[The Jakarta Post] Govt looks for a new plan to support biofuel blend

Raras Cahyafitri, The Jakarta Post, Jakarta | Business | Tue, March 17 2015, 5:59 AM
The Energy and Mineral Resources Ministry is assessing several policy options that will help biofuel producers fulfill demand, which continues to rise following the implementation of mandatory biodiesel blending.
The ministry’s director general for new-renewable and conservation of energy, Rida Mulyana, said there were three options currently under assessment to support producers of fatty acid methyl ester (FAME), which is widely used in biodiesel.
The three options include whether to maintain the existing scheme in which a subsidy for biodiesel is included in the fixed subsidy of diesel.
The two other options are proposals to regulate the crude palm oil (CPO) price in the domestic market to lower FAME producers’ production costs and to use the income from CPO export taxes to fund the biodiesel subsidy.
“If we implement the subsidy mechanism, we have to seek approval from the House of Representatives. However, if the process with the House is considered too time-consuming, there is an option of fiscal incentives, including on the value-added and export tax as well as regulation for CPO price,” Rida said.
He said the ministry needed to discuss the issue with business players and other government institutions before deciding on policies to be implemented to support the 15 percent mandatory biodiesel mix.
Following persistent pressure on the rupiah against US dollar, the government is set to revamp a number of policies to improve the economy. Among the policies is an obligation to mix diesel with biodiesel by 15 percent from previously 10 percent. The blending of renewable sources into diesel is aimed at reducing the volume of fossil fuels used in the country, which in turn can reduce imports of petroleum products.
Under the previous 10 percent mandatory biodiesel blending, the government planned to support FAME producers by providing a subsidy so they could cope with the oil-price decline that has also affected other commodity prices.
Under the plan, the subsidy for biodiesel is included in the fixed subsidy for diesel of Rp 1,000 per liter. The scheme is no longer feasible as the 15 percent blending would require a higher amount unless the price of diesel is raised, according to Rida.
“Therefore, instead of providing a subsidy, which would be a burden, there is also an option to regulate the CPO price in the domestic market so that biodiesel producers can get CPO at a lower price to press down their costs and we can secure supply for the mandatory mix policy,” Rida said.
He added that a subsidy mechanism for biodiesel remained under consideration; however, the funding source would no longer be the state budget but from the CPO export tax the government obtained from the selling of the commodity overseas.
As many as 5.3 million kiloliters of biodiesel will be needed to support the 15 percent mandatory blending, according to Rida.
However, because the implementation of the new policy has yet to be decided, the exact amount needed for the remaining nine months has yet to be determined.
As much as US$2.5 billion is estimated to be saved from replacing fossil fuels with biodiesel, if the 15 percent mandatory blending runs smoothly through 2015. However, if the policy is implemented starting next April, the saved amount is estimated at around $2 billion, according to Rida.
Energy and Mineral Resources Minister Sudirman Said was optimistic that the 15 percent mandatory mix of biodiesel could be implemented.
“We will establish dialogue with biofuel business players so that they can be prepared. The policy will also create demand, which means it is good for the CPO business,” he said.
According to palm oil producers association GAPKI, Indonesia produced up to 31.5 million tons of CPO last year, an increase of 5 percent from 30 million tons a year earlier. Out of the total production, exports reached 21.7 million tons last year.

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