Malaysia has begun preparations to change from diesel to biofuel by 2008, including negotiations with petroleum companies over manufacturing the fuel.

Plantation Industries and Commodities Minister Peter Chin Fah Kui said his ministry was drafting a biofuel act that would make it mandatory to switch from diesel to biofuel by 2008.

The move to biofuel - a mixture of diesel with five percent processed palm oil - would help to reduce fuel costs to the country with the price of crude oil remaining high, said Chin.

"The actual reason why we are doing this is, in the first place, diesel prices have gone up very high," Chin told AFP in a telephone interview.

"Secondly, oil is a depleting resource anyway, and of course biofuel as an alternative source of use for palm oil is a boon to our palm industry," he said.

Malaysia is the worlds largest producer of crude palm oil.

Chin said the move, which would require no modifications to cars' engines or machines, would make the best use of a home-grown resource.

"We have plenty of palm oil in the country. What we need now is to have the agreement of the petroleum companies to go and mix it," Chin said.

"We have started talks," he said, when asked if negotiations had commenced, although declining to give further details.

Biofuel Act

Once the biofuel act is passed by parliament, which is expected to happen next year, Chin said there would be an initial trial period of a year, with several government departments the first to start.

"We have earmarked certain government facilities and departments which are basically using a lot of diesel for the application to start off on a trial basis during next year," he said.

Chin said the government would also begin moves to ensure that biofuel is readily available to make the changeover.

"Of course we have to make sure that supply is readily available and this is a very important aspect we will be taking care of," he said.

"Most importantly we have to talk to these petrol chains to get their cooperation in implementation."

Alternative sources

Aware that nations are on the lookout for alternative fuel sources, Malaysia is also placing its bets on purely palm-oil derived fuel, otherwise known as palm biodiesel

The government last month announced it would sink RM60 million into building three plants with private partners to produce biodiesel for export to European countries.

The European market "is at the moment, as you know, very hyped on the use of biodiesel in Europe, so we want to cash in on that hype on the use of biodiesel," he said.

Several international research firms including JP Morgan and Credit Suisse First Boston last week predicted higher crude palm oil prices and a favourable outlook for the palm biodiesel industry, due to its potential as an alternative fuel source.

This positive outlook boosted plantation stocks in a week of lacklustre trading, with the plantation index gaining 22.22 points or 0.78 percent, on Thursday before dipping on profit-taking on Friday.

Malaysian crude palm oil production soared to nearly 14 million tonnes last year, half the world's production.

It exported 12.5 million tonnes of the oil last year, worth some US$8 billion dollars, accounting for 58 percent of global palm oil exports and 27 percent of the global oils and fats trade.