UPDATE 1-Indonesia considering mandatory use of biofuel

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By Fitri Wulandari and Niluksi Koswanage

JAKARTA, May 21 (Reuters) - Indonesia, the world's biggest palm oil producer, is considering bringing in a mandatory policy for the use of palm-based biodiesel in the domestic market this year, government officials said on Wednesday.

The resource-rich tropical nation has been pushing for the use of biofuels de from palm oil to cut the use of costly petroleum products and ensure the fledging biodiesel industry survives rising prices of the commodity.

"The government is studying a mandatory policy for palm biodiesel mix, for example starting with a 3 percent mix," Franky O. Widjaja, chairman of the Indonesian Palm Oil Board, told reporters on the sidelines of a palm oil industry conference.

State oil firm Pertamina has been selling biodiesel since 2006 but rising palm oil prices and the lack of a mandatory policy, as well as incentives, has prompted the firm to cut the blend in its diesel fuel from an initial 5 percent to 2.5 percent and then 1 percent.

Evita Legowo, secretary at the National Biofuel Development Team, confirmed the plan and told Reuters the policy could be introduced this year.

"We haven't decided how much the biodiesel blend will be. Without a mandatory policy, producers are worried that their products are not being used," Legowo said.

The combined capacity for biofuel using palm oil as a feed stock in Indonesia is 1.7 million tonnes per year and the country exported an estimated 300,000 tonnes in 2007, according to data from the Indonesian Biofuel Producers' Association.