The Malaysian Biofuel Industry Act 2007

Faizah Jamaludin examines the new licensing regime that will be introduced under the Malaysian Biofuel Industry Act




The long awaited legislation to regulate Malaysia’s biofuel industry, the Malaysian Biofuel Industry Act 2007 (the “Act”) was enacted by Parliament on 18 July 2007. The Act seeks to “provide for the mandatory use of biofuel, licensing of activities relating to biofuel and for matters connected and incidental thereto”.


The Act is designed to regulate the biofuel industry in Malaysia and to promote the mandatory use of Malaysia’s domestic palm biodiesel referred to as EnvoDiesel or B5 which is a blend of 5% palm olein and 95% petroleum diesel.


Section 4 of the Act empowers the Minister of Plantation Industries and Commodities (“the Minister”) to prescribe the type of biofuel specified in the First Schedule of the Act, namely palm olein and methyl ester, and its percentage by volume to be blended in any fuel; or the activity in which the use of biofuel, biofuel blended with any other fuel or any other biofuel is to be made mandatory.


The provisions of the Act are in line with the objectives of the National Biofuel Policy (the “NBP”), which was launched by the Ministry of Plantation Industries and Commodities (“MPIC”) in March 2006.  The NBP has five strategic thrusts, namely (1) producing biofuel for transport; (2) producing biofuel for industry; (3) research, development and commercialization of biofuel technologies; (4) producing biofuel for export; and (5) minimizing emission of greenhouse gases and enhancing the quality of the environment through the use of biofuel.


The Act has yet to come into force. The Government has announced that the implementation of the Act has been put on hold indefinitely owing to the current high price of refined, bleached and deodorized palm olein. The Minister, Datuk Peter Chin, has announced at the International Palm Oil Congress in August 2007 that the Government will decide on the date of implementation of the Act only if the price of palm olein falls to RM2,000 per tonne and below.


This Article seeks to highlight the main provisions of the Act and the difference between the current licensing regime and that under the Act.





Licensing Prior to the Implementation of the Act

Until the Act comes into force, anyone who wishes to manufacture biofuel has to apply for two licenses, namely (i) a manufacturing license from the Malaysian Industrial Development Authority (“MIDA”); and (ii) license to use palm oil raw materials at the manufacturing plant from the Malaysian Palm Oil Board (“MPOB”).


The Industrial Coordination Act 1975 requires manufactures with shareholders funds of at least RM2.5 million and engaging 75 or more full-time paid employees to apply for manufacturing license from MIDA. The Malaysian Palm Oil Board (Licensing) Regulations 2005 requires all those involved in the palm oil business to obtain the appropriate licenses from the MPOB.


As at November 2006, 92 biofuel manufacturing licenses, with a total production capacity of 8.5 million tonnes per annum, were approved.  The Malaysian Government has since temporarily halted all applications for biofuel manufacturing license pending a study on the sufficiency of supply of palm oil as feed stock for the biofuel industry and the food sector. It would be interesting to see when the Act does come into force, whether any licenses will be awarded under the new Act.


On the coming into operation of the Act, any person undertaking an activity to which the Act applies has 6 months to apply for a license. The application will be treated as a fresh application and not as an application for a renewal of a license. Therefore, the present license holders may continue to undertake the biofuel related activity pending the determination of their application under the Act.



Licensable Activities

Once the Act comes into force, licensing of biofuel related activities will be regulated by the Act.  The types of biofuel regulated by the Act are palm olein and methyl ester. It does not regulate any other types of biofuel.


Those wanting to engage in the licensable activities as detailed below have only to apply for one license instead of two as is currently the position. The licensing authority under the Act is the Secretary General of MPIC or in the absence of the Secretary General, any person duly authorized in writing by the Minister. Section 5(1) of the Act stipulates that the following activities require a license the Act:-


(a) construction of any biofuel plant or biofuel blending plant;

(b) production of biofuel;

(c) blending of biofuel with any other fuel or biofuel;

(d) the export of biofuel, biofuel blended with any other fuel or biofuel blended with any other biofuel;

(e) the import of biofuel, biofuel blended with any other fuel or biofuel blended with any other biofuel;

(f) transportation of biofuel, biofuel blended with any other fuel or biofuel blended with any other biofuel connected with upstream activities;

(g) the survey of biofuel, biofuel blended with any other fuel or biofuel blended with any other biofuel; or

(h) testing of biofuel, biofuel blended with any other fuel or biofuel blended with any other biofuel.



Exemption and Regulations

Pursuant to section 53(1) of the Act the Minister may, subject to such terms and conditions as he deems fit, exempt any person or class of persons or any activity or class of activities relating to biofuel from all or any of the provisions of the Act. Section 55(1) provides that the Minister may also, after consultation with the licensing authority, make regulations as are necessary or expedient to give full effect to or for carrying out the provisions of the Act.



Transfer and Assignment of License

The licensee may transfer the license to other person with the prior written approval of the licensing authority. Section 10 of the Act provides that upon a written application from the licensee, the licensing authority may approve the transfer of the license if the licensee dies, becomes incapacitated or a bankrupt. Where the licensee if a company, the license may be transferred if the licensee is wound up or a receiver or manager is appointed in respect of the business of the licensee. There is a subjective catch-all provision in section 10(3)(c) which gives the licensing authority the discretion to approve the transfer of a license if it is satisfied it would be unjust not to transfer the license.


A licensee is however, prohibited from assigning any right, duty or liability or obligation under his license to another person.



Revocation or suspension of license

As mentioned above, 92 licenses have been awarded for the manufacturing of biofuel. However, out of the 92 licenses, only 4 biofuel plants are in commercial production and 3 are undergoing production trial. The Minister acknowledged in a recent speech that: “Given the increase in price of palm oil, the biodiesel industry in Malaysia is confronted with issues of sustaining an economic scale of biofuel production.


It has been reported in the press that the Minister, when asked on the progress of the licensees in setting up their biofuel plants, said that he was “not happy”. He went on to say that “the Ministry will decide on actions to be taken and this includes the power to revoke the licenses given, which is a provision under the Malaysian Biofuel Industry Act.


Section 12 of the Act gives the licensing authority the power to revoke or suspend any license if it is satisfied that:-


(a) any of the provisions of the Act, any other written law or any of the conditions of the license has not been compiled with;

(b) the issuance of the licence was induced by a false representation of fact by or on behalf of the licensee;

(c) the original purpose for which the licence was issued no longer exists; or

(d) the licensee has ceased to carry on or operate any biofuel activity for which the license was issued.


Section 12(2) of the Act requires the licensee to be given the opportunity to make representations to the licensing authority before a decision is made to revoke or suspend his license.





At the time of writing this article, crude palm oil is trading at approximately RM4,100 per tonne.  At the recent International Palm Oil Congress 2008 held in Kuala Lumpur, it was forecasted that the price of crude palm oil is likely to remain around the RM4,000 per tonne mark - well above the Government's bench-mark price of RM2,000 per tonne. Hence, it is unlikely that the Act will be implemented in the foreseeable future.  However, once implemented, it would be interesting to see whether MPIC will exercise its powers under the Act to revoke or suspend the licenses that have been awarded to licensees who have yet to set up their biofuel plants.






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