Archive for April 2014

GST may pose cash-flow woes

CONCERNED: Cash-flow problems can arise if tax claims refund not paid on time by Customs, says Poram

SUBANG JAYA: CASH-STARVED palm oil refiners, especially small cooking oil repackers, may  face cash-flow problems if the Customs Department’s payment of claims under the goods and  services tax (GST) is not carried out in a timely manner.

“Millers will charge us a six per cent GST upfront on purchases of crude palm oil (CPO). As refiners, we’re not allowed to pass on this cost to our clients as exports of palm oil are zero-rated under GST. 

"This means, we are expected to make our monthly tax claims to the Customs and we’re promised of refund within two weeks,” said Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohamad Jaaffar Ahmad, here, yesterday.

He gave an example of a typical refinery buying 20,000 tonnes of CPO from the miller in a month. At the current price of RM2,500 per tonne, the purchase works out to be RM50 million monthly. So, the six per cent GST on RM50 million worth of CPO is RM3 million.

“That’s RM3 million a month stuck in the system for every refiner. Compared to oil palm planters who make reasonably good profits, the refinery business is very much a play of margins. Sometimes, when CPO prices jump, we’ve no choice but to tolerate negative margins,” he said. 

“Come April 2015, if the Customs collection and refund system is not robust enough to execute timely payments, the financially weaker refiners among us will definitely face cash-flow problems. Time is money and refiners operate on tight margins,” Mohamad Jaaffar told Business Times. 

It was reported that Customs director-general Datuk Seri Khazali Ahmad said his agency would be using a new software to facilitate the GST implementation. Known as MyGST, it was developed at a cost of about RM100 million.

“The MyGST system will be integrated with the National Registration Department and the Companies Commission of Malaysia. Later, it will also be linked to all the banks in the country,” Khazali reportedly said.

Last month, Deputy Finance Minister Ahmad Maslan announced the government had allocated RM150 million in subsidy for small and medium enterprises to purchase GST-compliant accounting software. He also said the GST will allow the government to reduce its reliance on income tax and petroleum earnings.

It was reported that the Customs is expected to reap RM22 billion per year when GST is implemented, about 40 per cent more than the RM16 billion collected from the sales and services taxes currently.

Sarawak oil palm planters back MSPO

KUCHING: Oil palm planters in Sarawak have pledged full support for the soon-to-be-launched Malaysian Sustainable Palm Oil (MSPO) certification that reiterates the country’s commitment to people, planet and profits in oil palm development.

The MSPO is said to be a reflection of a unified code of laws concerning best practices throughout the supply chain, from oil palm planting to palm oil processing.

Basically, it is modelled in line with the rules of the World Trade Organisation (WTO).  MSPO is meant to facilitate palm oil market access through the mechanism of  WTO and other multilateral or bilateral agreements with buyers.

The Roundtable on Sustainable Palm Oil (RSPO), set up in 2004, was initially hailed as a forum where stakeholders of diverse interests are considered as equal partners.

Somehow, over the years, the roundtable concept of equal duties and rights became lopsided. The RSPO has tipped in favour of environmental and animal rights activists.

Oil palm planters in Malaysia and Indonesia, which are increasingly treated as the whipping boy of modern agriculture, are losing faith in RSPO, which has evolved into a green activist-driven organisation that is increasingly seen to curb the growth of the oil palm industry, particularly those grown on peat soil.

“Western environmental activists’ blanket threats of banning palm oil supply from forest or peat areas is discriminatory to oil palm producers, particularly from Sarawak,” said Sarawak Oil Palm Plantation Owners Association (Soppoa) secretary Philip Ho.

“The  activists’ discriminatory stance is denying palm oil access to international markets and this raises food security risks among developing nations. This is  not justified as their demands interfere with Sarawak’s sovereign rights in deciding its  land usage,” Ho told Business Times.

“The  activists' preference for big plantation companies’ palm oil supply also condemns small oil palm farmers to perpetual poverty,” he said in a telephone interview  yesterday.

Ho  explained that the oil palm is a resilient crop that can be planted on mineral and peat soil. Oil palm planters in Sarawak invest a lot of money in heavy machinery to clear the land, compact the peat soil and dig up trenches. Yet, western  activists spread their mantra on the Internet that the planting of oil palms on peat soil is deemed polluting and, therefore, not sustainable.

To correct such broad misconceptions of peat agriculture, Ho said Soppoa has urged the government to intensify efforts in disseminating the facts and figures of peat agriculture.

