PETALING JAYA: MALAYSIA, in allowing more exports of duty-free crude palm oil (CPO) and remaining indifferent towards the plight of palm oil refiners here, may be risking the loss of further investment and talent in its oleochemical, specialty fats and biodiesel sectors.
In an interview with Business Times yesterday, Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad estimated that this year alone, the government is forgoing RM4 billion in tax collection by allowing export of 5.5 million tonnes of CPO.
"At an average price of RM3,000 per tonne and tax of 22 per cent, 5.5 million tonnes of tax-free CPO amount to around RM4 billion.
"More damaging is the erosion of investors' confidence to further value add Malaysia's palm oil downstream sector and the opportunity loss in attracting highly skilled knowledge workers," he added.
While the bulk of Malaysia's refining capacity is owned by the large listed entities, Jaaffar noted that many of Poram members, who do not own oil palm estates, are foreign investors from the Middle East, Singapore, Japan and the US.
He stressed that by allowing more exports of duty-free CPO, the country is backpedalling on its overall policy to drive value-addition and talent recruitment into the sector.
"By raising the duty-free quota on CPO exports, a less conducive investment climate for refiners is being created. It is not just a sacrifice of CPO because refiners also produce olein, stearin, palm fatty acid distillate and palm kernel oil for the oleochemical, specialty fats and biodiesel sectors," Jaaffar said.
Ancillary services supporting these businesses such as logistics, packaging and bulking facilities are also suffering.
The indifference towards foreign investors' interest in Malaysia's refining sector is driving away future investments to Indonesia. "Once investors sink their money there, they will not put their money in Malaysia anymore because it is much simpler to build on their refineries in Indonesia," he said.
It will be very hard for Malaysia to catch up as Indonesia's downstream sector becomes more advanced in the next year or so.