The factory at Hlegu. It will have an annual production capacity of more than 500 tons of oil.

A multi-million dollar factory which will extract citronella oil from lemon grass was opened at Hlegu, about 30 miles north of Yangon, on May 12.

The factory, built on a 2.5 acre plot under an agreement between the Ministry of Agriculture and the China Yunan Corporation, is expected to eventually produce more than 500 tons of oil a year, from 40,000 tons of lemon grass.

Work on the factory began in late 2002 and it was completed early this year, said sources from Myanma Agriculture Service, which was responsible for the project.

The ministry spent K315.8 million to build the factory and provide it with electricity, water and communications links. The CYC contributed US$4.12 million, which was spent on machinery and six million lemon grass seedlings.

The terms of the agreement required that the CYC be paid for five per cent of its investment in cash and 35 per cent in agricultural products. It will meet the balance of its contribution by buying the oil, at a price to be negotiated based on quality and prevailing market prices, for about two years.

The ministry paid the five per cent of the CYC’s investment, or $ 206,068, in November 2002. It provided 15 per cent of the agricultural products last July and the remaining 20 per cent early this year.

Once the CYC has recovered its share of the project, the government will be able to export the oil to countries other than China.

However, a senior MAS official said priority will be given to supplying the CYC, depending on the price it offers.

The ministry expects to earn up to $2.6 million a year from exports of the oil, which fetches up to $5000 a ton on export markets.

MAS officials say there is strong international demand for the oil, which is used in cosmetics, medical products and as an industrial raw material.

The factory will be supplied by lemon grass plantations established near the factory by the MAS and the private sector. About 2000 acres has already been planted and the plantations will be expanded to cover up to 4000 acres, which will be enough to meet the factory’s raw materials needs of 40,000 tons a year.

Lemon grass can be harvested four months after being planted and then every subsequent four months for up to three years.

Waste from the extraction process will be used as organic fertiliser on the lemon grass plantations.