18/6/06 (The Jakarta Post)   -  The rapid increase in global oil prices, which reached over US$70 per barrel recently because of the uncertainty in the Middle East, has prompted the government to turn to an alternative energy -- biofuel.

The government, which has issued several regulations to support the development and production of biofuel, mentions several sources of biofuel, including sunflower, cassava, soya beans, sugarcane, corn, castor oil and palm oil.

"Many sources are appropriate and economical to be developed and used as main biofuel sources. But palm oil is the most prepared source of biofuel as we already have a supply source from our huge palm plantations. So all we have to do is turn that palm oil to biofuel," the director at state Indonesian Oil Palm Research Institute, Witjaksana Darmosarkoro, told The Jakarta Post.

He stressed that other biofuel sources still needed a long process of development to serve as an alternative energy to fossil-based fuels.

Witjaksana said the fact that Pertamina had begun to sell palm oil-based biodiesel blends in its four gas stations in Jakarta indicated that biodiesel was ready for large-scale sales.

Currently, Pertamina sells B-5 biodiesel blend -- 5 percent palm oil and 95 percent diesel -- at four gas stations in Jakarta.

Witjaksana said that Indonesia has overtaken Malaysia as the world's number one palm oil producer with 15.2 million tons of crude palm oil (CPO) per year from 5.3 million hectares of plantations.

Considering that CPO is the main ingredient for many products, including cooking oil, margarine, soap and various chemicals, for both local consumption and international markets, many doubt local production can meet biodiesel needs.

State Minister for Research and Technology Kusmayanto Kadiman said recently that state power company PLN alone needed 12 million kiloliters of diesel fuel per year.

"If 5 percent of the PLN's need is fulfilled by biodiesel then we need four million hectares of palm plantations," he said recently.

Besides for electricity, diesel fuel is also used by various industries and for transportation. Industrial users need six million kiloliters of diesel fuel and the transportation sector needs 26 million kiloliter of diesel fuel per year. So, if Indonesia wants to add 5 percent palm oil into all its biofuel blends, then huge areas of palm oil plantations will be needed.

As a comparison, the current national supply of biodiesel stands at 110,000 kiloliters per year, while the current consumption at the four new biodiesel pumps in Jakarta is 20,000 liter per day.

It looks like the government has a lot of work to do to catch up if it wants to realize its ambition to make all diesel fuel a biodiesel blend with palm oil.

In promoting the production of biofuel, the government has issued a number of legal instruments, including the Oil and Gas Law (No. 22/2001), Presidential Regulation No. 5/2006 on national policies for optimizing energy use and Presidential Instruction No. 1/2006 on biofuel.

Kusmayanto said should demand for biodiesel continue to grow, the government would turn to its oil palm plantations to supply biodiesel only.

Agriculture Minister Anton Apriyantono said the government planned to develop 300,000 hectares of palm oil plantations every year with a total budget allocation of Rp 10 trillion.

"In 2010, we will have an addition of three million hectares of palm oil plantations," he said.

According to the Indonesian Palm Oil Producers Association (GAPKI), with the additional three million hectares Indonesia's CPO output would jump to at least 23 million tons over the next five years.

Realizing that the private sector's active involvement is key to a successful biodiesel campaign, Energy and Mineral Resources Minister Purnomo Yusgiantoro has said the government is considering offering fiscal and administrative incentives to investors planning to produce biofuel as part of an alternative energy program designed to reduce the use of fossil-based fuels.

"We are considering offering incentives related to taxation and customs duties, and the simplification of licensing procedures," he said.

He said the Finance Ministry would formulate the taxation and import duty incentives for biofuel production equipment.

The government, however, will still subsidize biodiesel, which Pertamina currently sells for Rp 4,300 per liter at the four gas stations, while the production cost of pure CPO currently stands at Rp 6,000 a liter.

"We should sell it at the same price as subsidized diesel fuel to attract customers," Pertamina spokesman M. Harun told the Post.

Witjaksana, however, is optimistic that with advances in technology in the palm oil processing sector and a greater supply of palm oil, the production costs can be cut down significantly.

"It's just a matter of time. We will be able to sell biodiesel without a subsidy in due time," he said.