RAPCo, The Plight of a Small CME Producer

The biofuels industry has so far not been kind to small producers. Romtron, the small, cooperatively-owned CME producer in Romblon, has had to cease production of CME as it desperately tries to find another buyer for its product. Another small player in the coco-methyl-ester (coco-biodiesel) field is Rasza Agro Produce Corporation (RAPCo) based in San Pablo City (Laguna). The family-owned enterprise has been in the coconut milling business for twenty-six years. It was put up by the father of the current proprietor and general manager, Mr. Romy Awayan, a mechanical engineer by training. The business started out by acquiring the waste fibers (called oil foots) that came through with the oil that is extracted by screw press expelling by coconut mills. These fibers still contained oil and were sold to smaller millers such RAPCo for whom further extraction was feasible. To press these foots, RAPCo developed its own small presses. The business expanded into buying fresh nuts and copra from traders as well as directly from farmers, and processing these in the larger expellers that it developed over time. The company sold its output of raw oil and copra cake to refiners and feed millers, respectively.

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When the government announced its policy of developing alternative fuels and passed the Biofuels Act in late 2006, RAPCo saw this as an opportunity to diversify its product line as well as utilize the excess oil that it was capable of producing. RAPCo had already worked with the Department of Science and Technology (DOST) on previous projects and asked its Industrial Technology Development Institute (ITDI) to provide the technology for producing coconut methyl ester (CME), the same technology provided to Romtron. ITDI signed a five-year licensing agreement with RAPCo in 2007 for non-exclusive rights to the technology. RAPCo was supposed to pay ITDI a million pesos in royalty over that period provided it made money on the venture. RAPCo took the ITDI technology and further developed and refined it so that from an initial output of 1,250 liters of CME per day, RAPCo said that it was capable of upping that output to 8,000 liters daily. The plant was formally inaugurated in June 2009.

Unfortunately, it seemed to have been the wrong time to do so. By the time the plant was operational, there was already an oversupply of CME in the market even with the 2 percent mandated blend (that had kicked in this earlier this year—February 2009). Already, CME producers have been clamoring for government to raise the blend to 5 percent. The oversupply and the fierce competition among suppliers bidding for supply contracts with the oil companies have caused the smaller, higher cost producers, such as RAPCo, to pare down or even cease operations entirely for the time being, and to mull their future prospects.

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Mr. Awayan was contemplating on alternative strategies to cope with the situation. His preferred one was to try and get one of the independent oil companies to give him a supply contract, as the big three (Petron, Caltex and Shell) preferred to deal with the larger CME producers. He said that price was not a factor as he was confident that he could match any of his competitors’ prices. He only wanted a chance to speak with and deal with any oil company, something that he said was surprisingly difficult to do. The alternative strategy was to target industrial uses for low quality coconut oil as fuel.

Feedback from stakeholders in the industry have cited the apparent lack of clarity in the government’s plans and strategies for promoting alternative fuels as a barrier to the industry’s prospects. The oversupply in CME is an example with the government accrediting too many producers with apparently little regard or foresight to the level of demand created by the biofuels mandate. Given the current government order barring oil price increases, increasing the diesel blend to 5 percent CME, which would add about P1 to the pump price, does not seem to be a viable option.

So far, the alternative fuels industry has not lived up to the hype generated at the onset, particularly with regard to alleged benefits to the poor and their communities. The potential for broad social and economic benefits remain just that, a potential with little hope of realization unless substantive changes are made.

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