22/5/06 (The Jakarta Post)  - The government will prioritize the production of crude palm oil to ensure blended biodiesel fuels are price-competitive with standard subsidized diesel, the Research and Technology Minister says.

"I have asked the Agriculture Ministry and the Trade Ministry to create a policy that could focus on CPO as a source for biodiesel fuel," Kusmayanto Kadiman said on Monday during a meeting with the House of Representatives legislators on research and technology.

Kadiman said such a policy would likely affect the use of CPO in other products, including frying oil, soap, body lotions and shampoo.

"Is it possible that a certain segment of the total annual production of CPO could become the right of the government?" he asked lawmakers.

Kadiman said the government could legislate to ensure CPO was used in the production of blended biodiesel fuels. He added that the Ministry of Energy and Mineral Resources should also take part in improving the situation.

The production cost of pure CPO currently stands at Rp 6,000 a liter. That makes the price of B-10 fuel -- 10 percent plant oil and 90 percent diesel -- at gas stations about Rp 4,436 a liter after marginal profit and value-added tax, according to calculations by PT Pertamina, the state oil company. Meanwhile, the price of subsidized diesel fuel is currently set at Rp 4,300 a liter.

The potential of developing CPO as an input for biodiesel fuel is high in this country, which has oil palm plantation areas of six million hectares with a production capacity of 17.5 million tons a year.

Kadiman said to sustain the industry, the government should give more incentives to the private sector so it would play a bigger role in increasing production and building biodiesel processing plants.

One strategy for producing more CPO a year would be to introduce incentives for biodiesel consumers, he said.

With the introduction of biodiesel blended fuels at Pertamina gas stations on May 20, Pertamina will need 14 million kiloliters of CPO a year for the Jakarta area alone.

Meanwhile, the Ministry of Research and Technology also plans to increase the production of another plant oil, jatropha curcas, for fuel blends.

"The price for straight jatropha curcas oil is Rp 3,800 a liter, with profit already going to cultivators, factory personnel and distributors," Kadiman said.

However, pure oil from the plant could not be used for biodiesel fuel because of its viscosity.

Kadiman said that the Coordinating Ministry for the Economy had assisted the research ministry this year with Rp 300 billion in funding, part of which would be used to build four biodiesel processing plants in four provinces.

The ministry also plans to develop 500,000 hectares of plantations every year with total funds of Rp 10 trillion from the government.

"Our natural resources are very abundant. It depends on us whether we want to get out of the trap of constantly using fossil fuels," Kadiman said.