In rolling out MSPO, Malaysia hopes to restore the balance of social and economic aspects of oil palm cultivation to be on par with environmental protection.

Look at us!

Synchronised swimming -- an aquatic sport that fuses flexibility, balance, endurance, strength and … palm oil? Yes, one of the critical elements of synchronised swimming that captures the judges' attention is the make-up. Unknown to many, water-proof cosmetics such as lipstick, moisturiser, hair gel and sun bloc are oleochemical derivatives, which in turn are processed from palm oil.

To last for a whole performance — equal to at least four laps up and down the Olympic size pool — synchonised swimmers' water-proof make-up have to be “strong” enough to withstand a tough beating underwater. To get the right look ...
1. Apply a layer of primer on their eyes to help the eye shadow stay on.
2. Then apply layer after layer of shadow, caking it on so that it is bright and doesn’t get washed after one dunk in the pool.
3. Then come the layers of eyeliner and mascara — the more the better — to make their features stand out.

Synchronised swimmers also slick back their hair using super-sticky gel, made from oleochemicals. This gooey stuff helps keep their silky mane at bay throughout the competition. It only melts away after 30 minutes of hot shower.

25MW for biomass, biogas operators

ENCOURAGING LOCAL KNOW-HOW: Govt raises bonus tariff to 5 sen/kWh from 1 sen/kWh

PUTRAJAYA: The government has allocated 25MW (megawatt), or 39 per cent, of this year’s 65MW renewable energy (RE) quota to biomass and biogas operators, said Sustainable Energy Development Authority (Seda) chief executive officer Badriyah Abdul Malek.

Up until last year, biomass and biogas made up 37 per cent of the 536MW RE quota. Oil palm biomass and biogas plant operators, which had successfully bid for the RE quota and accorded licences by Seda, will receive 32 sen/kWh (kilowatt per hour) under the feed-in tariff (FiT) when they hook up to the national grid.

In encouraging the use of local engineering know-how, the government has raised the bonus tariff to five sen/kWh from one sen/kWh, Badriyah said after Seda’s public briefing on the RE licence bidding process, here, yesterday.

This means a qualified biomass operator supplying RE to the power grid should be able to receive 37 sen/kWh if he uses local gas engine technology, Badriyah explained.

She highlighted to prospective RE producers that online bidding for the right to apply for RE quota opens on May 2 from 4pm onwards.

The FiT essentially guarantees RE producers a premium selling price over that generated from depleting and finite sources such as oil, gas and coal. Power generated from sustainable sources that will benefit from FiT include that of oil palm biomass, biogas, small hydro and solar. 

Like previous years, a prospective RE producer will have to bid for the right to apply for the FiT and this is done via online so as to ensure a transparent application process. The online FiT application is available from May 2.

RE producers need to go online and bid for the relevant FiT rate as the FiT rate differs for different RE technologies and installed capacities.

RE producers then apply for a licence from Seda through its website at In applying for a FiT approval, the prospective RE producer needs to submit the work plan for the RE installation/plant.

Once the FiT is granted, Seda will closely monitor each RE installation until commencement date is achieved. This is to prevent the applicant from monopolising the RE quota. 

Once a FiT application has been approved, a portion of the RE fund will be automatically allocated to the approved applicant. To avoid any monopolisation of the RE quota, Badriyah noted Seda’s online system will track the RE installation/plant’s milestones via the submitted work plan. 

If any delays are detected, a notice will be sent to the applicant to request for an explanation for the delay. If the applicant fails to respond satisfactorily, then the application will be revoked.

When that happens, the fund committed to the applicant will be released, and this will return the allocated quota to the system. “This is to prevent any abuse of the FiT system and to allow other interested parties to apply for it,” Badriyah said.

Palm oil to recover

BANGI, Selangor: Palm oil, which is currently trading at around RM2,600 per tonne, is sizeably undervalued and is set to recover, a top edible oils analyst said yesterday.

Hamburg-based Oil World executive director Thomas Mielke believes that palm oil prices have reached the floor and are set to recover in the months ahead, probably reaching or surpassing RM2,900 per tonne.

“Last year’s price lows of around RM2,300 per tonne are now fluctuating in higher territory, partly because of a considerably increased biofuels mandate in Indonesia, which will probaly lead to a trebling of Indonesian domestic biodiesel consumption this year,” he said.

