ASB Biodiesel fires up HK project again

ASB Biodiesel (Hong Kong), a Middle East-backed developer of what would be the city's biggest biodiesel project, has resumed construction of the plant in Tseung Kwan O Industrial Estate after a one-year suspension due to cost overruns and funding shortages.

The resumption signals investors' confidence in Hong Kong's potential for building a biodiesel industry, although industry executives said if the city was serious about cutting roadside pollution, partly through blending biodiesel into fossil diesel, the government needed to do more to support the nascent industry.

ASB is majority-owned by Al Salam Bank-Bahrain and part-funded by Middle East investors and original project promoter Sjouke Postma, who has lived in Hong Kong for more than 20 years and worked on the project for more than a decade.

It had planned to complete the 100,000-tonne-a-year biodiesel plant in April last year and begin commercial production in June. Construction ground to a halt late last year after 30 per cent of work had been completed amid speculation of funding shortages, first reported by the South China Morning Post in July. The firm declined to comment at the time.

Anthony Dixon, who took over as chief executive in February, told the Post the project went into 'hibernation' around Christmas after 'some cost overruns that were not insignificant', declining to give an amount.

'The investors wanted construction to pause while they thoroughly investigated the final total cost of the project,' which was revised to be US$164 million, said the former investment banker and 15-year veteran of renewable energy industries including solar and hydro power.

Former chief executive Tom Uiterwaal last year said the project cost was budgeted at US$100 million.

Construction resumed last week and is scheduled for completion by the end of next year. Commissioning is expected by the second quarter of 2013.

Dixon attributed the cost over-runs partly to an oversight of Hong Kong's regulations that classified biodiesel as a dangerous good and whose production and storage sites must adhere to stringent fire safety standards.

Industry executives said the regulations were outdated since in Europe and the US, where biodiesel consumption has been commercialised for years, the fuel was no longer classified as dangerous.

Also contributing to higher costs was a 'slightly more cautious' stance on the part of regulators on building structure, since 'a plant of this nature and process engineering hasn't been built in Hong Kong for over 20 years', he added.

Dixon said ASB shareholders had to find additional funding to meet the higher construction budget, but declined to elaborate.

The plant plans to procure about half its feedstock - mainly used cooking oil and waste grease from restaurants - from Hong Kong, and the remainder from elsewhere in Asia.

Dixon said the firm was the largest collector of used cooking oil in Hong Kong, with some 1,500 of the city's 12,000 restaurants as suppliers. He estimated its procurement volume represented about 13 per cent of the city's available restaurant used cooking oil.

Some industry executives estimate that more than 80 per cent of cooking oil generated by local restaurants is sold to the mainland to be recycled into the infamous 'gutter' cooking oil. Competition for Hong Kong's used oil had increased procurement prices, they said.

Europe, the world leader in clean-energy adoption and greenhouse gas emission reduction, is expected to be the biggest and the most lucrative market for biodiesel. The region stipulated that diesel distributors blend at least 10 per cent of biodiesel into their products by 2020, up from the current average of 5.75 per cent.

While it would be more environmentally friendly to not have to source and transport used cooking oil from abroad and move biodiesel products to overseas markets, Dixon said sales volume in the local market would depend on whether the government would implement mandatory blending of biodiesel.

Hong Kong's advantage lay in its dense population, which meant logistics costs of collecting used cooking oil were lower than overseas, he added.

If 5 per cent blending was imposed, 225,000 tonnes of biodiesel would be required to meet Hong Kong's annual diesel consumption of 4.5 million tonnes, more than twice the annual capacity of ASB's plant.