21/12/06 (The Jakarta Post)  -  A consortium of five state-owned and regional banks has committed itself to providing a total of Rp 25.56 trillion (US$2.8 billion) in loans for the development of plantations across the country, including those producing biofuel feedstock.

The banks signed the memorandum of understanding for the loan scheme Wednesday with Finance Minister Sri Mulyani Indrawati, Coordinating Minister for the Economy Boediono and Bank Indonesia governor Burhanuddin Abdullah. The loan commitment is in line with the government's program to revitalize the agricultural sector and develop the biofuel sector.

Of the total money, Bank Rakyat Indonesia (BRI) will stump up Rp 12 trillion, Bank Mandiri Rp 11.08 trillion, Bank Bukopin Rp 1 trillion, the West Sumatra regional development bank Rp 980 billion, and the North Sumatra regional development bank Rp 500 billion.

Under the scheme, the banks will provide loans carrying an effective 10 percent fixed interest rate to small plantation owners cultivating crops of oil palm, cocoa and rubber.

The government will then provide them with a subsidy to cover any differences between the market lending rate and the fixed loan rate.

The subsidies will be provided over a period of five years for oil palm and cocoa plantations, and seven years for rubber plantations.

The average lending rate is currently some 15 percent, but this is expected to fall in line with the central bank's recent rate cuts. Bank Indonesia's key rate presently stands at 9.75 percent.

In the 2007 budget, the government has set aside Rp 1 trillion to cover the cost of subsidizing interest payments on agriculture-related loans and the cost of procuring seedlings, with another Rp 12 trillion being earmarked for improving agricultural infrastructure.

The government also plans to designate up to 6.5 million hectares of idle land for the development of biofuel-feedstock plantations in an effort to produce enough biofuel by 2010 to replace 10 percent of the country's total oil-based fuel consumption -- which reached 70 million kiloliters last year.

The Finance Ministry further said in a statement issued to mark the occasion that it planned to extend the interest subsidy to loans for the development of sugarcane and cassava plantations.

A similar loan scheme would also be worked out for jatropha plantations. Jatropha was recently identified as the plant with the most biofuel potential in Indonesia.

The follow-up credit schemes are expected to be finalized by January, with other banks outside of the present consortium likely to be invited to participate.

Palm oil and oil extracted from the jatropha plant can be mixed with ordinary diesel to produce biodiesel, while ethanol from sugarcane and cassava can be mixed with gasoline.