Oil Report

Indonesia says plans to subsidise biofuel in 2009

JAKARTA, Jan 30 (Reuters) - Indonesia’s government is planning to pay a subsidy to biofuel producers starting this year to encourage them to remain in the business and promote widespread use of the alternative energy source, an energy ministry official said on Friday.

The government wants to make the use of biofuel mandatory from this year to ensure the survival of the fledgling industry, an aim made more urgent since biofuel became more expensive than crude oil-based fuel after oil prices dived more than 70 percent from their peak in July last year.

“We will only pay the subsidy if biofuel prices are higher than crude oil-based fuels,” Evita Legowo, director general of oil and gas at the energy ministry told Reuters.

Under the plan, if prices of biofuel products are higher than crude oil-based fuels, the government will pay subsidy of 1,000 rupiah ($0.08) per litre on average.

“At the moment, palm-based biodiesel is more expensive than crude oil-based diesel, but prices of bioethanol are not,” Legowo said.

Bioethanol is made using both cassava and cane molasses.

Palm biofuel and bioethanol compete with cheap domestic petrol diesel in Indonesia, one of the lowest priced in Asia because of generous government subsidies.

Palm-based biodiesel prices were around 5,800 rupiah per litre on Friday, or about 1,500 rupiah higher than diesel, said Paulus Tjakrawan, secretary general of Indoesian Biofuel Producers Association.

State run PT Pertamina, which sells subsidised fuel products, is estimated to blend 194,444 kilo litres of bioethanol and 580,025 kiloliters of palm-based biodiesel in 2009, a government document showed.

Based on such an estimate, the government may have to allocate 774.5 billion rupiah in biofuel subsidies this year.

A ministerial decree issued last November stated that for biodiesel used in transportation, there must use a blend of 1 percent palm-based biodiesel and 99 percent diesel oil, while industry and power plants should use a blend containing 2.5 percent and 0.25 percent palm-based biodiesel respectively.

By 2010, the palm-biodiesel content will be increased to between 2.5-3 percent for transportation, 5 percent for industry, and 1 percent for power plants.

For bioethanol, the use of a 1-5 percent blend of bioethanol and 99-95 percent of gasoline for transportation become mandatory this year.

“Currently, the biodiesel blend for transportation has reached 5 percent,” Legowo said.

Indonesia, the world’s top producer of palm oil, used in a wide range of products from soap to biodiesel, is estimated to turn out 20.25 million tonnes of palm oil in 2009, up from 18.8 million in 2008, the industry association has estimated.

The increased use of palm oil for biodiesel is important to help ease the country’s palm oil stocks, a key factor supporting palm prices despite the gloomy global demand outlook. (Reporting by Aloysius Bhui; Editing by Ben Tan)