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 Astra Agro wary of palm oil-based biodiesel plant returns

13/09/06 (NSTP) JAKARTA  -  PT Astra Agro Lestari, Indonesia's biggest agriculture company by market value, isn't yet sure that biodiesel made from palm oil is commercially viable and is holding back on investing in a factory, unlike some rivals.
"Frankly there're a lot of questions about the economics of blending palm oil with regular diesel," Finance Director Juliani Eliza Syaftari said in an interview last Friday. "If we're confident about this - such as who the off-takers are, what the market is - then we want to secure this, but right now we're not."

Juliani's wariness contrasts with the enthusiasm shown by some competitors, including PT Bakrie Sumatera Plantations, which have committed funds for biodiesel plants. Investor and government interest in biofuels has risen after crude oil prices tripled since 2002, making blends of fossil fuels with plant-derived oils and sugars more competitive.

"The margin Astra Agro may earn compared with the cost of producing biodiesel isn't big," Ben Santoso, an analyst with Namalatu Cakrawala Securities, said in Jakarta on Monday. "It makes sense that they're still in the studying phase."

Shares in Astra Agro, a unit of Indonesia's largest automotive retailer PT Astra International, have almost doubled in the past year as palm oil prices have risen, and investors have targeted biofuel-linked stocks.

"We want to enter into biodiesel, but actually we prefer to do so with jatropha," said Juliani, referring to the small oil-bearing shrub that's native to Mexico and Central America, and also grows in Indonesia.

"Jatropha is only useful as biodiesel, so we don't have to tap our palm oil," she added.

Palm oil, the price of which has gained 12 per cent over the past year on rising demand, is also used in cosmetics and cooking oil.

The higher the price of palm oil, the less attractive it is as a diesel additive, Juliani said. - Bloomberg

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