9/3/07 (The Jakarta Post)  - The Finance Ministry is preparing a package of incentives to support the government's ambitious program to produce 200,000 barrels of biofuel a day by 2010, a senior official says.

Unggul Priyanto, the director for energy resources development at the Agency for the Assessment and Application of Technology (BPPT), said Thursday in Jakarta that the Finance Ministry was in the process of formulating two types of incentives to be offered to investors involved in biofuel projects.

The planned incentives, he said, consisted of tax breaks and subsidies on loan interest.

According to the proposal, the tax breaks will be given during the first years of operation of companies involved both in feed-stock production and in biofuel production, while the interest subsidies would be provided so as to ensure that investors would not have to pay loan interest of more than 10 percent a year.

"We hope we can attract more investors with these kinds of incentives," Unggul told The Jakarta Post on the sidelines of a seminar on renewable energy at BPPT headquarters.

Against a backdrop of declining oil production, Indonesia is going all out to attract both domestic and foreign investment to develop alternative energy sources.

In January, the government signed 58 agreements worth US$12.4 billion with 59 foreign and local energy firms for the development of oil palm plantations and processing facilities.

Among the investors are China's major energy firm, CNOOC, which plans to invest a total of $5.5 billion in partnership with a local company, Sinar Mas Agro Resources. Meanwhile, Malaysia-based Genting Biofuels Asia plans an investment of up to $3 billion on similar project.

The chairman of the government's biofuel development committee, Alhilal Hamdi, has said that Indonesia is hoping to produce about 200,000 barrels of oil equivalent in biofuel per day by 2010.

In order to achieve this target, the government has set aside Rp 1 trillion to cover the cost of interest subsidies on agriculture-related loans, and the cost of procuring seedlings, while another Rp 10 trillion has been earmarked for improving agricultural infrastructure.

Some 6.5 million hectares of uncultivated land have been designated for the development of biofuel-feedstock plantations. Based on the program, the government hopes that locally produced biofuel will be able to replace 10 percent of the country's total oil-based fuel needs, which last year reached 70 million kiloliters.

In its blueprint, the government is aiming for biofuel utilization accounting to 2 percent of total energy use, or the equivalent of about 5.29 million kiloliters (kl) of oil, between 2005 and 2010, increasing to 3 percent, amounting to 9.84 million kl between, 2011 and 2015, and 5 percent, amounting to 22.26 million kl, between 2016 and 2025.

The biofuel development program covers the promotion of biodiesel, bioethanol, biokerosene and pure plant oil (PPO).