Brave predictions that Indonesia would emerge as the \u201cMiddle East of Biofuel\u201d have evaporated. The industry faces testing times and opening the local market appears the only way to survive.<\/p>\n
Biofuel went big globally with a slick public relations package in 2005. With a mix of environmental concern and business savvy it pushed a convincing argument that \u201cgreening Indonesia\u201d was the way to go.<\/p>\n
Biofuel was the answer to plunging oil stocks, cutting pollution in traffic-choked cities. Investors could cash in while helping make Indonesia a better place to live. It was a seductive pitch and resulted in an explosion of interest in biofuel development.<\/p>\n
Indonesia was perfectly poised. Raw material was abundant. The nation\u2019s basic crops were the very building blocks to a thriving biofuel industry. \u201cIndonesia can be the Middle East of biofuel,\u201d predicted some observers.<\/p>\n
Though the prime source of biofuel, palm oil, requires substantial capital investment, small- to medium-scale businesses were convinced they could work with crops like jatropha, corn and cassava which require far less capital to develop.<\/p>\n
Planting jatropha would become a bright prospect for small farmers. With government endorsement and heavyweight business backing, confidence was running high.
\n
\nStruggle to survive<\/p>\n
Instead of reaping \u201cgreen\u201d profits in biofuels, small- to medium-scale domestic producers are on the verge of bankruptcy. \u201cThey can\u2019t sell the product on the local market,\u201d says Paulus Tjakrawan from the Indonesian Association of Biofuel Producers (APROBI). Indonesia\u2019s biofuel producers are slashing production.<\/p>\n
Paulus\u2019 Indo Biofuels Energy has cut production from 50 tons to 30 tons a day. in the planning stages, the company forecast a five-year break-even on its $3 million investment.
\nA smaller company, Ganesha Energy, recently halved production from 5,000 tons a year to 2,500 tons. Lisminto from Ganesha Energy admits increasing crude palm oil (CPO) prices are the major problem faced by the industry.<\/p>\n
Biodiesel is a pricey commodity. Diesel \u2013 produced from fossil fuels - is still relatively cheap, especially when it is subsidized.<\/p>\n
There are two types of commercial biofuel - biodiesel and bioethanol. Biodiesel is easier and far cheaper to produce than ethanol.<\/p>\n
Crude palm oil, in the hands of the conglomerates, has been easier to find and manage than cassava or sweet sorghum grown by small- and medium- scale producers.<\/p>\n
Palm oil produces biodiesel, while bioethanol comes from other crops. According to Adrisman Thahar from Medco Downstream, building an ethanol plant with an annual capacity of 50,000 tons costs $45 million.<\/p>\n
Building a biodiesel plant with a capacity of 100,000 tons a year costs $30 million. Adrisman says the technology in biodiesel is also simpler.<\/p>\n
Shrinking market<\/p>\n
Diesel fuel in Indonesia is subsidized and this has been creating problems for state-owned PT Pertamina, appointed by the government to buy biodiesel from local producers.<\/p>\n
Last year, Pertamina cut the level of biofuel in its \u2018Biosolar\u2019 product from 5% to 2.5% to reduce its financial losses, further shrinking the market for producers.
\nInvestors are facing big losses and confidence in the industry is at a low. Of the 22 members of Indonesia\u2019s biofuel producers grouped in APROBI, only the major operators like Wilmar International and Sumiasih will survive.
\n
\nThe sale of biofuel is only profitable in large economies of scale. Sales must hit a minimum of 5,000 to 10,000 tons per year on the regional market and 50,000 tons for exports to Europe and America to cover costs.<\/p>\n
For the majority of Indonesian biofuel producers, this is impossible. Wilmar and Musim Mas are survivors because they have the luxury of vast plantations, high capacity plants.<\/p>\n
Wilmar even has a private port alongside the world\u2019 biggest biodiesel plant - with a production capacity of 1 million tons - at Dumai in Riau.<\/p>\n
Wilmar has 170,000 hectares of palm oil plantations, while most Indonesian producers rely on spot market stock and produce only 50 tons of biofuel a year.<\/p>\n
Domestic market<\/p>\n
APROBI believes opening the domestic market is the only solution for small- to medium-scale producers.
\n\u201cIf we seriously want to develop the Indonesian biofuel business, there\u2019s no other choice,\u201d says Paulus.
\nLarge-scale producers can take comfort from the fact that Europe and America are starved for biodiesel supply, but doors are closing there as well.<\/p>\n
While European governments offer incentives and mandates to plant crops and build refineries, as well as providing tax breaks for those who sell biodiesel, the longer-term picture looks negative.<\/p>\n
Sumi Asih, an oleochemichal company, is freezing exports to Europe. \u201cIt\u2019s hard to compete with foreign exporters,\u201d says Alexius Darmadi, president director of the company.<\/p>\n
The company was exporting 40,000 tons per year to Europe but has terminated its contracts. \u201cIt\u2019s very difficult now, especially with the rising price of crude palm oil. Competition among biofuel exporters is getting intense, as foreign exporters get strong support from their governments.\u201d<\/p>\n
Alexius highlights the biofuel \u201cslash and dash\u201d policy in the United States where exporters receive $300 in subsidy for every ton of exported biofuel.
