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Indonesia Follows Suit In The Production And Use of Biofuels
Indonesia Follows Suit In The Production And Use of Biofuels
12/4/07 (Mondaq) - Biofuels around the Globe. In Brazil, cars run on a 25 percent ethanol gasoline blend, taking advantage of being the world's largest producer of sugar-based ethanol of 16 billion litres (3.52 billion gallons) a year. Petrobras exported 2 billion litres of ethanol in 2005 and plans to increase exports to 9.4 billion litres in 2010. In the United States (the world's biggest oil user, and the second-largest biofuel producer after Brazil) the Senate Energy Committee voted in 2005 to require US output of ethanol, distilled from corn and woody biomass materials, to reach at least 8 billion gallons a year by 2012, doubling the output of that year. The European Union, determined to reduce greenhouse gases according to its Kyoto Protocol obligations, set a non-binding target that fuels should gradually increase ethanol content to 5.75 percent by 2010. Japan may need up to 1.8 billion litres of fuel ethanol a year if it made an optional 3 percent ethanol content in national fuel supplies mandatory. Japan, the world's second-largest consumer of gasoline, imported more than 100 million litres of fuel ethanol from Brazil. Thailand, the world's second-biggest sugar exporter after Brazil, plans to replace regular gasoline with a mix that includes 10 percent ethanol in 2007. Since 2003, India directed oil companies in some parts of India to sell petrol made up of 5 percent ethanol. China has selected several provinces to use trial blends of 10 percent ethanol to meet growing demand for gasoline. Malaysia, the world's top producer and exporter of palm oil, is pushing to create a mandatory blending of a certain amount of the palm oil with retail diesel.
Biofuels in Indonesia.
It was not until after soaring global oil prices and the country became a net oil importer that the Government of Indonesia (the "GoI") focused on the importance of biofuels as an alternative energy source. The soaring oil price and decline in petroleum reserves and production forced the GoI to reduce/lift fuel price subsidies and start to look at biofuels as a viable alternative energy source. For the private sector, production of biofuels was not seen as economically commercial until after the lifting/reduction of fuel price subsidies by the GoI in late 2005.
As a start, in January 2006 the President issued Presidential Instruction ("PI") No.1/2006 for the Production and Use of Biofuel as Alternative Fuel, giving instructions to various ministries, amongst others including Ministry of Energy and Mineral Resources and Ministry of Agriculture, to speed up the production and use of biofuel as alternative fuel.
Indonesia is in fact blessed with various sources of biofuel such as corn, casava, tapioca, sugar cane, palm and castor/jathropa, while other countries may not have such diversified sources. Currently, Indonesia is only second to Malaysia as the world's biggest palm oil producer, and together these two countries represent the main exporter of palm oil to the European Union. Indonesia is yet to tap into the other resources, which may be less costly to cultivate than palm oil. Castor, as an example, can be planted practically anywhere, including on currently unproductive land and thereby can bring real economic value to the community and Indonesia overall.
With the many options in sources for biofuel, there is much flexibility for the production of biofuel in Indonesia. The cultivation of sources of biofuel can be done in each area with the most suitable crops, thereby reducing investment and operating costs. Nevertheless, as it requires a long process to convert sources to biofuel, the price may not be much lower than those of fossil-based fuels. As such, to speed up the pace toward the production and use of biofuel, the GoI needs to create a regulatory and business environment which enables the farmers, refineries and retailers to gain profit, and the consumers the affordability to purchase the alternative fuel.
Recently the Minister of Energy and Mineral Resources (the "Minister") said that "Indonesia is targeting a 10% domestic usage of biofuels by 2010". With this target in hand, further to PI No.1/2006, the President will issue a decree on the establishment of a national team to control and make a blueprint of the government policy on biofuel energy. The Minister also said that the GoI is considering to provide fiscal and nonfiscal incentives to the "upstream side" for the development of bioenergy (e.g. tax holidays, extended land concession rights). The incentives are not to be provided to the "downstream side". Nevertheless the President believes that the incentives to the upstream side will result in lower production costs and ultimately lower selling prices of biofuels, thereby enabling biofuels to be competitive against fossil-based fuels.
