Malaysia said it had frozen the issue of licenses to manufacture bio-diesel over fears keen interest in the lucrative business will see a shortage of crude palm oil for other products.

Plantation Industries and Commodities Minister Peter Chin said a cabinet committee on the palm oil industry's competitiveness had made the decision in order to sift through a number of applications.

The decision was made so "all those applications that we have now are processed in an orderly manner, in line with the government's policy on competitiveness in the palm oil industry," Chin told AFP .

A statement from Chin's ministry on Thursday said the government had received 98 applications to June 27 for licenses to manufacture bio-diesel.

"The overwhelming response... has given rise to concern on the sufficient supply of crude palm oil (CPO) as raw material for bio-diesel production against that for other related industries, particularly for the food and oleo-chemicals sector," it said.

The government will "temporarily cease issuing new manufacturing licenses for bio-diesel production, pending the completion of a comprehensive review of the palm-based downstream industries," it said.

Chin said the government was currently looking at everything related to the various needs for crude palm oil.

"We will look at all the various requirements of the palm oil industry, the push and the pull.

"We are looking at the competitiveness and the general direction of the palm oil industry vis a vis bio-diesel requirements," he added.

Realistic level

Malaysia is the world's largest producer of CPO, which is used in a wide range of food products.

"In any industry, there must be a realistic level. There must be a balance between CPO for food and for fuel," the chief executive officer of the Malaysian Palm Oil Council, Yusof Basiron, was quoted as saying in the New Straits Times Monday of the surge in interest.

Spurring on the attention is a decision by the Malaysian government to change from diesel to bio-fuels by 2008, including drafting legislation that will make the switch mandatory.

Earlier this year it launched the "Envo Diesel" bio-fuel, a mixture of five percent palm oil and 95 percent diesel to be used by government cars, which Yusof said would create an assured local market.

The country launched its first commercial bio-diesel plant in January. The government, keen to reduce dependence on fossil fuels, is building three bio-diesel plants.

Strong demand for bio-diesel from Europe as well as Colombia, India, South Korea and Turkey is fuelling the growth of the industry in Malaysia, as more countries seek to reduce their reliance on high-priced oil.