1. Energy Supply – to ensure adequate, secure and cost effective energy supply from various sources
2. Energy Utilization – to promote and encourage of efficient utilization of the energy
3. Environmental Conservation – to minimize the negative environment due to the energy supply chain.

• Petroleum Development Act 1974 – Established Petronas as the national oil company and vested it with the responsibility for exploration, development, refining, processing, manufacturing, marketing and distribution of petroleum products.
  
  
  
• National Energy Policy 1979 – Set the overall energy policy with broad guidelines on long-term energy objectives and strategies to ensure efficient, secure and environmentally sustainable supplies of energy.
  
  
  
• National Depletion Policy 1980 – Introduced to safeguard the exploitation of natural oil reserves because of the rapid increase in the production of crude oil.
  
  
  
• Four Fuel Diversification Policy 1981 – Designed to prevent over-dependence on oil as the main energy resource, its aim was to ensure reliability and security of the energy supply by focusing on four primary energy resources: oil, gas, hydropower and coal.
  
  
  
• Fifth Fuel Policy (Eighth Malaysia Plan 2001-2005) – In the Eighth Malaysian Plan, Renewable Energy was announced as the fifth fuel in the energy supply mix. Renewable Energy is being targeted to be a significant contributor to the country's total electricity supply. With this objective in mind, greater efforts are being undertaken to encourage the utilization of renewable resources, such as biomass, biogas, solar and mini-hydro, for energy generation.
  
  
  

2.2.1 Malaysia's Biofuels Policy

Malaysia released its National Biofuels Policy on 21 March 2006. The Policy envisions greater use of biofuels for environmental protection, and enhancing the nation's prosperity and well-being. The Policy encourages the use of biofuels in line with the nation's Five-Fuel Diversification Policy. It is underpinned by five strategic thrusts;

  (1) Biofuels for Transport,
  (2) Biofuels for Industry,
  (3) Homegrown Biofuels Technologies,
  (4) Biofuels for Export, and
  (5) Biofuels for Cleaner Environment.

The Policy is primarily aimed at reducing the country's dependence on depleting
fossil fuels, promoting the demand for palm oil as well as stabilizing its price at a remunerative level.

The National Biofuels Act 2006 has been passed by Parliament in May, 2007. The Act is to facilitate the domestic development of the biodiesel industry. It contains provision to mandate blending of biofuels with diesel through regulations made by the Minister. Biofuels regulations and act is completed. The Government has already made an announcement that biodiesel based on palm methyl ester will be implemented throughout Malaysia in 2010. The implementation is carried out phase by phase with the actual implementation was started in February 2009 for the government agencies then will be followed by the industry in June 2009.

2.3.1. Tax incentives

With the right incentives, the production of palm biodiesel can very well be another viable business proposition for the future. Indeed, many countries are now seriously evaluating their own indigenous vegetable oils as a renewable energy source. Biodiesel is a promoted product under the category of manufacture of palm and palm kernel oil products and their derivatives.

The Malaysian government offers a range of tax incentives. Amongst them are:-

• Pioneer Status


A company granted Pioneer Status enjoys a 5-year partial exemption from the payment of income tax. It pays tax on 0% - 30% of its statutory income, with the exemption period commencing from its Production Day
Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product.


• Investment Tax Allowances


As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (such as factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date on which the first qualifying capital expenditure is incurred. The company can offset this allowance against 70 - 100% of its statutory income for each year of assessment. Any unutilized allowance can be carried forward to subsequent years until fully utilized.


• Reinvestment Allowance


A manufacturing company that has been in operation for at least 12 months and incurs qualifying capital expenditure to expand, modernize or automate its existing business or diversify its existing business into any related products within the same industry can apply for Reinvestment Allowance (RA).
The RA is given at the rate of 60% on the qualifying capital expenditure incurred by the company, and can be offset against 70 - 100% of its statutory income for the year of assessment. Any unutilized allowance can be carried forward to subsequent years until fully utilized. A company can offset the RA against 100% of its statutory income for the year of assessment if:


• Second Round Incentives for resource-based industry including oleochemical industry


This incentive is offered to companies that are at least 51% Malaysian- owned and are in the rubber, oil palm and wood-based industries producing products which have export potential. Companies in these industries reinvesting for expansion purposes are eligible for another round of Pioneer Status or Investment Tax Allowance (ITA).