The government is considering offering financial incentives so as to encourage gas stations to stock biofuel blends, says an official.
Evita H. Legowo, an assistant to the energy and mineral resources minister, told The Jakarta Post on Monday that the incentives, which could take the form of tax relief or subventions, were necessary to ensure that biofuel retailers could continue to operate profitably.
"It is important to provide incentives because if oil prices fall below US$70 per barrel, the market prices of biofuels will be higher than the prices of pure hydrocarbon-based fuels," Evita explained.
She added that the government was in the process of formulating a mechanism for providing the proposed incentives so as to ensure that retailers would be interested in stocking biofuels.
Evita, who is also the first secretary of the National Biofuel Development Committee, said that the committee had proposed to the President that a subvention mechanism might be the best way forward to encourage retailers to stock biofuels.
"Sales of biofuels could be subsidized, like the premium gasoline sold by Pertamina," she said.
Evita also said that the government should consider adopting the methods employed by developed countries in promoting the sale of biofuels, such as imposing additional taxes on conventional fuels.
"Germany, one of the world's biggest biodiesel producers, has imposed a tax on fossil fuels. It might be worth our while to see how they do things over there," she said.
She added that the government could also consider the Philippine and Thai approaches, where it was mandatory for fuel retailers to also stock biofuel.
"However, before we would be able to introduce such a system, where retailers are required to sell biofuel blends, the government would firstly have to create enabling circumstances by providing financial incentives," Evita stressed.
She pointed out that state oil and gas firm Pertamina, which is currently the only biofuel distributor in the country, was finding it difficult to boost biofuel sales because of their higher prices.
Under the government's biofuel promotion plan, Indonesia will increase its usage of biofuels to 5.29 million kiloliters by 2010 and 9.84 million kiloliters by 2015.
Pertamina currently sells Biodiesel-5, a blend of 95 percent hydrocarbon-based fuel and 5 percent biodiesel, in Jakarta and Surabaya, and Bioethanol-5, a mix of 95 percent hydrocarbon-based gasoline and 5 percent ethanol in Malang and Jakarta.
In addition to the proposed incentives for biofuel retailers, the government has issued a regulation providing tax relief for investments in biofuel production.
In January, the government signed 58 agreements worth US$12.4 billion with 59 local and overseas energy firms for the development of oil-palm plantations and processing facilities.
Local lenders Bank Rakyat Indonesia, Bank Mandiri, Bank Bukopin, the West Sumatra regional development bank and the North Sumatra regional development bank have pledged to provide loans of up to Rp 25 trillion for the development of plantations and Rp 25 trillion for the building of processing plants.