GRAIN | Seedling | 2007 | Corporate power: The palm-oil

The palm-oil–biodiesel nexus

GRAIN

[See the full article Corporate power: Agrofuels and the expansion of agribusiness]

Palm oil is like green gold now”, said Sukanto Tanoto, Indonesia’s richest individual and owner of palm-oil, forestry and energy corporation RGM International. [1] Indeed, the global palm-oil market is booming and this is largely because of the growing production of biodiesel. Palm oil is not only one of the main feedstocks for biodiesel, it’s also the primary substitute for rapeseed oil, which is in short supply in Europe because of its conversion into biodiesel.

The rising prices are bad news for biodiesel producers that rely on palm oil for their feedstock, except where the biodiesel producer also happens to be the producer of the palm oil. “For us, [biodiesel] is an additional downstream market”, said a director of Malaysia’s Golden Hope Plantations. “Big plantation companies may not make much money on biodiesel, but we’ll be supported by the group, get our palm oil at a good price and our overall earnings will remain stable.” [2]

This is one of the main reasons why investment in palm-oil-based biodiesel refineries is being led by palm-oil producers. In Indonesia, Tanoto’s Pt Asianagro company is ploughing its profits into the construction of a 150,000-tonne-per-year biodiesel refinery. Nearby, the Bakrie Group, another Indonesian palm-oil major, is building a new US$25 million biodiesel factory, and expanding its plantations over thousands of hectares to supply the feedstock. Similarly, Indonesia’s Surya Dumai Group is in the midst of constructing its own US$30-million biodiesel refinery. [3]

In Malaysia and Singapore, home base to some of the world’s largest palm-oil producers, biodiesel activity is at frenzied levels. Companies are merging, buying others out and forming all kinds of alliances to take advantage of the new market opportunities. Late in 2006, the three leading Malaysian palm-oil companies controlled by the state investment holding company Permodalan Nasional Bhd (Golden Hope Plantations, Sime Darby, and Kumpulan Guthrie) merged to form Synergy Drive, the world’s largest listed oil-palm company. The combined company now controls 526,000 hectares of oil-palm plantations in Malaysia and Indonesia and is involved in several planned biodiesel factories.

For the major producers, a key focus is on expanding and integrating refining capacity both at home and abroad. In early 2007, the Federal Land Development Authority (FELDA), the largest palm-oil manufacturer in the world, purchased US-based Twin Rivers Technologies, which operates the US’s largest biodiesel processing facility. Malaysia’s IOI Corporation recently took over Unilever’s European palm-oil processing operations, bought up two Malaysian palm-oil refinery companies and then publicly acknowledged its intentions to take over Asiatic Development, another major palm-oil producer and refiner. IOI is currently constructing a 200,000-tonne-per-year biodiesel refinery in Johor, Malaysia and Europe’s largest palm-oil refinery in Rotterdam, the Netherlands, with a capacity to refine 900,000 tonnes a year into cooking oil or biodiesel. The Kuok Group is in similar expansion mode.

Table 3. Examples of transnational palm-oil-based biodiesel webs

Producer/supplier	Foreign partner	Project
Golden Agri-Resources (Singapore/Indonesia, owned by the Sinar Mas Group)	China National Offshore Oil Co. and Hong Kong Energy Ltd.	US$5.5 billion, eight year project to develop crude palm oil-based biodiesel, and sugarcane- or cassava-based bioethanol on around one million hectares of land in Papua and Kalimantan, Indonesia
PT Mopoli Raya (Indonesia, subsidiary of the Bolloré Group)	Merloni (Italy, owned by Indesit/Fineldo)	Builiding a 250,000 tonne per year biodiesel plant in Kuala Tanjung, North Sumatra called, Nusantara Bio Fuel.
Kulim (Malaysia, owned by the Johor Corporation)	Peter Cremer Gruppe (Germany)	Launched a joint venture for the construction and operation of two biodiesel plants in Malaysia and Singapore.
IOI and Golden Hope Plantation (Synergy Drive)	BioX Group (Netherlands)	In 2006, BioX signed a 10-year supply agreement with IOI and Golden Hope Plantations. Deal with IOI includes the construction of a biofuel powerplant at IOI’s refinery in Rotterdam. BioX Group also has joint ventures with Tradewinds Plantations and Sime Darby for carbon trading projects at their oil palm refineries.

