WATER and oil do not mix, but a Singapore start-up begs to differ.

Singapore Emulsion Fuel (SgEF) has formulated diesel that is one-fifth water, and is marketing it as fuel that is greener and more cost-efficient.

On Feb 5, it opened a $1 million, 40,000 sq ft plant in Tuas that can produce up to 300,000 litres of emulsion fuel a day.

'We are starting with 30,000 litres a day, and shall go to 100,000 litres in a year's time,' said SgEF founder and chief executive Jeremy Ng.

Mr Ng, 55, left a 20-year career in the semiconductor industry for this green pursuit four years ago.

With $300,000 seed money from Spring Singapore's Start-up Enterprise Development Scheme, and about $700,000 shared between partners, he set up SgEF in 2006 'to address the global dependence on fossil fuels and to offer a viable alternative to existing biofuels'.

Mr Ng admits that emulsion fuels are not entirely new, and that the idea goes back a century.

'For the past 10 years or so, city buses in Europe have been using emulsion fuel,' he said.

But he added that SgEF's formula is unique - a patent is pending - in that the water and diesel do not separate when left unused for extended periods.

Ultra-low sulphur diesel is blended with water (20 per cent) and a proprietary binding agent (20 per cent) to make fuel that is clear like conventional diesel, unlike other emulsion diesels.

The fuel can be used in all existing diesel engines and machinery with no need for any modification.

Because of its water content, it is said to reduce black smoke emission by up to 80 per cent, improve fuel efficiency by up to 9 per cent, and reduce exhaust temperature by 20 per cent.

Building contractor Poh Lian Construction tested the emulsion diesel and found positive results.

'We used it for our air compressor and generator sets at two private property developments and the black smoke emission dropped significantly,' said Poh Lian's senior project manager Png Koon Guan.

He said he was trying to convince the management to continue using the fuel.

Construction foundation specialist CSC Holdings tried out the fuel too, but did not obtain any conclusive results.

Its purchasing manager Eileen Wong said: 'We tested it nine months ago, but we are not convinced because we could not quantify any benefits.

'We will embark on a more detailed test after Chinese New Year.'

Transport operator SMRT said it tested the product four years ago and 'did not find it suitable for our use'. It would not elaborate but The Straits Times understands cost was one reason.

Mr Ng said the emulsion fuel 'is generally more expensive than conventional diesel' with a premium of about 5 per cent. 'But increasing environmental awareness is pushing more companies everywhere towards alternatives such as hybrids and biodiesels,' he noted.

Indeed, building contractors with green credentials 'have a higher status, which helps them in future tenders', said Poh Lian's Mr Png.

SgEF, meanwhile, is working to distribute its product to regional markets such as Malaysia and Indonesia.

Mr Ng said the company will also work towards raising the fuel's water content to 30 per cent in future, thus reducing its environmental impact further and cutting Singapore's oil dependence.

'Singapore uses between 6 million and 10 million litres of diesel a day, so even if we can reduce that by 1 per cent, it is significant,' he said.