In the last two weeks, palm oil traded at a premium to the South American soya oil. The world is actually facing tight supplies of palm oil, which Mielke estimates to rise by only 1.8 million tonnes in October to September 2013/14 season, compared with a year-on-year growth of 4.8 million tonnes previously.

He said prolonged drought in many parts of Indonesia, Malaysia and Thailand have stressed the trees and will result in lower- than-expected production in October-December 2014 as well as in 2015 and 2016.

“Weathermen see a 70 per cent risk of El Nino conditions occurring later in 2014, which would further complicate an already tight situation,” Mielke told a forum organised by the Malaysian Palm Oil Board (MPOB), here, yesterday.

“This season, world exports of palm oil will decline for the first time in 16 years. Some relief will come from higher world production and exports of seed oils, primarily soya oil and sunflower oil,” he said.

Mielke noted that global edible oil stocks are running low and are down by two million tonnes from last year, primarily in Indonesia, Malaysia, the United States and India.

“At present, palm oil prices of US$900 (RM2,907) per tonne in Rotterdam is not reflective of the fundamentals. I think palm oil still has room to appreciate to or above US$1,000. For 2014, the price average will probably reach US$970 per tonne in Rotterdam,” he said.

He stressed that the oil palm industry must continue its focus on yield improvement to overcome the gap between actual and potential yields. 

“Palm oil is the most important vegetable oil in the world. Together with palm kernel oil, they satisfy one-third of the world’s consumption and make up 63 per cent of the world’s exports of edible oils and fats. This substantial amount of palm oil is produced on only six per cent of the world’s oil crop area." 

"There is an urgent need to improve the logistics and supply channels so as to satisfy demand of consumers worldwide in a timely manner,” he said.

“Oil palm is the highest-yielding of all oil crops, as it is able to produce about four to five tonnes of palm oil per hectare in a year. Attacks by these NGO (non-governmental organisation) big boys show that they do not understand the significance of palm oil to the daily diet of consumers all over the world, particularly in developing nations,” he said.

  He said last year, the world’s production of palm oil amounted to 56.2 million tonnes, while consumption jumped to 57.3 million tonnes, adding that the world needs an additional five to six million tonnes of edible oils and fats every year.

“Indonesia and Malaysia must not be complacent. By 2020, palm oil output will have to reach at least 78 million tonnes to satisfy the daily oils and fats need of an increasing global population. The world needs to plant more high-yielding oil palms,” he added.

Sarawak balances the needs of people, planet & profits

This is written by my colleague Dennis Wong at Kuching bureau.

IN A DILEMMA: State leaders defend land use despite NGOs’ increasing false allegations over lack of orangutan’s habitat

SARAWAK is the last frontier for the pongo pygmaeus or orangutan and it is the state's responsibility to ensure this species is well protected for the next generation.

Studies have shown that more than 3,000 were sighted in the state and most were in the Lanjak Entimau Wildlife Sanctuary and the Batang Ai National Park, particularly in Nanga Delok. Despite the state's ambitious move towards becoming an industrialised state, Sarawak is putting aside one million hectares as a "Totally Protected Area" and it is at 799,627.7ha, about 80 per cent of the target.

Among areas designated include 182,983ha in Lanjak Entimau Wildlife Sanctuary, which is also the natural habitat for the orangutan. It was initially gazetted, covering three divisions -- Sarikei, Sibu and Kapit -- 31 years ago in 1983, with an area of 168,758ha and later extended to another 14,225ha last year. Batang Ai, on the other hand, is one of the state's national parks, covering 20,040ha. 

Sarawak has a land mass of nearly 12,445,000ha, where almost 65 per cent of the area are hill forests, 20 per cent secondary forests, 10 per cent peat swamp forests and five per cent mangrove forests. Some 20 per cent of these land masses also include cities, smaller towns, scattered villages and oil palm plantations.

Second Resource Planning and Environment Minister Datuk Awang Tengah Ali Hassan said no logging was allowed in any of these designated areas, which include wildlife sanctuaries, national parks and nature reserves. 

"We have also decided to put aside no fewer than six million hectares of land for permanent forests," he said at the recent launch of the state-level World Wildlife Day celebration.

Despite harsh non-governmental organisation attacks over the state's management of its nature, the state government is holding close to its forests management and conservation programmes. 

"More than 80 per cent of our land mass is under forest cover and, on the contrary, some developed countries in the west have no more than 10 per cent of forests cover," said Awang Tengah.