Pertamina has started selling diesel with a 5% biofuel content at its gas stations even without the contemplated incentives. Recently it was also reported that PT Elnusa forged a joint venture with PT Indo Biofuels Energy to construct a biodiesel production plant with a capacity of 60 million litres per annum in Merak, Banten, West Java. Investors from India and China were also quoted as having an interest in making investment in biofuels in Indonesia.
We can see that the GoI has moved in the right direction. We hope that the GoI is consistent with its policies in creating a conducive investment and business environment for bioenergy, which would spur more investments, so that the set target of domestic usage of biofuels as noted above can be met as soon as possible. Achieving this target will in turn reduce the GoI's financial burden on the subsidies for the use of fossil-based fuels as well as fill in the gap due to the dwindling domestic fossil-based fuel reserves.
Biofuels in Indonesia.
It was not until after soaring global oil prices and the country became a net oil importer that the Government of Indonesia (the "GoI") focused on the importance of biofuels as an alternative energy source. The soaring oil price and decline in petroleum reserves and production forced the GoI to reduce/lift fuel price subsidies and start to look at biofuels as a viable alternative energy source. For the private sector, production of biofuels was not seen as economically commercial until after the lifting/reduction of fuel price subsidies by the GoI in late 2005.
As a start, in January 2006 the President issued Presidential Instruction ("PI") No.1/2006 for the Production and Use of Biofuel as Alternative Fuel, giving instructions to various ministries, amongst others including Ministry of Energy and Mineral Resources and Ministry of Agriculture, to speed up the production and use of biofuel as alternative fuel.
Indonesia is in fact blessed with various sources of biofuel such as corn, casava, tapioca, sugar cane, palm and castor/jathropa, while other countries may not have such diversified sources. Currently, Indonesia is only second to Malaysia as the world's biggest palm oil producer, and together these two countries represent the main exporter of palm oil to the European Union. Indonesia is yet to tap into the other resources, which may be less costly to cultivate than palm oil. Castor, as an example, can be planted practically anywhere, including on currently unproductive land and thereby can bring real economic value to the community and Indonesia overall.
With the many options in sources for biofuel, there is much flexibility for the production of biofuel in Indonesia. The cultivation of sources of biofuel can be done in each area with the most suitable crops, thereby reducing investment and operating costs. Nevertheless, as it requires a long process to convert sources to biofuel, the price may not be much lower than those of fossil-based fuels. As such, to speed up the pace toward the production and use of biofuel, the GoI needs to create a regulatory and business environment which enables the farmers, refineries and retailers to gain profit, and the consumers the affordability to purchase the alternative fuel.
Recently the Minister of Energy and Mineral Resources (the "Minister") said that "Indonesia is targeting a 10% domestic usage of biofuels by 2010". With this target in hand, further to PI No.1/2006, the President will issue a decree on the establishment of a national team to control and make a blueprint of the government policy on biofuel energy. The Minister also said that the GoI is considering to provide fiscal and nonfiscal incentives to the "upstream side" for the development of bioenergy (e.g. tax holidays, extended land concession rights). The incentives are not to be provided to the "downstream side". Nevertheless the President believes that the incentives to the upstream side will result in lower production costs and ultimately lower selling prices of biofuels, thereby enabling biofuels to be competitive against fossil-based fuels.
Pertamina has started selling diesel with a 5% biofuel content at its gas stations even without the contemplated incentives. Recently it was also reported that PT Elnusa forged a joint venture with PT Indo Biofuels Energy to construct a biodiesel production plant with a capacity of 60 million litres per annum in Merak, Banten, West Java. Investors from India and China were also quoted as having an interest in making investment in biofuels in Indonesia.
We can see that the GoI has moved in the right direction. We hope that the GoI is consistent with its policies in creating a conducive investment and business environment for bioenergy, which would spur more investments, so that the set target of domestic usage of biofuels as noted above can be met as soon as possible. Achieving this target will in turn reduce the GoI's financial burden on the subsidies for the use of fossil-based fuels as well as fill in the gap due to the dwindling domestic fossil-based fuel reserves.