariffs of the edible oil.

Malaysia may soon risk losing investments in the palm oil refining industry to Indonesia if it does not come up with a policy to create a level playing field. Enough is enough. We have played second fiddle long enough.

UP, Oleon invest US$32m in plant

KUALA LUMPUR: United Plantations Bhd and Oleon NV are investing US$32 million (RM99.8 million) to put up a new plant to produce food emulsifiers in Pulau Indah, Klang. 

UniOleon Sdn Bhd, their equally-owned venture company, will make and sell food emulsifiers as early as 2014. Food emulsifiers are mainly used in the bakery, dairy and confectionary industries. 

In a statement yesterday, United Plantations executive director Datuk Carl Bek-Nielsen said the joint venture facilitates access to new markets. 

“In this project, Oleon has partnered with United Plantations, which is the driving force in Malaysia on sustainable palm oil and whose plantations all meet the criteria of the Roundtable on Sustainable Palm Oil,” he said. 

Oleon NV is Europe’s largest oleochemical group with total capacity of 500,000 tonnes a year of fatty acids, esters and dimers production. It is a member of the French oilseed financial group Sofiprotéol. 

Oleon NV’s facilities in Ertvelde (Belgium) and Emmerich (Germany) produce basic oleochemicals (the whole spectrum of fatty acids, glycerin and bio-propylene glycol), and in Oelegem (Belgium) a dimer and ester production. 

Its plants in Sandefjor in Norway, Compiègne in France and Port Klang produce esters and resins. Oleon’s products are marketed under the Radia® and Nouracid® brand names. 

Refiners seek CPO quota clarification

This is written  by my colleague Rupa Damodaran.

KUALA LUMPUR: Local palm oil refiners are disappointed with the Plantation Industries and Commodities Ministry's rationale for the increase in the export quota of duty-free crude palm oil (CPO).

Palm Oil Refiners Association of Malaysia (Poram) is seeking justification for the additional two million tonnes in export quota for the CPO, which brought it to a total of five million tonnes this year. 

"Does it mean that the first three million tonnes have been fully utilised?" asked its chief executive officer Mohammad Jaaffar Ahmad. 

Poram, he said, was taken aback by the decision, which it learnt from news reports.

The ministry announced on Wednesday that the move was a temporary measure to address the falling market share contributed by Indonesia's export tax structure on palm oil products and also as a stock management tool.

The drop in market share is due to Indonesia's RBD (refined, bleached and deodorised) palm olein being cheaper by US$60 to $70 (RM187 to RM219) per tonne. At that level, refiners in Malaysia lose money when they refine or fractionate CPO.

RBD palm olein, which is obtained by fractionating RBD palm oil to separate the liquid parts (olein) from the solid parts (stearin), is used as frying oil for the food industry.

In the case of Indonesia, refiners buy CPO at a 15 per cent discount (because of export tax on CPO of 15 per cent).

"Unless this differential is corrected, there will be a build-up of CPO stock because refiners will continue to make a loss in running their plants as we cannot afford to consume more CPO," said an affected refiner.

Poram members said since early this year, some refineries had been running at only between 30 per cent and 50 per cent capacity, which they described as not a "profitable rate of utilisation". 

The ministry's revised CPO production from 19.4 million tonnes to 18.5 million tonnes for 2012, he said, meant that the monthly palm oil stock averaged about an extra 202,000 tonnes between the first six months of the year.

Based on the ministry's three per cent production increase to 10.621 million tonnes for the remaining six months, he said CPO production would amount to 303,000 tonnes. "Divided by the remaining six months, this would total 50,500 tonnes a month. If we add this 50,500 tonnes into the monthly average palm oil stock of 1.895 million tonnes, it will amount only to 1.945 million tonnes."

This, argued the refiner, would not have any bearing on the price level of CPO as this had all been factored into the futures CPO market well into November 2012 (averaging at RM 3,000 per tonne).

"Our question is why we are exporting CPO duty-free when we stand to lose RM660 per tonne (assuming the average CPO price is RM3,000 x 22 per cent export duty) in terms of uncollected tax? 

"Unless such a move will increase the price of CPO to RM3,660 per tonne, then we are even... which would be good for the country at large," he said.

"If the end result is that we are supporting the current price at an average of RM3,000 until the end of the year, this would mean we are throwing an extra RM1.32 billion for such an exercise (two million tonnes CPO x RM 660).

"The industry (at Palm Oil Lab) also proposed a new tax structure in line with the suspension of CPO duty-free quota. Why was this not considered?" he asked.

Gov: Rise in CPO export quota is temporary

This is written by my colleague Zaidi Isham Ismail.

