Palm Oil

The main objective of this initiative is to replant 100% of the 365,414-hectare backlog of low-yielding palm oil trees older than 25 years within three years to help increase the average yield to 26 tonnes per hectare per year by 2020.

A total of RM297 million (USD84.9 million) has been allocated under this EPP for replanting and new planting schemes to be carried out. The replanting scheme is to help independent smallholders replant old and unproductive trees in planted areas below 40 hectares.

This EPP will entail the implementation of four key activities:

• Recruiting 493 TUNAS (extension service) officers to improve the ratio from the current 1 officer to 950 smallholders (or 1:3,800 hectares) to a 1:250 smallholders (or 1:1,000 hectares) ratio. This will ensure better extension services to the smallholders by TUNAS officers;
• Clustering all 161,000 independent smallholders around their nearest mill into organised cooperatives across Malaysia;
• Mandating one of the reference industry best practices for all plantations, organised smallholders and cooperatives of independent smallholders; and
• Implementing a yearly ranking of cooperatives and smallholders to identify and replicate best practices

This EPP aims to achieve a national average yield of 22 tonnes per hectare (ha) for independent smallholders, 26 tonnes/ha for organised smallholders and 28 tonnes/ha for plantations sector by 2020.

This EPP requires implementation of innovative techniques to increase the average productivity of harvesting and collecting process. As a result of this initiative we will also address the issue of remittance outflows by directly reducing the potential number of foreign workers required by 110,000 by year 2020.

To address the shortage of labour, we have identified three core activities focusing on improving worker productivity:

• Scaling up the production and promoting the use of Cantas™, a motorised harvesting pole to improve harvesting productivity;
• Promoting usage of the ‘diamond’ sharpening tool to improve harvesting productivity; and
• Switching from manual collection to buffalo-assisted collection to improve FFB collection productivity, where mechanisation is not feasible.

The objective of the EPP is to increase OER from the current 20.5% in 2009 to 23% by 2020 by implementing strict quality-control parameters at the mills and improve overall mill efficiency.

The objective of this initiative is to ensure that mills capture methane gas to generate electricity for supply to the national grid or for their own use. Mills should start developing biogas plants immediately to capture additional income from the incentives offered by the Clean Development Mechanism (CDM) programme before it expires in 2012.

Biogas plants will be developed at the 500 mills over the next 10 years. Of these, 250 mills will target to supply electricity to the national grid by 2020. Another 233 mills will capture biogas to be used as fuel for their own boilers. The balance of 17 mills will use the methane gas for both options. The development of biogas plants will also enable mills to gain another revenue source from the sale of palm kernel shells, previously burnt as fuel.

To accelerate the development of biogas plants, the electricity tariff for Renewable Energy Power Purchasing Agreement (REPPA) will be increased from the current RM0.21 per kilowatt hour to RM0.35 per kilowatt hour. To assist independent millers in funding the development of their biogas plants, an existing Green Technology Fund set up by the Ministry of Energy, Green Technology and Water is available.

Investments to date:

Felda Global Group Felda Global Group will build biogas (methane) capturing facilities at Felda palm oil mills to generate electricity for Felda’s use and to supply to the national grid under the Very Small Renewable Energy Program (VSREP) managed by Ministry of Energy, Green Technology and Water (KeTTHA). Investment in 2011: RM100 million (USD28.6 million)

Esterchem (M) Sdn Bhd, a wholly-owned subsidiary of IOI Oleochemical Industries Berhad will build a new fatty ester and specialty oleo derivative production facility with a total capacity of 20,000 metric tonnes per year in Prai Industrial Complex. The products are to be used in pharmaceutical, food, cosmetics, personal care, and industrial applications. The plant is expected to be operational in mid- 2013.

Investment: RM130 million (USD37 million)

The objective of this EPP is to fast track the commercialisation of second generation bio-fuels to leverage the biomass generated in the industry.

Investments to date:

Premium Renewable Energy (Malaysia) Sdn Bhd Premium Renewable Energy (Malaysia) Sdn Bhd will set up a bio-oil plant costing US$40mil (RM124mil) near Lahad Datu, Sabah, capable of producing 30MW of energy.

