23/05/2012 (Jakarta Globe) - Indonesia could be the biggest producer of biofuel in the world, but only if the government is serious about developing the industry, analysts say.

Pri Agung Rakhmanto, the executive director of the ReforMiner Institute, an energy think tank, said there was an abundance of degraded land across the country that could be used to grow the feedstock for biofuels, including palm oil, sugarcane and cassava.

“We have the potential to be the global biofuel king, just as long as there’s a commitment to growing the feedstock,” he said.

The problem, he said, was that these crops were prioritized more as food than as biofuel feedstock, and there was little effort to plant them specifically as feedstock.

Pri Agung acknowledged that the intensive use of certain crops as biofuel feedstock had caused an increase in global food prices, but he added that this was precisely why the government should set aside plantations for growing crops for biofuels.

Another obstacle stopping Indonesia from producing more biofuel, he said, was the fact that it exported most of the crude palm oil or other crops that it could otherwise process to make biofuels.

“There’s this idea that exporting it is more profitable,” he said.

Pri Agung argued that this was not true, and that Indonesia already had the manpower and knowledge to process the feedstock to produce more biofuel.

He also suggested that the government could subsidize biofuels to encourage more production.

“The size of the subsidy would depend on the scale of the production, but we could peg the price at about Rp 4,500 to Rp 5,000 [49 cents to 54 cents] a liter, like with subsidized fossil fuels,” he said.

However, the government’s prevailing policies on biofuels are unresponsive, unclear and not comprehensive, he added.

Unggul Priyanto, the deputy for energy and material technology at the Agency for the Assessment and Application of Technology (BPPT), has previously proposed setting up “energy estates,” or vast plantations for growing feedstock for biofuels.

He said biofuel production remained low at just 10 percent of the country’s capacity, while production of bioethanol is at 1 percent of capacity.

If developed extensively throughout the country, these energy estates could produce enough biofuel that the market price would be lower than the pump price of subsidized fossil fuels, according to the BPPT.

Satya Widya Yudha, a member of House of Representatives Commission VII, which oversees energy and mining affairs, said the government already subsidized palm oil-based biofuels by Rp 2,500 to Rp 3,500 a liter, but it needed to extend this to fuels made from other feedstock.

He agreed that Indonesia could become the world’s biggest producer of biofuel with the right political commitment.

“Just look at Brazil. They are successfully producing biofuel on a tremendous scale,” he said.

Satya added that one way to encourage higher production was to raise the 5 percent cap on the crop-based fuel content of biofuels.

“It’s being mixed with regular fossil fuel, so [increasing the biofuel component] will allow us to lower the overall price at the pump,” he said.

Another policy change would be to slash the export tax on processed biofuel, which Satya said discouraged local companies from producing in the first place.

“The government needs to reach an agreement with its export partners, particularly in Europe, and lower the export tax so that when oil prices drop and demand for fossil-based fuels here rises, local producers can export more biofuel to Europe without facing such a large tax burden,” he said.