Some non-governmental organisations (NGOs) have alleged that logging and oil palm cultivation have affected the orangutan habitat and, in December 2013, he noted Singapore-based Wilmar International Ltd signed a "No Deforestation, No Peat, No Exploitation" pledge in its palm oil trade with consumer goods giant Unilever Plc.

Wilmar's refinery in Bintulu is the main buyer from 41 palm oil mills across the state, absorbing 1.7 million tonnes of crude palm oil (CPO) or 55 per cent of the state's production. This move also affects nearly 19,000 smallholder participants of the poverty eradication programme with an estimated annual return of RM3,328 per hectare.

Land Development Minister Tan Sri James Jemut Masing likened Wilmar's action as unreasonable prohibitions on its palm oil suppliers akin to economic bullying, adding that this directive was disastrous as it could jeopardise the government's poverty eradication programmes.

"The state government will not succumb to baseless allegations and I do not agree with the argument that planting oil palms in logged-over areas and peat swamp is bad for the environment. Oil palm planters in Sarawak follow a set of proven good agricultural practices that balances the needs of people, planet and profits," said Masing in a recent interview.

After a strong stance from the state, Wilmar conceded and its chairman and chief executive officer Kuok Khoon Hong assured that the company's policy would not affect CPO purchases from oil palm that had already developed large tracts of peat land.

Tengah and Masing were right to stand firm against these illogical attacks over the state's nature management. Indeed, wildlife must be protected; one must not forget that humans living on these lands also need to improve their lives so they can move forward.

Perhaps oil palm plantations are not as majestic looking as the vineyards of Europe, but these trees grow better here and provide better yields for the farmers.

Boustead Plantations set to raise RM928m

PETALING JAYA: Boustead Plantations Bhd’s initial public offering (IPO) is expected to raise close to RM1 billion, said Boustead Holdings Bhd deputy chairman and group managing director Tan Sri Lodin Wok Kamaruddin.

“We have received shareholders’ approval for the listing of Boustead Plantations,” he said at a briefing, here, yesterday. “Based on an indicative offer price of RM1.60 a share, the IPO should be able to raise RM928 million. The listing is slated for mid-June. As of now, there are no cornerstone investors,” Lodin said.

He noted that the Boustead Plantations IPO is timely because the price of crude palm oil (CPO) is on the uptrend. “At the moment, CPO price is averaging RM2,675 per tonne. In view of the Ramadan month starting in June, palm cooking oil buyers from Muslim nations are set to stock up on this kitchen staple in preparation for the Aidilfitri celebration. This is set to boost CPO prices,” he said.

It was reported that Boustead Plantations will be selling up to 41 per cent of its shares, of which 10 per cent is for institutional investors and 31 per cent for retail subscription.

In July 2013, Boustead Holdings Bhd paid RM2.30 a share for the 46.6 per cent it did not already own in Al-Hadharah REIT. After the corporate move, Boustead Plantations now controls 83,636ha of oil palm estates and 10 mills across Malaysia.

Boustead Holdings group finance director Daniel Ebinesan, who was present at the briefing, said the group borrowed close to RM600 million to take Al-Hadharah REIT private. “Following the Boustead Plantations IPO, we hope to channel RM390 million of the funds raised to repay a portion of this bank borrowing,” he said.

Currently, Boustead Plantations has planted up 71,092.7ha, some 85 per cent of its landbank.

On its growth prospects, Lodin said about RM420 million, or 45 per cent, of the IPO  proceeds will be set a side to buy earnings accretive,  mature plantation estates in Malaysia. 

“We’ll put aside RM420 million to expand our plantation landbank. Although we do not rule out overseas expansion in the long term, our immediate  focus is within Malaysia,” he said.

In raising productivity at its oil palm plantations, Lodin noted that the group will replant old trees with higher-yielding planting materials supplied by its associate Applied Agricultural Resources Sdn Bhd  (AAR).

   AAR, an equal joint-venture between Boustead Plantations and Kuala Lumpur Kepong Bhd (KLK), started breeding high-yielding hybrids on experimental plots more than 25 years ago.

  At prime fruit-bearing age, AAR’s semi-clonal seedlings, grown under good management and environment, are capable of producing more than 30  tonnes of fresh fruit bunches with over 23 per cent  oil extraction rate. That works out to about seven  tonnes of oil per hectare in a year, almost two times higher than the country’s average yield.

    Like their peers, Boustead Plantations and KLK have  invested heavily in oil palm breeding and cloning. High density planting and usage of semi-clonal materials will enable these companies to get better oil yields -- consistently.