To accelerate the growth in the food- and health-based downstream segment, we will provide tax incentives for Malaysian companies to acquire foreign food companies with proven product and market success. The Malaysian companies must manage the acquired companies in a hands-on manner to ensure transfer of knowledge in R&D, product development, branding and marketing expertise.

Major plantation companies are strongly encouraged to venture into or expand their downstream finished product activities through an anchor company model where they will contract out or outsource the manufacturing of their production to selected local small- and medium-sized enterprises (SMEs). As anchor companies, these major plantations companies will undertake product research, brand development and market penetration while the selected SMEs will focus primarily on product manufacturing. For a start, Sime Darby and Felda will take the lead in this initiative.

Companies in the industry and SMEs seeking to expand globally can apply for a grant offered by MPOC, namely Programme for Rebuilding and Improving Malaysian Export (PRIME), to help them in their export promotion activities.

The first focus area is the expansion of existing upstream activities, which is expected to generate RM44.8 billion (USD12.8 billion) of GNI by 2020. This growth will be driven by two major factors: expansion of Malaysian plantations abroad and organic growth in yield levels.

Malaysian companies currently hold an estimated 1.3 million hectares of palm oil plantations abroad, including over 1 million hectares in Indonesia. As acreage expansion in Malaysia is slowing down (3.3% yearly from 2000 to 2009 versus 2.5% expected from 2010 to 2020) due to the scarcity of arable land, Malaysian companies are expected to invest more aggressively in plantations abroad.

By 2020, Malaysian plantations will have an additional 2 million hectares in Indonesia, other parts of Southeast Asia and Western Africa. This will translate into an additional GNI contribution of RM17.6 billion (USD5 billion) by 2020 and will require a total private investment of RM17.6 billion (USD5 billion) over the next 10 years.

Organic growth in yield levels will be the key to drive upstream developments. Planting material will improve due to wider utilisation of quality clonal material, hybrid seeds, bi-clonal and semi-clonal seeds, and better crop recovery through marginal improvement in collecting practices. As a result, plantations and organised smallholders will gradually increase their productivity. This will generate an additional GNI contribution of RM27.2 billion (USD7.8 billion) by 2020. Hence, the total GNI expected contribution from this business opportunity in 2020 is RM44.8 billion (USD12.8 billion).

Malaysia is a major global basic oleochemical player, producing 2.8 million tonnes of the total annual global production of 12.2 million tonnes. Growth in the non-food segment will be driven by the expansion of basic oleochemicals. Palm feedstock availability, lower operating costs and increasing regional demand are expected to further shift production to Southeast Asia in the future. The food segment, though much smaller, will expand due to rising consumer demand for packaged foods. The funding requirement for this business opportunity is RM46.9 billion (USD13.4 billion), which will come entirely from the private sector. The downstream investment plans of leading companies will generate an incremental GNI contribution of RM11.2 billion (USD3.2 billion) by 2020 while creating an additional 26,500 jobs.

There are 25 biodiesel plants in the country with a total capacity of 2.6 million tonnes. However, current production is a mere 228,000 tonnes, almost all of which is exported. There is negligible local consumption, as the production cost of biodiesel is much higher than the retail diesel pump price; a Government subsidy of 19.6 sen (USD5.6 cents) per litre is needed to compensate the producers in order for them to break even.

Globally, countries are taking active steps to implement mandatory biodiesel usage, driven by Government incentives ranging from RM1.20 (USD34 cents) to RM2.50 (USD70 cents) per litre. The incremental GNI for this opportunity is expected to come from the introduction of mandatory 5% biodiesel blend with petroleum diesel (B5) usage in Malaysia from 2011, an expected further increase to 10% biodiesel blend with petroleum diesel (B10) and export growth.

This business opportunity will translate into an additional GNI of RM1.6 billion (USD457 million) by 2020 and create an additional 2,100 jobs. Apart from the economic benefits, this opportunity will further bolster Malaysia’s commitment to reduce greenhouse gas emissions in the coming decade.