Bangchak Petroleum Plc will next week apply for government approval to set up a Bt1-billion biodiesel plant in Ayutthaya. The new plant will have a daily production capacity of 300,000-400,000 litres, and Bangchak expects to start commercial operations within two years.

Bangchak president Anusorn Sangnimnuan said the new plant would be on a 50-rai plot in Bang Pa-in, near the company's existing oil depot. The plant will focus on the production of B-100 biodiesel, a formula for low-capacity engines that is not mixed with conventional diesel oil.

The production will use mainly palm oil as the raw material.

"We forecast that new supplies of palm oil will come on to the market within two years, and we expect that the government will allow palm-oil imports to meet the additional demand," Anusorn said.

Already on sale at petrol stations is B-5, a formula for high-powered vehicles, which is a mixture of 5 per cent B-100 biodiesel and conventional diesel oil.

Anusorn added that the output from the plant would mainly supply the 550 Bangchak stations nationwide.

He expects consumers will embrace the hybrid fuel judging by the current monthly sale of more 600,000 litres of biodiesel from just 14 stations.

Bangchak estimates that the B-100 fuel will cost Bt15-Bt16 per litre, calculated on an expected palm-oil price of Bt2.50 per kilogram.

The cost of the end product would then be close to the price of diesel.

"If public demand for biodiesel increases, the government should subsidise it to widen the gap between the cost of biodiesel and diesel, as in the case of gasohol," Anusorn said.

He suggested that one way the government could achieve this would be to reduce the contribution from biodiesel sales to the Oil Fund, which should encourage more retailers to offer biodiesel.

At present only Bangchak and PTT Plc sell the hybrid fuel. He also suggested the government reduce the tax on it.