State-owned oil and gas firm Pertamina plans to exit its biofuel business by the end of this year as a result of continuing losses.
Pertamina marketing and trading director Achmad Faisal said that the company had no other choice but to get out of the sector as its biofuel products -- BioSolar and BioPremium -- had resulted in the company losing Rp 16.9 billion (US$1.8 million).
He said Pertamina, which began selling biofuel products in May last year, had incurred a loss of some Rp 15.2 billion on the sale of its BioSolar fuel up to the end of March, and another Rp 1.7 billion on the sale of BioPremium.
A rise in palm oil and ethanol prices on the global market has made biofuel more expensive than oil-based fuels, he said during a seminar on biofuel Thursday.
Meanwhile, Pertamina fuel division head Djaelani Sutomo said Friday that the company had lowered the content of fatty acid methyl ester (fame), which is made from palm oil, in its BioDiesel to 2.5 percent this month from 5 percent previously so as to reduce the losses. The company had also been reducing the ethanol content in its BioPremium to 3 percent from 5 percent since April 2007.
In order to make the biofuel business economically more feasible, Pertamina has been urging the government to provide financial incentives, such as tax relief for the producers of ethanol and crude palm oil (CPO), the raw materials used in biofuel production.
Faisal said the future of the biofuel business was in the hands of the government.
"If there is no certainty up until the end of 2007, then this program will have to be stopped. So it is up to the government," Faisal insisted.
Faisal said Pertamina had also urged the government to subsidize the price at the pumps of BioSolar and BioPremium, in the same way as it subsidized the sale of Premium gasoline. Such a subsidy was necessary, Faisal argued, to cover the high cost of palm oil and ethanol, whose prices had been increasing steadily on the global market.
He also suggested that the government make the prices of biofuel products higher than those of Premium gasoline and subsidized diesel.
In response, the first secretary of the National Biofuel Development Committee, Evita H. Legowo, said the government might halve the tax on biofuel used by cars, trucks and motorbikes to 2.5 percent from the current 5 percent.
"We are still discussing the issue right now," he said after Thursday's seminar.
The tax reduction proposal follows the Jakarta administration's decision to impose a 2.5 percent levy on the sale of vehicles that use compressed natural gas (CNG), which produces less pollutants compared to regular oil-based fuels.
According to the latest figures from the Energy and Mineral Resources Ministry, Pertamina currently sells 1,150 kiloliters of BioDiesel a day through 213 gas stations in Jakarta and Surabaya. BioPertamax and BioPremium are only sold at one filling station in Jakarta and Malang, East Java, respectively.