Fri, 30 Jan 2009
byMita Valina Liem

A proposal to allocate an additional Rp 774 billion ($68.11 million) in subsidies for biofuel producers came a step closer to passage as a legislative committee signaled endorsement of the idea - in principle - on Thursday.

The House of Representatives’ Commission VII, which deals with energy issues, agreed with a plan that would subsidized biofuel products to bring their prices in line with cheaper fossil fuels.

The Indonesian Biofuel Producers Association, or Aprobi, welcomed the move and said it could save the industry.

“The Commission VII in principle agreed to our proposal, but they want us to explain the technical part better,” Evita Legowo, the Ministry of Energy and Mineral Resources’ director general for oil and gas.

Separately, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that Indonesia should not depend on fossil fuels alone and must diversify its energy sources.

By early last year, many biofuel producers had already stopped or reduced supplies to PT Pertamina because biofuel feedstocks - primarily palm oil - were very expensive at the time, while the price at which Pertamina would buy the fuel was not sufficient to cover production costs, he said.

The pricing formula that the ministry set for Pertamina was the average of the Southeast Asia Biofuel Benchmark - which is based on crude palm oil prices - and the non-palm oil Domestic Biofuel Benchmark.

Since then, prices for crude palm oil have plummeted, but biofuel prices still remain high relative to fossil fuels.

If the government plan goes ahead, the Rp 774 billion would be paid to Pertamina so it could increase the rate it pays to biofuel producers.

Evita said the subsidy would only be paid when biofuel prices were higher than fossil fuel prices, and could fluctuate in line with the benchmark prices. Different kinds of biofuels would qualify for subsidies depending on their cost structure, she said.

“At the moment, bioethanol doesn’t need a subsidy because the [cost of production] is the same as fossil fuel, but palm oil-based or jatropha-based fuels may need a subsidy,” Evita said. “We can then allocate the portion which is supposed to be for ethanol to fill the gap in palm oil or jatropha.”

The ministry projects palm oil-based biodiesel consumption may reach 580,025 kiloliters this year, with subsidies amounting to Rp 580 billion. Bioethanol consumption this year is estimated to be 194,444 kiloliters, making the subsidy allocation for that fuel roughly Rp 194 billion.

The ministry also proposed a lower fuel subsidy in 2009 from Rp 57 trillion to Rp 31 trillion, assuming a crude oil price of $45 a barrel and an alpha for Pertamina of 13 percent.

Paulus Tjakrawan, chairman of Aprobi, said the association was glad that the government had listened to its advice about subsidy structures for biofuels.

“Should biofuel feedstock prices rise, and if government’s budget is tight, we can always adjust the biofuel content in the fossil fuels,” Paulus said in a telephone interview. “At the moment, in some major cities like Jakarta and Semarang, the blend is as much as 10 percent.”

As laid out in a scheme that took effect in October of last year, Pertamina is required to use at least 1 percent biofuels in the fossil fuel blends it sells at the pump, 2.5 percent for fuel consumed by industrial customers and 0.25 percent for fuel used by state-owned electricity utility PT Perusahaan Listrik Negara.

The proposal will become law if it is passed as a revision to the national budget during a DPR plenary session.



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