KUALA LUMPUR, Oct 6 (Reuters): Malaysia, the world's top palm oil producer, will make a palm oil-based fuel a mandatory additive at petrol pumps by 2008, a newspaper said Thursday, part of government efforts to cut its diesel subsidy bill.
With crude oil prices expected to remain high, Malaysia is seeking to encourage national use of a biofuel that is made from 95 per cent diesel and 5 per cent processed palm oil.
Legislators are expected to pass a law next year to introduce the new product, and give motorists a year to try it out before making it mandatory, Plantation Industries and Commodities Minister Peter Chin told The Star.
The head of the government-run Malaysian Palm Oil Board told Reuters last month that biofuel would be ready at domestic pumps and for export by October 2006.
Biofuels are taking on new importance worldwide as the cost of petroleum products rise and as countries seek to cut emissions to meet the U.N. Kyoto Protocol. Burning the biofuel is considered to be carbon- dioxide neutral and does not require emissions rights.
Malaysia, a net exporter of oil and gas, heavily subsidies pump prices of petrol and diesel, putting a serious strain on its budget as the cost of fossil fuels has surged.
The government estimates that it will spend 16 billion ringgit ($4.2 billion) on fuel subsidies in 2005, a 34 per cent jump from last year.
Malaysia consumes up to 190,000 barrels per day (bpd) of diesel and gas oil. It produces less than 14 million tonnes of palm oil a year, of which more than 12 million are exported.
Adding 5 per cent biofuel to diesel at pumps will help cut 500,000 tonnes of diesel a year, or about 10,000 bpd, officials have said.