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Biodiesel baron

By Daniel Ten Kate 14 December 2005 17:16
Weera Sukantarat’s Golden Biodiesel plant in Samut Sakhon is already the country’s biggest after only two months running.
Helping the country with no help from the government

For a man whose startup company is selling its only product at a loss, Weera Sukantarat looks surprisingly relaxed. Wearing an untucked and buttoned-down Hawaiian shirt, grey trousers and woven orange saisin threads around his neck, the 50-year-old warmly greets two visitors to Golden Biodiesel’s factory in Samut Sakhon on a cool morning last week.

His company is the country’s largest domestic biodiesel producer – and it only received a government license to sell the alternative fuel two months ago. Not bad for an ex-retiree.

“Biodiesel is just something I do,” Weera says. “It’s not my main career – I’m retired already. Though it’s not my core business, it’s a business I’m happy to do because it benefits my country.”

The government, though, has yet to show its appreciation for his help.

“Our intention is to follow what the King suggested,” he goes on. “I feel that whenever the government wants to move into anything, they are quite slow to act. They have many things to worry about, and they forget about biodiesel because they don’t think it’s an urgent need. I’m not going to wait until they wake up.”

Weera is not just blowing smoke. Petroleum, the black gold that fuels the world economy, is running out.

After oil production peaks – in 10 years or 40 years or more – prices will climb to astronomical levels as governments compete for ever-dwindling resources. The grim consequences – crashing economies, food shortages, oil wars – are not Hollywood fantasies. That’s why governments are starting to develop renewable energy sources and studying alternative fuels like biodiesel.

Here in Thailand, His Majesty the King has been years ahead of policymakers on the issue, and promoted alternative fuels in his birthday address earlier this month.

After the speech, Energy Ministry officials said they would speed up plans to integrate alternative fuels into the country’s daily mix. Considering their sluggish pace so far, that shouldn’t be difficult.

To encourage companies to invest in renewable energy sources and alternative fuels, many governments usually offer some incentives like tax breaks, subsidies, grants or soft loans.

But what does the Thai government offer to investors who want to invest in biodiesel producers like Weera? Absolutely nothing.

The government did, however, spend a whopping 92 billion baht over the past two years subsidizing the price of regular diesel fuel.

Biodiesel is no sure bet for investors. Weera’s devotion to HM the King and his 20 years dealing in palm oil for Unilever, one of the world’s largest consumer products companies, sparked his interest in biodiesel about a decade ago.

During the 1997 financial crisis, conditions for large-scale biodiesel production were ripe: the price of diesel fuel shot up, and the price of palm oil plummeted. Weera and other entrepreneurs began scouring the world for information on the right mix for producing biodiesel, studying methods used in the United States, Europe and even Malaysia.

“We tried to learn from as many people as possible,” says Weera. “Now you can get so much information from websites, CDs and VCDs. We bought magazines from the US that told us how to make biodiesel. They had articles about farmers who transformed used garage oil into biodiesel to use in their tractors.”

But before any large biodiesel operations got off the ground in the late 1990s, the price of regular diesel fuel dropped again. Most biodiesel speculators abandoned their plans, opting for more immediately profitable pursuits.

Weera, however, never stopped experimenting with biodiesel at a small factory he owns in Chon Buri province. He watched and waited for the time when diesel prices would rise again.

That time came earlier this year. Increased demand from China and India – coupled with supply risks such as natural disasters, terrorist attacks and unstable governments in producing nations – pushed global fuel prices up to record levels.

Weera contacted a friend who owned a larger vegetable oil factory in Samut Sakhon and asked if he could rent out part of it to produce biodiesel. It was a go.

Though small-scale biodiesel production has been ongoing for years, the government developed the specifications for private companies to produce biodiesel only four months ago.

Golden Biodiesel was one of the first companies to apply for a license. About two months and plenty of test samples later, the company received permission to sell the fuel. Now they ship out about 200,000 liters a day, mostly to trucking companies. But they do so at a risk that many investors are not yet willing to take.

