Biofuel
Row over subsidy in Indonesia
The Indonesian government, confronted with a collapse in demand for biofuels and resistance from state fuel distribution company Pertamina to continue to sell biofuels at a loss, is pushing a proposal through the House of Representatives to allocate $71 million dollars to subsidize locally produced biodiesel and bioethanol.
However this proposal is being delayed in the Indonesian Parliament.
Indonesian lawmakers Alvin Lie and Effendi Simbolon, members of parliamentary Commission VII overseeing the energy and mining sector said legislators were suspicious of the role of the Indonesian Biofuel Producers Association (APROBI) which attended the parliamentary session, questioning who would benefit from the subsidy, the people or the biofuel producers.
But Paulus Tjakrawan, APROBI's secretary general said producers had been selling to Pertamina at a loss.
Indonesian petrol and diesel prices at the pump are low, because of low global oil prices, as well as Indonesian fuel subsidies on petrol and diesel.
Evita Legowo, Director General of oil and gas at the energy and mineral resources ministry explained that subsidized biodiesel and bioethanol would be mixed in with the allocated quotas for subsidized Premium gasoline and diesel.
State fuel distribution company Pertamina has been ordered by the government to mix at least 1 percent biopremium fuel with subsidized gasoline and up to 5 percent of biosolar with subsidized diesel.
The average subsidy works out at 1,000 Indonesian Rupiah per litre (about 10 US cents) but this is only paid out when the biofuel price is higher than the fossil fuel price.
The government is trying to underpin a weak biofuels industry which has been hard hit by low oil prices and recent fluctuations, since mid 2008, in the price of palm oil (CPO).
Only bioethanol from sugar cane or cassava can now reach the market without a subsidy whereas biodiesel from CPO and jatropha needs a subsidy if Pertamina is to continue distribution.
Hilmi Panigoro, Chairman of the Indonesian Renewable Energy Society, whose family founded the Medco Group, involved in oil and gas and energy, recently criticized the lack of follow up after initial euphoria on biofuel development in 2006. He said that investors were now confused and discouraged.
His main criticism alleged a lack of clear government coordination and failure to provide effective leadership to drive all the related stakeholders into action.
Unggul Priyanto, director of energy resource development at the Agency of Assessment and Application of Technology (BPPT) also said that “Biofuel development is just floating around without leadership”.
The now defunct National Team for Biofuel Development previously had no authority to enforce policy.
This related to a more fundamental problem, exacerbated by the negative impacts of the global economic slowdown, as to how Indonesia could make the transition from a command economy led by an authoritarian figure like Soeharto to a modern democracy led by President Susilo Bambang Yudhoyono and still succeed to push new energy policies through the complex decentralized state bureaucracy, and attract investors.
The government has mandated that by 2025 biofuel consumption must contribute at least 5 percent to the national energy mix, from less than 1 percent now. But the country is only producing biofuels at 10 percent of existing capacity, whilst power stations prepared to use biodiesel cannot obtain reliable supplies.
Meanwhile, Indonesian lawmakers are holding back their agreement to the new subsidy policy amidst murmurs about collusion with producers and heightened sensitivities on government fuel and energy subsidies during the run up to the Indonesian general elections in April and presidential elections in June.
It is expected that the Indonesian Parliament will approve the new subsidies soon and government will try to implement new regulations introduced since September 2008 to make use of biofuels compulsory for commercial businesses, fuel retailers and power plant operators.
However the Indonesian experience shows this is easier said than done, amidst wistful hints that Soeharto would have got the job done !
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