THE Malaysian Biodiesel Association has appealed to the government to abolish the five per cent sales tax on biodiesel to implement the B5 mandate smoothly.

Last month, Prime Minister Datuk Seri Abdullah Badawi announced a B5 mandate to turn 500,000 tonnes of palm oil into biodiesel in a year, reviving a long-stalled push to use it as a fuel.

Government vehicles and public transport vehicles will start using the B5 blend (five per cent biodiesel with 95 per cent regular diesel) from next February.

"If the government does not lift the five per cent sales tax on biodiesel, the oil companies will have to pay and this could hamper the implementation of the B5 mandate," said Carotech managing director David Ho.

Carotech is a member of the newly-established Malaysian Bio-diesel Association.

Ho was speaking to Business Times after representing Carotech Bhd in the signing ceremony of biodiesel supply agreement with Swiss-based oil trader Trafigura Group in Kuala Lumpur yesterday.

Plantation Industries and Commodities Deputy Minister Senator Kohilan Pillay witnessed the signing while Trafigura was represented by Nicholas Chiche and Henri Bardon.

Next year, Carotech is expected to sell between 60,000 and 84,000 tonnes of biodiesel, worth some RM200 million, to Trafigura. This will take more than half of Carotech's capacity and the first shipment will take place in January.

This lock-in arrangement with Trafigura is a progression from small and ad hoc orders last year.

On ways to stabilise volatility in palm oil prices, Carotech suggests the government allow biodiesel producers to sell B100, or pure biodiesel, in times when palm oil prices are low.

Ho said a resort owner in Langkawi Island, promoting eco-tourism to European and Japanese tourists visiting Malaysia, wanted to run his fleet of leisure buses on pure biodiesel.

"The hotelier wanted to buy B100 to fuel up his fleet to give tourists a truly 'green' holiday while they are visiting Malaysia on eco-tourism packages.

"The government should consider licensing biodiesel producers to sell B100 when palm oil prices are low," Ho said.