Malaysia palm oil looks to Bangladesh for workers

From Khor Reports's Palm Oil Newsletter #6 Jan/Feb 2014

Seeking workers

Bangladesh migrant workers are now available to key Malaysia sectors (including plantations) on a government-to-government or G2G arrangement basis. The employment of Bangladesh workers in Malaysian plantations is not new. It is thought that the very first batch was recruited in the early 1990s by IOI Corp. Application submission have been made by many companies. The G2G method bypasses the current private broker network for migrant workers, hopefully eliminating the so-called unfair broker fees paid by the migrant workers (a worry to anti-“forced labour” campaigners).

However, hirers note that the G2G method isn't exactly a cheap process. Bangladesh is a possible diversification from the Indonesia worker base, which Malaysia has become startlingly reliant upon.
Plantations have put in the numbers sought; for now the larger ones seem to apply for 300-500 workers. Some have got the first 40-50 or so workers approved, and early submitters may have some 300 approved each. Questions include: (i) whether the levy goes to the Ministry of Primary Industries and Commodities (ii) whether the G2G arrangement can be extended to Sabah (now only for the Peninsula), (iii) how to accelerate and streamline the approval process, including allowing two or more simultaneous applications (interviews with 6 companies, Dec 2013).

Look out for Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014! This article is a sneak preview article from this issue (delayed in publication process)

Indonesia biodiesel - a tepid first tender

From Khor Reports's Palm Oil Newsletter #6 Jan/Feb 2014

A tepid tender

Indonesia’s biodiesel program is getting off to a slow start. Palm oil biodiesel players do not seem to like the “below gas oil benchmark” and the depot-delivered price offered. Below benchmark pricing means that palm oil prices may end up being higher than the selling price of biodiesel and sellers pay (often high) transport costs to the depots (interviews, Nov 2013). Thus, “Pertamina (the national oil company) received bids representing only 18% of the biodiesel tender target of 6.6m kiloleters (for two years supply).” Most producers were unable to bid competitively, with the “price below MOPS (Mean of Platts Singapore) – or MOPS minus alpha – although data over the past four years revealed that biodiesel price has mostly traded above MOPS… (Thus, DBS says) expect the participation rate to remain low for the next biodiesel tender” (Kontan & DBS Research, 2 Jan 2014). Depending on spreads of palm with gas oil prices, exports may prove more attractive.

Dorab Mistry said that Indonesia’s move to increase blending (alongside Malaysia and Brazil; while the USA and the EU balks) will be a “game changer” for palm oil demand. Indonesia upped its biodiesel blend in subsidized fuel from 7.5 to 10% in September 2013 and expanded its 2014 mandate to non-subsidized fuel and industrial users. Biodiesel capacity may jump to 8.8 (by end-2015) from 5.6 million kiloliters (in 2013; Biofuel Producers Association). Mistry says “domestic mandates for biodiesel in Indonesia and Malaysia will work as long as palm prices remain competitive with Brent crude… Between July and October, the spread between palm and gas oil was enough to create an additional monthly biodiesel demand of 100,000 to 150,000 tonnes.” About 6.34 million tonnes of palm oil may be processed into fuel in 2013 (Oil World; Bloomberg.com, 14 Nov 2013).

While Indonesia’s expanding biodiesel program offers new demand for its rising production, the road is not smooth with an unfavourable price formula. We reiterate our concern that key producer economies may lack the fiscal room to sufficiently subsidize biofuels, while political will vacillates.
EU biofuels update: Its governments failed to agree on the level of biodiesel usage. In September 2013, the European Parliament voted for a 6% cap on biodiesel to prevent an EU requirement that at least 10% renewables in transportation energy in 2020. (Bloomberg cited in AmResearch, 16 Dec 2013). Also, “EU policy makers rejected plans to push biofuel suppliers to report increased greenhouse-gas emissions” so there is now an “indefinite delay on ILUC (indirect landuse change)” (Bloomberg.com, 12 Dec 2013).

Khor Reports blog note: The results of a new tender are due soon. Industry talk is that Wilmar bid at MOPS plus. Big sellers are facing off with a big buyer's price formula?

Look out for Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014! This article is a sneak preview article from this issue (delayed in publication process)

Indonesia PLN for a million tonnes

Here is a new expected million tonne user of palm oil: Indonesia state-owned electricity firm PT Perusahaan Listrik Negara (PLN). http://www.thejakartapost.com/news/2014/01/21/pln-increase-palm-oil-use.html

Khor Reports comment: At a pre-Xmas PO corporate event I attended last month, we were ruminating over one of the host's worries that the long term risk of the anti-PO campaigning is this: it could push PO more and more to non-food uses. That is if the PO industry doesn't do a good job negotiating market access with NGOs. On a positive demand note, Indonesia policy augurs new major demand. But how will the procurement policies of key processing intermediaries impact? All eyes on Wilmar and big producers who are most avidly pushing high-end procurement policies. They have a large share of Indonesia biodiesel capacity. The changes over the next 24 months will bear watching. PLN will be in the size category of the likes of Neste Oil, Unilever etc.

