Local Biofuel Output Dives In 2009 as CPO Price Rises

Indonesia fell woefully short of its biofuels target in 2009 as producers halted operations because of the surging price of crude palm oil, the main raw material.

Total biofuel production was just 104,100 kiloliters in 2009, a 96 percent fall from the 2.56 million kiloliters produced in the previous year, the Energy Ministry said.

Biofuel producers spent most of the year sitting on their hands as they waited for the government to work out the price formula used to set the benchmark biofuel price, as well as the all-important subsidy level.

“Biofuel production slumped last year because biofuel companies were waiting for assurance on the government subsidy as the palm oil rise meant it was not economically feasible to develop without the subsidy,” Evita Legowo, director general of oil and gas at the Energy Ministry, said on Sunday.

The price of palm oil jumped by more than 57 percent in 2009 because of rising demand from the world’s biggest consumers, India and China, as well as tight supplies of soybeans following the drought in South America in early 2009.

The benchmark was finally released two months before year-end, alongside the presidential decree on energy subsidies.

But although the government announced that it would subsidize biofuels to the tune of Rp 1,000 (11 cents) a liter, a total of Rp 831 billion, during 2009.

This year, the government will increase the subsidy to Rp 2,000 a liter.

Under the mandatory biofuel scheme, the government has stipulated that gasoline sold by state-owned oil and gas company PT Pertamina at the pump must contain at least 1 percent biofuel.

Fossil fuels for industrial use must contain at least 2.5 percent biofuels, while fuel used by state-owned electricity utility PT Perusahaan Listrik Negara must contain at least 0.25 percent biofuels.

The government subsidizes Pertamina’s sales of premium, diesel and kerosene according to the Platts Singapore benchmark oil price.

But benchmark biofuel prices in Southeast Asia have risen an average of 10 percent per liter since November 2008, making biofuel producers less inclined to supply Pertamina with the biofuel it needs unless the state firm is willing to pay more.

“But for 2010, we see a better outlook for biofuels following the implementation of the presidential decree to subsidize biofuels,” Evita said.

The Indonesian Biofuel Producers Association reported that in 2009, six out of 11 Indonesian palm oil-based biodiesel firms halted operations, while the remaining five firms were running at below 5 percent capacity.

Paulus Tjakrawan, secretary general of the association, said that the biofuel price was the crucial factor in determining output.

“We should have incentives to enlarge the biofuel industry,” Paulus said.

“The dissemination and socialization of biofuel benefits should also be implemented comprehensively and effectively,” he said.

The biofuel price formula is set with reference to the selling price of palm-based biodiesel, based on a combination of Indonesia’s biodiesel price, as measured by London-based Argus Media, and the monthly palm oil base export price issued by the Trade Ministry.

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