Cargill, for its part, has been steadily expanding and integrating its palm-oil operations to take advantage of the surge in demand for the commodity. The company operates two refineries in Malaysia and a crushing plant in Indonesia. It has also recently boosted the capacity of its Rotterdam plant to refine tropical oils – an additional 200,000 tonnes per year of coconut oil and 300,000 tonnes per year of palm oil. On the production side, Cargill launched its first palm-oil plantations in Sumatra, Indonesia in 1997. Then, in 2005, Cargill and Temasek Holding, a private investment arm of the Singapore government, acquired the CDC Group’s palm plantations in Indonesia and Papua New Guinea. These include a plantation in Kalimantan, Indonesia and a majority shareholding in four other plantations in the region – three in Indonesia and one in Papua New Guinea. Cargill’s existing plantations were merged into the new joint venture, registered in Singapore as CTP Holdings, with Cargill, as its majority shareholder, assuming complete managerial and operational responsibilities.

Overall, then, the demand for biodiesel is encouraging consolidation in the palm-oil sector and a shift to a more transnational orientation and structure, with tighter integration between foreign companies and palm-oil producers and suppliers.

Robert Kuok and the Wilmar web

Early in 2007, Robert Kuok, South-east Asia’s richest individual, brought the various palm-oil segments of his empire together under a single entity. [1] The new company, Wilmar International, was formed through a US$4.3-billion merger between Kuok’s PPB Oils and Wilmar, which involves not only the Kuok family, but also ADM and China National Cereals, Oils and Foodstuffs Import & Export Corporation (COFCO), China’s largest food company and one of its most aggressive investors in agrofuel production. [2] Through the merger, ADM becomes Wilmar International’s second largest shareholder. [3]

The Kuok Group of companies is an important but largely unknown agrofuels player, both in biodiesel and ethanol. Wilmar International holds around 435,000 hectares of oil-palm plantations and 25 refineries in Indonesia, Malaysia and Singapore. Through its alliance with ADM, it has a 300,000-tonne-per-year biodiesel refinery in Singapore, and the two companies have another three refineries set to come into production in Riau, Indonesia, each with a capacity of 350,000 tonnes per year, as well as a refinery in Rotterdam with a capacity of 1 million tonnes per year, making Wilmar easily one of the largest biodiesel producers in the world. The company, through its Malaysian subsidiary Josovina, is also to be the exclusive palm-oil supplier to Global Bio-Diesel, a 500,000-tonne-per-year biodiesel operation being built in Malaysia by the South Korean company Eco Solutions. And when it comes to the important trade link in the biodiesel chain, Kuok owns Singapore-based Pacific Carriers – one of the largest shipping companies in South-east Asia.

The Kuok Group’s ethanol activities spring from its large sugar operations. Since he first ventured into the sugar business in the 1950s, Robert Kuok has steadily expanded the global reach of his operations. In the 1970s, together with the Salim Group, an Indonesian palm-oil and food company owned by Kuok’s close associate Liem Sioe Liong, he established the country’s largest sugar plantation and became the main supplier to the Suharto government’s purchasing agency. Then, in 1987, Kuok, through his Singapore-based company Kerry International, purchased a 30 per cent share of the French sugar giant, Sucres et Denrées (Sucden), which controls around 15 per cent of the global sugar trade. More recently, Kuok, through his individual holdings and through Sucden, became the second largest shareholder in Cosan, Brazil’s largest sugar processor and ethanol producer.

1 Robert Kuok also owns Hong Kong’s influential English daily, the South China Morning Post. For more information, see the website of Not The South China Morning Post: http://www.ntscmp.com

2 Wan Zhihong, “COFCO to invest US$1b in ethanol”, China Daily, 19 October 2006.

3 “ADM to acquire shares in Wilmar International”, FirstCall, 14 December 2006. http://tinyurl.com/3xdpds

References

1 APRIL-Watch, 11 May 2007.
http://aprilwatch.blogspot.com/

2 Shibu itty Kuttickal, “Palm oil merger may deter some projects”, ICIS News, 1 December 2006.
http://tinyurl.com/2jg724

3 For a breakdown of biodiesel production in Asia, see Credit Suisse, “Biofuel Sector: Global comparisons of a fast-growing sector”, 30 August 2006, http://tinyurl.com/2sawse
and Liaw Thong Jung, “Equity Focus: KNM Group Berhad”, Aseambankers Malaysia Equity Research, 15 February 2007, http://tinyurl.com/3yh8xl

Ref: seedling|seed-07-07-3a-en