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No smooth ride for biodiesel

South China Morning Post – 18 July 2011

A plant in Tseung Kwan O should have been running last year, but work has been suspended; sector faces obstacles, including lack of government support

Wan Po Road, or at least its English rendering – Environmental Protection Road – seems like a contradiction in terms to those living and working in the Tseung Kwan O Industrial Estate to which the road leads.

Neither will the irony of the name be lost on commuters who have to suffer intermittent whiffs from nearby landfills as they travel to and from the estate.

But the same road also leads to a genuine environmental protection industry player hoping to open for business in the estate – a company that has undertaken to turn used cooking oil into biodiesel, which is far cleaner than petroleum diesel.

Unfortunately, the plant’s construction has been suspended, with no official indication of when it will resume.

Hong Kong’s biodiesel producers, who use waste cooking oil as feedstock, say it is difficult to make a profit because of the lack of active government support for such initiatives. The Hong Kong government has set a goal to cut the city’s carbon emission intensity by up to 60 per cent by 2020, but is relying on the greater use of nuclear power to cut its carbon footprint – despite safety concerns raised in Japan after the deadly March 11 earthquake and tsunami.

According to a subcontractor for the project and security guards who declined to be identified, ASB Biodiesel (Hong Kong) has stopped work on a partially-built plant capable of churning out 100,000 tonnes of biodiesel annually.

It is not clear exactly when work stopped. A guard at the 18,000 square metre site said no work had been carried out for several months, while a guard at the entrance to a neighbouring building said it was more like a year since work ended.

No construction workers were seen during two visits to the site by the South China Morning Post (SEHK: 0583announcements,news) on separate week days this month.

According to the final environmental impact assessment report by Environmental Resources Management for ASB in October 2008, construction on the plant was supposed to start in March 2009 and be completed in April last year. After trial runs, commercial production was slated for a June 2010 start.

When ASB chief executive Tom Uiterwaal was interviewed early last year, he said construction was expected to be completed by the end of last year. He declined to comment when asked about the delays and the company’s latest plans.

A person familiar with the company’s operation, who declined to speak on the record, claimed the project would resume construction within two months, and that biodiesel production was expected to start by the end of next year, but he would not elaborate.

He also declined to comment on talk among industry executives that construction was halted because of a lack of funding due to a deteriorating profit outlook for the biodiesel industry internationally, and tightened liquidity in the wake of the global financial crisis.

According to the Malaysian Palm Oil Board, only 10 biodiesel plants were operating last year, despite 29 having been built. A lack of overseas demand and high palm oil prices were blamed.

ASB’s project is funded mainly by the Middle East’s Al Salam Bank-Bahrain and six unidentified strategic partners.

Uiterwaal said early last year that the US$100 million plant would use technology from Austria, which enabled it to use multiple feedstocks, including waste cooking oil, grease trap waste collected from caterers, animal fat, and palm fatty acid distillate – a byproduct from the refining of crude palm oil.

ASB last year hired legislator Tommy Cheung Yu-yan, who represents the restaurant trade, as a consultant.

The European Union has led the world in policy support for the sector, requiring at least 5.75 per cent of all fuel sold to be biofuel – biodiesel or ethanol – rising to 8 per cent in 2015 and 10 per cent in 2020.

Within Asia, Hong Kong lags behind countries such as Malaysia, the Philippines, Taiwan and Thailand, in policy initiatives to encourage biodiesel consumption.

Biodiesel is generally more expensive than petroleum diesel, and requires large-scale production and consumption to be economical. To be truly emission-light, local sourcing of feedstock and local consumption of biodiesel is encouraged.

In some developed nations, restaurants pay biodiesel makers to get rid of waste cooking oil, but in Hong Kong, biodiesel makers have to pay for used oil, competing with traders who sell it to mainland recyclers for reprocessing into cooking oil. Consumption of such re-used oil is known to raise the risk of heart disease and cancer.

Beijing issued a policy circular a year ago ordering local governments to step up their fight against rampant illegal trading and recycling of cooking oil.

“Based on my estimation, over 80 per cent of Hong Kong’s used cooking oil taken away by collectors is sold to the mainland for reprocessing into cooking oil,” said Teddy Choi Wai-hung, executive director of Champway Technology which operates a biodiesel plant in the EcoPark in Tsuen Mun that can produce 20,000 tonnes of biodiesel annually.

Since it is not illegal to export waste cooking oil out of Hong Kong, and extremely difficult to tell reprocessed oil from previously unused oil without laboratory testing, it is difficult to fight the trade, said Choi.

Furthermore the trade is lucrative since used oil costs around HK$4,500 a tonne to buy and can fetch some HK$7,500 after processing. Fresh cooking oil costs anywhere from HK$10,000 to HK$20,000 a tonne, Choi said.

Champway’s plant has only produced around 4,000 tonnes since it started operating in April last year, due to difficulties in sourcing enough affordable waste oil, according to Choi.

“Our operation is very difficult to run, given that waste cooking oil prices have been bid up to over HK$50 per 18 litres currently from just HK$20 a year ago,” he said, adding that it would be difficult to recoup the plant’s HK$60 million investment without more government support.

To encourage proper disposal of waste cooking oil, he said the government should implement a licensing system for collectors of used cooking oil, and restaurants that sell their oil to such authorised dealers should be given a reduction in their waste water treatment surcharge currently collected by the Water Supplies Department.

Steve Choi, an executive director of Sha Tin-based Dynamic Progress International, the first firm in Hong Kong to set up a biodiesel plant three years ago, said the government should abolish an import levy on methanol, which accounts for 11 per cent of the content of biodiesel.

The levy amounts to around 50 HK cents for each litre of biodiesel made, he said. Each litre of petroleum diesel retails for around HK$11 to HK$12.

According to the annual report of its listed parent Alltronics Holdings, Dynamic posted a net loss of HK$6 million last year, down from a HK$8.4 million loss in 2009.

Steve Choi said the government should also be more proactive in promoting biodiesel by becoming a user itself.

“I hope the government would push for an earlier timetable for its departments in becoming biodiesel users,” he said. “The commercial sector has already made some moves, it is about time the government took some baby steps to promote biodiesel usage.”

So far private sector users mainly use biodiesel out of corporate social responsibility considerations as it is more expensive than petroleum diesel.

Asia Airfreight Terminal (AAT), which runs an air cargo terminal at Hong Kong International Airport, started buying biodiesel from Dynamic last November.

“Our company adopted biodiesel mainly for the fulfillment of our corporate social responsibilities,” said Wilson Cheung, AAT’s general manager of support services.

The company, which has a diesel bill of around HK$1.5 million a year, has now replaced almost all of its fossil fuel diesel consumption with biodiesel, except for its stand-by power generator, which is rarely used.

The Hong Kong Jockey Club said it had provided waste oil to Dynamic and bought biodiesel for some of its water-carrying trucks and power generators.

An Environmental Protection Bureau spokesman said the bureau was consolidating views from a public consultation on how to mitigate climate change, including how to promote clean fuels, including biofuels.

The government is also planning a tender for the supply of diesel with a blend of 5 per cent biodiesel made from waste oil, for a one-year pilot scheme. A source familiar with the situation said the government aims to roll out the scheme by mid-2012.

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