With the hype over, biofuel is all but forgotten

Rangga D. Fadillah, The Jakarta Post, Jakarta | Thu, 11/10/2011 9:33 AM

A | A | A |

When the government raised the prices of fuels in 2008, there was a hype among policy makers and energy experts for an immediate need to develop alternative and renewable energy resources.

Seminars were held on the importance of developing biofuel – petroleum substitutes made of plants such as sugar cane, oil palm and cassava.

President Susilo Bambang Yudhoyono joined the bandwagon by encouraging his officials and the public to explore the use of biofuel and other nonfossil fuels.

A 2008 ministerial decree was issued on the provision; utilization and sales of biofuel that mandated that all oil-based fuels must be mixed with biofuels.

Three years on, the plan has gone nowhere, and policy makers seem to have forgotten the hype as domestic consumption of biofuel remains below the prescribed target.

According to the Energy and Mineral Resources Ministry, domestic biofuel consumption was 120,406 kiloliters (kl) in 2009, below the target of 991,765 kl. Last year, consumption was up to 223,041 kl, but still far below the target of 1.73 million kl. As of September this year, only 255,555 kl of biofuel was consumed, from a targeted 1.2 million kl.

The government’s lack of commitment has been blamed for the sluggish growth of consumption of the fuel.

The absence of incentives allocated for biofuel producers has caused the price of using the fuel locally to remain very high, reducing the appetite of users to buy the fuel.

Producers have called for incentives in order for them to gain the economy of scale in order for the fuel to be sold at a competitive price.

According to the Biofuel Producers Association (Aprobi), the prices of bioethanol and biodiesel currently stand at around Rp 9,000 (around US$1.00) per liter. For comparison, the price of nonsubsidized Pertamax fuel in Jakarta is Rp 8,900 per liter.

“We’re trying to find ways to increase the use of biofuel. The problem is a classic one; it’s about pricing,” said the Energy and Mineral Resources Ministry’s bioenergy director at the directorate general for new, renewable energy and energy conservation, Maritje Hutapea.

“The prices, which are not competitive, have caused a reluctance among investors to engage in the business as buyers are also not interested because there are other alternative fuels,” she said on Tuesday.

The 2008 ministerial decree mandates a minimum biodiesel mix of 2.5 percent for subsidized diesel fuel and 3 percent for nonsubsidized diesel fuel in 2010. The mix will gradually increase to 20 percent for both subsidized and nonsubsidized diesel in 2025.

For diesel fuels used by industries, the minimum biodiesel (made of oil palm) mix was 5 percent in 2010, and will be gradually increased to 20 percent in 2025.

Fuels used by power companies (including state electricity firm PT PLN) are also required to have a 1 percent mix in 2010 and 20 percent in 2025.

For bioethanol (made of sugar cane or cassava), the mandatory mix is set at 3 percent for subsidized Premium fuel and 7 percent for non-subsidized Pertamax and Pertamax Plus in 2010, and 15 percent both in 2025.

For industry use, the mix is similar to the Pertamax scheme.

The government and the House of Representatives’ Commission VII overseeing energy agreed in October to raise subsidies for biofuels (bioethanol and biodiesel) used in subsidized fuels to help spur production. The subsidy was set at Rp 2,000 (22 US cents) to Rp 3,500 for bioethanol and Rp 3,000 for biodiesel.

But despite the allocated subsidies, the absorption of biofuels has remained low or even non-existent.

In 2010 and 2011, no bioethanol was produced, according to Maritje.

She said that the high expensive of the raw material sugar cane used in production had caused companies to stop producing bioethanol.

“The reference price set by the government for the selling of the fuel is also too low and would not cover their production costs,” she said.

“We’re now discussing with the Finance Ministry changing the formula on how we calculate the reference price. The current formulas are no longer relevant. The proposed formulas will cover all costs spent by biofuel makers.”

According to Maritje, 85 percent of the cost of producing biofuel is raw materials.

Aprobi secretary-general Paulus Cakrawan agreed with Maritje that fixing the pricing policy was important to motivate bioethanol and biodiesel producers to improve their production capacity.

Paulus also suggested that the government oblige all fuel distributors (not only state oil and gas company PT Pertamina, but also Shell, Total and Petronas) to mix biofuels in their fuels.

State-owned oil and gas company Pertamina is currently the only company mandated to have the biofuels mix.

For industries and electricity, Paulus suggested that the government create a clear timeline for requiring industries and power companies to use the biofuels.

“There’s should also be a penalty for those that fail to comply,” Paulus said.

Due to the weak biofuel absorption, there are now only five producers still commercially operating from the previous 22 companies, according to Aprobi.

The five are PT Eterindo Wahanatama, PT Wilmar Internasional, PT. Indo Biofuels, PT Multi Kimia, and PT Darmex.

Pertamina spokesperson Mochamad Harun said that Pertamina was actually keen to expand the use of biofuels, but had had difficulty obtaining sufficient supply.

“When the price of crude palm oil [CPO] is high, producers prefer to sell CPO rather than biodiesel, but when the price climbs, they sell biodiesel. Certainty of supply is the issue here,” he said.

“But, as long as the government still provides subsidies for fossil fuels then the development of alternative energy will be hindered.”