By Fitri Wulandari and Niluksi Koswanage
JAKARTA May 21 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
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.
But a lack of domestic demand amid rising palm oil prices
has meant that five out of the nine firms in the Indonesian
palm-oil based biofuel sector have been using less than 10
percent of capacity or have stopped operations, the association
Palm oil futures have tumbled around 20 percent from a
record high of 4,486 ringgit a tonne hit in March. But prices
are still nearly 17 percent higher than at the start of the
"In other countries, biofuel industries have government
policy. Without the policy, it will be difficult for the
industry to develop," Widjaja said.
Indonesia is expected to produce 18.6 million tonnes of palm
oil this year, rising from 17.18 million tonnes in 2007.
The grain and oilseed-based biofuel sector has come under
attack from green groups for accelerating the destruction of
forests, while some analysts blame it for contributing to
soaring world food prices by diverting crops that could be used
Biofuel industry officials have denied this.
(Editing by Ed Davies)