Wed, 27 May 2009
From: Reuters
By Fitri Wulandari
JAKARTA, May 27 (Reuters) - Indonesia is not ready to implement a price formula for biofuel slated for June, an energy ministry official said on Wednesday, which spells a blow for the fledging biodiesel industry in the world's top palm oil producer.

Indonesian biodiesel firms, which have mostly stopped operations after being squeezed by rising palm oil prices, have been awaiting the price formula, which is crucial to calculate not only biofuel sale prices but also government subsidies.

The biodiesel industry is expected to play a key role in absorbing growing palm output in Indonesia, but as feedstock prices become more expensive than fossil oils, it is difficult for the industry to expand without government support.

"We initially planned to implement the pricing formula on June 1 and everything is ready. But the presidential decree on energy subsidies has not been signed yet," Evita Legowo, director general of oil and gas at the energy ministry, told reporters without elaborating on a likely new timetable.

President Susilo Bambang Yudhoyono needs to sign a decree to allow biofuel to be subsidised as is the case with fossil fuels.

The government had planned to subsidise biofuel for transportation and a price formula had recently been agreed by the industry but had not yet taken effect despite the implementation of a mandatory biofuel policy since January.

The formula sets the selling price for palm-based biodiesel on the basis of a combination of Indonesia's biodiesel price issued by London-based Argus Media Ltd and the monthly palm oil base export price issued by the trade ministry.

For bioethanol, the government will use a combination of bioethanol benchmark prices issued by Argus and bioethanol prices from the country's bioethanol producers association.

The government has said it will pay a subsidy of 1,000 rupiah (97 U.S. cents) per litre on average this year if prices of biofuel for transport were higher than fossil fuels, but it still needs to be approved by parliament's budget commission.

Legowo said subsidies for biodiesel in the period from January to April this year were 99.37 billion rupiah while subsidies on bioethanol were 1.5 billion rupiah, but the government had not paid biofuel producers yet due to complex rules.

Earlier on Wednesday, Indonesian biofuel producers told parliament they wanted authorities to allocate higher subsidies next year, in line with a surge in crude oil prices.

The Indonesian biofuel producers' association is seeking a subsidy for this year of 1,450 rupiah ($0.141) per litre for bioethanol and 1,660 rupiah per litre for biodiesel if crude prices reach $70 per barrel.

"That's our estimate for how much we would need for subsidies next year," Purnardi, chairman of the industry association, told reporters.

The proposal would bring total biofuel subsidies next year to 1.245 trillion rupiah, the association said.

U.S. crude oil for July delivery CLc1 was trading near a six-month high above $62 a barrel on Wednesday, while Malaysian palm oil futures KPOc3 have surged more than 50 percent this year and were trading at around 2,500 ringgit a tonne.

The biofuel association has said six out of 11 Indonesian palm-based biodiesel firms have halted operations with the remaining five firms running below 5 percent of their capacity.

Indonesia biodiesel producers could process up to 2.5 million tonnes of palm oil a year, or about 14 percent of the country's palm output if they were running at full capacity, the association has said. ($1=10,300 rupiah) (Writing by Dicky Kristanto; Editing by Ed Davies and Clarence Fernandez)



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