     “We started high-density replanting in 2008.  When we replant with these compact hybrids, we can pack in between 148 and 160 trees in one  hectare instead of the national standard of 136. With more optimal fertiliser application, these semi-clonals can help raise yields at our estates by at least 10 per cent,” Lodin said.

COFCO pay US$1.5 billion for Noble's agribusiness

This is written by Naveen Thukral and Michael Flaherty. Photograph credit goes to Bobby Yip.

SINGAPORE (Reuters) - China's largest grain trader COFCO Corp has agreed to pay US$1.5 billion for a majority stake in Noble Group Ltd's agribusiness, its second acquisition in less than two months.

The two companies plan to form a joint venture, in which COFCO will own 51 per cent, to link its grain processing and distribution business in China with Noble Agri's grain sourcing and trading arms, the firms said yesterday.

The move will help China develop a powerful agricultural trading house along the lines of its Unipec oil trading business - one of the world's biggest buyers of crude oil - as it seeks to shore up supplies of animal feed grains to meet soaring demand for high-protein food.

"We can source ample, and low-cost, grains by direct purchases from farmers in major grain-growing countries," said Cheng Guo Qiang, a researcher with the State Council Development and Research Center, the think-tank of China's cabinet.

COFCO's participation in the global grain trade will also help China better track the world grain market, Cheng added.

Noble's share price on the Singapore stock exchange - which jumped as much as 5 per cent yesterday - has risen nearly 25 per cent since March 4, when Reuters broke the news that COFCO was in acquisition talks with it, adding about S$2 billion in market value. This deal is seen to add volume to Noble's trading business via COFCO and allows it to reduce debt. 

China is seeing massive expansion in demand for grains such as soybeans and corn, as the growing ranks of its middle class demand more meat in their diet.

COFCO bought a 51-per cent stake in Dutch trader Nidera in February 2014 to gain direct access to South American grain and oilseed supplies in a deal that valued Nidera at US$4 billion including debt.

The Noble and Nidera deals mark the biggest overseas acquisitions in China's grain sector, with a combined US$2.8 billion investment, COFCO said in a statement.

The company will own high-quality assets in the world's top grain and vegetable oil producing regions, including Brazil, Argentina, Indonesia and the Black Sea area, following these deals, COFCO said.

The deals follow a wave of consolidation in the world agribusiness sector that has shrunk the number of potential acquisitions for it to bulk up enough to compete globally with the larger ABCD rivals, namely; ArcherDanielsMidland Co, Bunge Ltd, Cargill Inc and Louis Dreyfus Corp.

The Noble acquisition allows COFCO to bring food supply into China without having to go through the ABCD pipeline, and will allow it to control costs better. 

"By pushing the international strategy, COFCO will set up a stable grain corridor between the largest global grain-growing origins and the biggest global emerging market, in terms of grain consumption growth in Asia," COFCO chairman Frank Ning Gao Ning said in a statement.

Noble's grains and oilseeds operations focus on South America, Europe and Asia. It operates three oilseed processing factories in Asia, and supplies grains, oilseeds, vegetable oil and by-products throughout the region from Singapore.

Noble, which is 14 per cent owned by sovereign wealth fund China Investment Corp, also trades sugar, coffee and raw materials, such as iron ore. Its agricultural division is the smallest, and generated revenue of US$15.5 billion last fiscal year, accounting for about 16 per cent of the firm's total.

Under the terms of the deal, COFCO's US$1.5 billion offer serves as an initial cash payment upon closing, expected in the third or fourth quarter. The final price will depend on a multiple based on Noble Agri's year-end book value and its debt will be rolled into the joint venture.

A consortium led by China-focused private equity firm Hopu will join COFCO as a minority investor in the acquisition and will hold a third of the investment vehicle making the purchase. Hopu is a private equity fund backed by Singapore state investor Temasek and run by the well known Chinese banker Fang Feng Lei, with whom Goldman Sachs partnered for its China joint venture.

The final price COFCO pays will be 1.15 times the audited book value of the agribusiness division - factoring in COFCO's 51 per cent ownership - for the financial year ending December 2014, according to the Noble statement. The audited book value was US$2.8 billion by December 2013, it said.

COFCO and Noble still need to obtain regulatory and shareholder approval for the deal. JP Morgan was sole financial adviser to Noble while Morgan Stanley advised the consortium that includes COFCO and Hopu.