Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on October 15, 2018

KUALA LUMPUR: Concerned that the palm oil refineries are “springing up like mushrooms”, the Palm Oil Refiners Association of Malaysia (Poram) has called for an immediate freeze on the issuance of new licences.

The association said there are now 53 refineries with an annual refining capacity of 27.3 million tonnes to support the growth of both plantations and smallholdings in the country.

One reason to check the growth in the number of refineries, said Poram, is the erosion in Malaysia’s share of global palm oil production over the years, whereby the once world leader now produces only half of Indonesia’s output.

Indonesia is producing about 40 million tonnes a year, while Malaysia’s output stands at 19.6 million tonnes.

“If nothing is being done, then maybe we will come to a stage of how we can sustain the refining industry in Malaysia,” Poram chairman D Chandramohan said in an interview with The Edge Financial Daily.

Stressing the need for some players to move up the value chain, Chandramohan said: “In terms of processing capability, they should go further downstream like value-added products, or worse comes to worst, we might go into the consolidation phase.

“That is why we have to look at how to mitigate this situation and work with the government.”

Chandramohan said Poram is also seeking a reinvestment allowance for the refineries to automate and modernise.

“We also requested for support or incentives for our downstream value-added production and exports and to reduce the corporate tax even further from 25% currently,” he said.

Chandramohan added that Poram is looking forward at certain palm oil products like shortening and vegetable ghee to be exempted from the sales tax.

“At the moment, there is a sales tax for shortening and vegetable ghee, but margarine is exempted from the sales tax, although they are from a similar category,” he said.

Poram is also proposing that the government set up a one-stop centre for investment to further improve its delivery system in terms of document approval and permits.

At the same time, the association wants the government to reduce the cost of recruitment of foreign labour as the levy is paid by employers.

The country’s refining industry is basically export-orientated, with exports of value-added palm products totalling 13.9 million tonnes, or 84%, of total palm oil exports in 2017.

“Our exports have reached 170 destinations worldwide, contributing export earnings of RM42.3 billion to the country’s export trade,” Chandramohan said.

Going forward, he expects the refining industry to continue to face challenges due to stiff competition from Indonesia.

He said Indonesia is producing more, so it is selling very aggressively in the marketplace.

“They are also exporting at very competitive prices versus Malaysia. That is the major challenge for us. Over the years, when we look at our refinery margin, it has been up and down, but generally it has been thin,” he added.

To overcome that, Poram has called on the government to review the current crude palm oil export tax structure.

“The duty structure has been there but maybe [the government] can review it or look at any other options,” he said, adding that the ministry of primary industries is studying the matter.

Meanwhile, Chandramohan announced that Poram will be holding its annual forum on Oct 26 at the One World Hotel in Petaling Jaya.

He said the forum will discuss, among others, the world economic outlook, challenges and opportunities for palm oil, weathering supply-demand dynamics and the impact of trade policies on palm oil.

“The key objective of this forum is to share information and exchange views on the latest palm oil developments,” he said.

Poram, formed in 1975, is primarily a representative voice dealing with the government and other stakeholders on matters related to the palm oil refining industry.

It is a non-profit organisation and its members comprise companies involved in the refining and related downstream processing of palm oil, palm kernel oil and other vegetable oils, including ancillary services.

      Print
      Text Size
      Share