Landmark Indonesia ruling on peat infractions

The Indonesia palm oil sector is eyeing a recent court ruling as a land mark case on infractions in a peat area with illegal land clearance and illegal burning of vegetation. The case was brought by the Ministry of Environment against a company developing 1,000 hectares in Acheh. The fines include a payment for "losses to the state" of about USD 9.4 million, while a larger fine was for rehabilitating the land destroyed. Assuming the full 1,000 hectares was destroyed, the rehabilitation fine is equivalent to some USD20,707 per hectare.


Plantation operators will need to look at this in context, plus compare and contrast this to the RSPO HCV Compensation Procedure which has gone rapidly from proposal to "phased implementation" in 4Q2013 with targeted approval for implementation in Nov 2014. With the RSPO General Assembly membership numbers well known, any vote on the matter is considered a "done deal" i.e. there has been a consistent pattern of voting on initiatives that are "contrary" to the growers position. It is estimated that growers are about 15% of the RSPO membership.

In the RSPO HCV Compensation, the cost of peat land rehabilitation is put at some USD11,000 (based on one study, and with partial costing for a short duration i.e. not for the full cycle of oil palm which is the timing used by the RSPO). The basis / parameters of the RSPO and Indonesia MOE are little known, and they should be studied and compared on an "apple to apple" basis.

A crucial difference is that the Indonesia court ruling is on infractions, while the RSPO HCV Compensation is on entire new land concession areas which lack the appropriate HCV assessment documents i.e. there may not have been any other "infractions." The catch-all RSPO approach also requires growers to pay HCV Compensation on any future merger and acquisition deal involving land without acceptable HCV assessment documents. For the RSPO, the compensation fee will be calculated against the November 2005 status of the land. The Indonesia MOE basis needs to be understood too.

"RSPO+9", new TFT / Climate Advisers-led policies for Wilmar

New  The Forest Trust or TFT / Climate Advisers-led policies for Wilmar include these nine (9) substantive policies, which adds on to existing RSPO commitments, hence we can call it "RSPO+9" for now:

(i) non-use of peat land of any depth;

(ii) likely 35 tonnes carbon per hectare ceiling for land development;
(iii) progressive GHG reductions;
(iv) restoration and enrichment of forest and peatlands (similar to RSPO HCV compensation?);
(v) no forced labour,
(vi) 60-hour work week with 1 day off inclusive of overtime,
(vii) 3.8 square meters / 32 square feet of individual living space,
(viii) trade unions and collective bargaining;
(ix) grievance procedure where advisers and stakeholders have a say in banning suppliers.

Khor Reports blog exclusive comment: The independent advisers to Wilmar are TFT of Switzerland and Climate Advisers of the USA. TFT-Greenpeace was instrumental in putting forth the high carbon stocks ceiling principle for Golden-Agri / Sinar Mas which ran into severe NGO campaigning. This resulted in various global buyers suspending palm oil purchases from the large Singapore-based Indonesian conglomerate. Wilmar did not run into such market problems, although it was obviously facing increasingly negative comments about its "problematic" third-party purchases and land deals in the international news and NGO websites. It is notable and interesting that Wilmar also chooses to be led by the strong principles of TFT-Greenpeace. Presumably, Wilmar (also Singapore-based but with operations globally; and large plantation area in Sarawak and Indonesia and a very big refinery market share in China) expects good outcomes from adopting the approach of Golden-Agri and doing much more to boot. Climate Advisers is a relative newcomer to setting market access policy for palm oil. Palm oil companies, mostly owned by Southeast Asian entrepreneurs, have been quite readily accepting NGO-led standards on a voluntary basis. Palm oil is one of the 15 global (mostly tropical) commodities targeted by the WWF, which focuses on the very largest companies to push for more rapid change. However, WWF's Roundtable on Sustainable Palm Oil (RSPO), now finds itself superseded by the new RSPO+9 effort led by TFT-Greenpeace principles.

Look out of Khor Reports' Palm Oil Newsletter #6, Jan/Feb 2014 for more! This is a sneak preview of our review of Wilmar's bold move. Many ask how they will implement this while NGOs say that this is "just the beginning..."