PUTRAJAYA: The Plantation Industries and Commodities Ministry has reiterated that the increase in crude palm oil (CPO) export duty free quota is a temporary measure, aimed at stock management and ensuring remunerative prices for farmers. 

In a statement yesterday, the ministry said it will continue to discuss with all the relevant stakeholders to address the issue of the competitiveness of the palm oil industry in the longer term. “This is to ensure a balanced growth and the interest of all players in the industry is taken into account.” 

The government was responding to news reports on Malaysia’s move to allow more exports of duty-free CPO, which has also upset refiners. 

The decision to raise CPO export quota by an additional two million tonnes bumped the total to five million tonnes for 2012. 

The government, stressed this move is to address the falling market share contributed by Indonesian export tax structure on palm oil products and also as a stock management tool. 

Palm Oil Refiners Association of Malaysia (Poram) said the increase in duty-free CPO export quota has worsened the pain on refiners here, which initially was inflicted by the restructure of Indonesian palm oil export tax. 

The ministry said this year, CPO production is forecasted to touch 18.5 million tonnes. Therefore, the CPO duty free quota of five million tonnes accounts for 27 per cent of national output. 

For the January — June 2012 period, monthly average palm oil stock was 1.895 million tonnes, compared with 1.693 million tonnes for the corresponding period in 2011. In addition, production of CPO for the period of July-December 2012 is projected to increase by three per cent to 10.621 million tonnes compared with 10.318 million tonnes for the same period last year. 

The projected increased in CPO production in the second half of 2012 is expected to contribute to the increase in stock level and this could drag CPO prices. 

Since September 2011, the palm oil refiners have had numerous dialogues with the ministry regarding the competitiveness of these products vis-à-vis with those produced in Indonesia. 

This was contributed by the export tax structure in Indonesia which is aimed at promoting downstream operations there. 

In view of this, domestic refining capacity utilisation has decreased to 60.8 per cent for the January – June 2012 period, compared to 72.9 per cent for the same period in 2011. 

“The Ministry is concerned that due to the additional time required to address this issue, the additional window to reduce stocks through the CPO duty free mechanism has to be maintained.” 

It is also of the view that the development of the palm oil industry has to factor in the interest of all parties, including the producers and the processors. 

“We are currently undertaking a comprehensive review to further enhance the downstream sector of the palm oil industry and at the same time, ensuring the interest of the producers,” it said. 

This is taking into account that the palm oil industry is one of the key areas under the Government Economic Transformation Programme towards achieving developed economy status by 2020. 

To further promote production of high value added products and not to compete with basic processed products from Indonesia, the government provides incentives up to 40 per cent of capital cost for new investment in value added products. The products include surfactants, polyurethane, super olein, tocotrienol, phytonutrients, carotenoids. 

There's a lot at stake, says PORAM

PETALING JAYA: MALAYSIA, in allowing more exports of duty-free crude palm oil (CPO) and remaining indifferent towards the plight of palm oil refiners here, may be risking the loss of further investment and talent in its oleochemical, specialty fats and biodiesel sectors.

In an interview with Business Times yesterday, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad estimated that this year alone, the government is forgoing RM4 billion in tax collection by allowing export of 5.5 million tonnes of CPO. 

"At an average price of RM3,000 per tonne and tax of 22 per cent, 5.5 million tonnes of tax-free CPO amount to around RM4 billion.

"More damaging is the erosion of investors' confidence to further value add Malaysia's palm oil downstream sector and the opportunity loss in attracting highly skilled knowledge workers," he added.

While the bulk of Malaysia's refining capacity is owned by the large listed entities, Jaaffar noted that many of Poram members, who do not own oil palm estates, are foreign investors from the Middle East, Singapore, Japan and the US.

He stressed that by allowing more exports of duty-free CPO, the country is backpedalling on its overall policy to drive value-addition and talent recruitment into the sector.

"By raising the duty-free quota on CPO exports, a less conducive investment climate for refiners is being created. It is not just a sacrifice of CPO because refiners also produce olein, stearin, palm fatty acid distillate and palm kernel oil for the oleochemical, specialty fats and biodiesel sectors," Jaaffar said.

Ancillary services supporting these businesses such as logistics, packaging and bulking facilities are also suffering.

The indifference towards foreign investors' interest in Malaysia's refining sector is driving away future investments to Indonesia. "Once investors sink their money there, they will not put their money in Malaysia anymore because it is much simpler to build on their refineries in Indonesia," he said.

It will be very hard for Malaysia to catch up as Indonesia's downstream sector becomes more advanced in the next year or so.