\n\u201cEven if America imports biofuel from Indonesia, and re-exports that to Europe, they still get profits of $120 from the subsidy,\u201d he complains.<\/p>\n
International politics also threaten the biofuel industry. The European Union will soon put forward an energy policy that is expected to restrict imports of biofuels not produced in an environmentally sound manner.<\/p>\n
In January, the Netherlands announced that it would no longer subsidize the import of palm oil, the main source of \u201cgreen\u201d power generation, after evidence showed biofuel sources were grown on Asian plantations created from drained peat land with disastrous environmental consequences.<\/p>\n
Indonesia and fellow palm oil producer Malaysia have been accused of damaging rain forests for palm plantations. These accusations may weigh heavily on the export demand for biofuel from Indonesia.
\nAPROBI also alleges bias by Europe in its sources of biofuel. It has asked the EU not to discriminate in favor of rapeseed oil \u2013 generally known as canola oil.<\/p>\n
\"We feel there is discriminative treatment between biofuel with canola and palm fruits as raw materials,\" says Paulus.<\/p>\n
APROBI alleges that the EU is planning to set this discriminative treatment in concrete through new legislation on biofuel which would provide incentives including tax breaks for consumers of biofuel using canola as a raw material.<\/p>\n
In this environment, the enormous vision for the biofuel industry of only a few years ago has turned distinctly gloomy.<\/p>\n
\u201cThe only thing we can be sure of is the domestic market,\u201d says Paulus. \u201cThe government should announce a mandate for industry to use biofuel. It can start with 1% to 5%. The percentage is not the issue in the first case. The most important thing is, it has to be started.\u201d<\/p>\n
The Philippines has made a significant effort to incorporate biofuel into industry. In January 2006, President Gloria Macapagal Arroyo signed the Biofuel Act, which seeks to reduce dependence on imported fuels in order to protect public health, the environment and natural ecosystems.<\/p>\n
Within two years of implementation, all liquid fuels for engines sold in the Philippines must contain locally-sourced biofuel components of at least 5% bioethanol.
\n
\nSingapore push<\/p>\n
Even landless Singapore is poised to become a leader in the biofuel business. Following its success as a petrochemical and refinery hub, the city state has taken significant steps in biofuel.<\/p>\n
Its biodiesel plants at the Jurong industrial zone have been luring foreign investment. Finland\u2019s Neste Oil has recently announced plans to build the world\u2019s single largest renewable diesel biorefinery in Singapore with a capacity of 800,000 metric tons a year.<\/p>\n
Singaporean Minister of Trade and Industry S. Iswaran says several research agencies such as the Agency for Science, Technology and Research and the Institute of Chemical Engineering and Sciences (ICES) have mapped out a blueprint to embark on biofuel and biochemical conversion research.<\/p>\n
Other research institutes, including the Institute of Environmental Sciences and Engineering and Temasek Life Sciences Laboratory, are also developing alternative biofuel feedstock such as jatropha and sweet sorghum.
\n
\nAll these efforts will be important in addressing the sustainability of biofuel and its integration into Singapore\u2019s chemical industry.<\/p>\n
In Indonesia, Medco Downstream\u2019s Adrisman says the government should pressure big companies to spend more on research.<\/p>\n
\u201cBig companies have the money to do the research. They shouldn\u2019t let small farmers keep working by trial and error in developing biofuel,\u201d he says.<\/p>\n
Uncertainty over the use of jatropha in biofuel has caused big losses to small farmers who, at the beginning of the implementation of the national biofuel program, purchased large stocks of jatropha seeds.
\n
\nIncentives<\/p>\n
Industry operators say the government should give additional incentives to biofuel users. \u201cNo matter where you are, new energy is always more expensive than conventional sources. The government should give incentives to push the development of biofuel,\u201d says Adrisman.<\/p>\n
There is some hope for Indonesian biofuel producers. According to Evita Legowo, a member of the National Team on Biofuel Development, the government is considering several plans to boost biofuel.<\/p>\n
\u201cWe are trying to develop a formula so that biofuel users are not burdened with a high price for biodiesel,\u201d says Evita. The government, she says, is formulating a reduction in fuel tax and value-added tax. She hopes that the tax reduction program can start before the middle of this year.<\/p>\n
For APROBI, biofuel is not only a matter of economic concern or a way to help small farmers. \u201cBy utilizing biofuel, we can reduce fuel imports and save the state money,\u201d says Sumi Asih\u2019s Alexius.<\/p>\n
APROBI\u2019s Paulus agrees: \u201cIt\u2019s much more than helping farmers. The biofuel business is mostly about energy security.\u201d
\n
\nOperators believe the spiraling price of producing biofuel should not discourage the government. \u201cWe can\u2019t stop the program just because the price of CPO is increasing. We have to see this as future energy,\u201d stresses Ganesha Energy\u2019s Lisminto.<\/p>\n
\u201cIf we don\u2019t develop our own biofuel now we will again see imported commodities inundating Indonesia.\u201d<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/investors-burnt-in-biofuel-explosion-1217737273", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }