AR Fuels, which was spun-off from Amadeus Energy and listed on the Australian Securities Exchange in May 2005, is proceeding with a strategic review and considering building a plant in the US because the New Mexico State Government has incentives for biofuel producers.

“The strategic review is anticipated to take a maximum of six week with key evaluation milestones within this timeframe,” the company said in an after-market statement on Friday.

“The strategic review will seek to bring forward the assessment of the feasibility of the US plant and to determine how best to deal with the Australian assets.”

AR Fuels, which appointed Macquarie Bank early last month to advise it on financing and operational strategies, said it had made “significant progress” in signing up long-term supply contracts with oil majors and other customers, but several factors had combined to make operations unviable.

Unlike most biodiesel operators, AR Fuels uses tallow, rather than crops, as its main feedstock. But over the past six months the price of tallow has soared from less than $600 per tonne to more than $900/t because of demand from China.

In addition, major oil companies buying AR Fuels’ biodiesel have refused to pay more for the product despite rising oil prices and feedstock prices, and have demanded the biofuels producer funds multi-million dollar improvements within its terminal facilities, according to AR Fuels.

“Without access to cheaper feedstocks, government policy intervention or a willingness by customers to pay at a rate that recognises the full cost inputs of biodiesel production in Australia, commercial operation in the current environment is not possible,” the company said.

“ARF intends to discuss these fundamentals with government, oil majors, suppliers and customers.”

ARF acting general manager Max Ger told the Age newspaper that the Federal Government and the Opposition mouthed platitudes on biofuels but their actual actions and policies displayed an "absolutely indescribable and cavalier" indifference to the industry.

Ger said the Government had granted the company more than $7 million two years ago to build the plant in Adelaide, but subsequent changes to the Fuel Tax Act made it "virtually impossible" to sell biofuel because incentives for users had almost disappeared.

"The Federal Government made it impossible for us to sell biodiesel to anybody but the oil majors," he told the paper yesterday.

The company’s Adelaide and Bunbury, Western Australia plants are now on "care and maintenance".

Since listing with an initial public offering price of $1, shares in AR Fuels rose to a high of just over $2.31 in May last year shortly before changes to federal legislation made biodiesel less attractive for users, to close at 21.5c on Friday. This morning it opened at 7.6c.

The company says its financiers have committer to support it until a further review at the end of January.