Monday, July 16, 2007

[PB] Palm oil wrangle hits biofuel company


Mark Milner
Friday July 13, 2007
Guardian Unlimited

Shares in Renewable Power and Light, a UK-listed company that aims to
generate electricity from palm oil, crashed today after the company
warned it expected to make a loss for the full year.

Shares in company were suspended on Aim, the junior market, last week
after it said its main supplier had warned it would not be able to
deliver palm oil at the agreed price. When trading resumed today the
shares slumped 66% or 77.75p to 38.75p, cutting the company's market
capitalisation to £37m.

RPL, which has two plants in the US set up to burn palm oil refined into
biodiesel, said it had started legal action against the supplier, Safari
Group Inc, and had obtained a temporary injunction preventing Safari
from supplying palm oil to anyone else. RPL said it was "demanding
specific performance of the contract and/or substantial damages".

World palm oil prices have soared over the past 18 months partly driven
by increased demand for biofuel, hitting a peak in June. Though they
have since fallen back they remain 70% higher than at the beginning of
2006. Palm oil is used in cooking and the production of lipstick as well
as for producing biodiesel.

The company, which said today it had $50m (£25m) in the bank, is looking
at how speed up plans to use other feedstocks or acquire its own palm
oil supplies. It is generating some revenues from burning natural gas at
its plants in Massena and Elmwood Park in the north-eastern United
States but said the delay in switching to biodiesel fired generation
meant it expected to make a loss for the financial year. It had been
forecast to make of profit of $25m for 2007.

Chief executive David Lewis said: "While the situation with Safari is
clearly a disappointing setback to achieving our shorter term
objectives, we remain dedicated to delivering renewable power and
generating attractive returns for our shareholders." The company
retained a "robust" financial position and would continue to push
measures to ensure long term supplies of feed stock. It was looking at a
number of opportunities and had recruited an executive to oversee
management of new feedstock resources.

Analysts at Ambrian Research warned that RPL's problems could have wider
implications for the industry. "Biofuels producers will need to read the
small print to see if suppliers can default on deliveries due to the
rapid rise in feedstock prices.

"Caution on the sector has to be the watchword at the moment."
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