The volatility of diesel fuel prices and palm oil prices makes biodiesel production a precarious investment. If diesel fuel prices are high and palm oil prices are low, the investment is a no-brainer. But that is seldom the case.

To help out the farmers, the government controls the production of palm fruit in order to keep prices as high as possible. And to help out motorists, the government tries to keep prices at the pump as low as possible.

To say the least, balancing the prices of the two commodities is a delicate process.

“If the price of palm fruit is too low, then we won’t have enough raw materials to make the fuel,” Weera says. “On the other hand, if the price of biodiesel is too high then nobody will use it. We have to balance giving the farmer a high price and keeping the cost low enough so people will switch from regular diesel.”

Golden Biodiesel’s own cost structure bears this out. To produce one liter of pure B100 biodiesel, the company spends about 20 baht – 15 baht for a kilogram of raw materials and five baht for processing.

To encourage the use of biodiesel, Golden Biodiesel sells it 10-15 percent cheaper than regular diesel. Since diesel now sells for 22.69 baht per liter at pumps across the country, Weera’s firm barely covers its expenses.

The problem is that raw material (palm oil, vegetable oil or stearine, a kind of vegetable fat) costs can range from as low as 13 baht per kilo up to about 17 baht. If the price of raw materials shoots up at the same time global diesel prices fall, then all of a sudden Weera is losing lots of money before his feet are firmly on the ground.

“Normally in any country in the world when they want alternative fuels to be a success, they help out a lot,” Weera says. “We wrote letters to the government a few times, but so far we’ve heard no response. At this point, the government should offer a subsidy for biodiesel and take away the tax burden just for a few years to make the industry a success.”

Palm oil prices jumped 10 percent in September alone, and are predicted to rise 20 percent next year. But diesel prices are also projected to rise.

Since oil supplies will tighten as demand increases over the few decades, the price has nowhere to go but up.

Energy Ministry officials have been working on a pricing formula for the past six months to encourage investment in alternative fuels, but have come up with nothing so far. They have also ruled out a subsidy, but have said that tax breaks or soft loans may be on the way soon.

Still, nothing is on the table yet. HM the King’s speech may have prompted some immediate statements from the government, but Weera doubts that action will be taken.

“Just because the King mentioned biodiesel in his speech, I’m not sure if the government reaction will be immediate or strong,” he said. “The King has mentioned biodiesel many times before, and nothing has changed.”

Biodiesel is not the solution to the energy crisis.

The government plans to use five million rai of land to produce 8.5 million liters of B100 by 2012. For B100 to completely replace the 85 million liters of diesel fuel the country is expected to burn by then, 50 million rai of palm oil plantations would be needed – about 15 percent of the country’s entire land area.

This may sound doable, but only about 30 to 35 percent of Thailand is suitable for growing crops. And most of that land is used to ensure that the country’s 60 million or so citizens have enough food to eat every day.

Moreover, the best land to grow palm is in the dense forests of the South, which would have to be cleared. Palm oil plantations are increasingly becoming the target of wrath from environmentalists, having already been blamed for destroying millions of hectares of rainforest in Malaysia and Indonesia. To make matters worse, those palm oil plantations use a host of pesticides, which are made from petroleum.

Nonetheless, biodiesel does have benefits on a limited scale. It can make farmers rich, reduce the country’s dependence on imported fuel and cut down on pollution.

“We try to encourage every minibus, pickup and large truck to use biodiesel,” Weera says. “In big cities like Bangkok, it would reduce the black smoke and bad smell. I want all city buses and boats on the Chao Phraya River to use biodiesel.”

For everyone who has been caught on a motorbike behind a stream of black smoke, or shielded their face from the exhaust of a river taxi, that’s a refreshing proposal. But whether biodiesel will get more than lip service from a government famous for its rhetoric remains to be seen.

“I think maybe the government doesn’t realize the crisis facing Thailand,” Weera said. “We have to do something. If we wait, it will be too late.”

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