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Biodiesel producers announced earlier this week that their
total production has dropped by 85 percent since December.
The producers blamed the drop on "inconsistent policy making" by the
government, particularly the fact that Pertamina's total spending on
biodiesel had not been defined as an expense item eligible for a
government subsidy by the Finance Ministry.
"This situation has led Pertamina to reduce the portion of biodiesel in
a liter of Biosolar by half," PT Indo Biofuels Energy operational
director Lucia Liemesak told The Jakarta Post on Wednesday.
Pertamina reduced the percentage of biofuel in its Biosolar and
Biopertamax products from 5 percent to 2.5 percent, after announcing it
was being forced to scale down its biofuel operations due to losses of
Rp 16.9 billion (about US$1.8 million) in 2006.
As a result of the crash in demand, Biofuel Producers Association
chairman Purnardi Djojosudirdjo said earlier this week that 17 biofuel
companies were postponing their investment developments.
He said that there are five biofuel companies in operation today, with
a combined production capacity of about 1.1 million tons per year, only
about 15 percent of which is in use now.
"We invested in the business after the presidential instruction on
biofuel promotion was introduced back in 2006, promising a lot of
incentives for the alternative energy industry,"
"But apparently, no regulatory support followed the instruction. After
making hundreds of millions of dollars worth of investments, the
government leaves us, just like that," Lucia said.
Lucia said it took about $5 million to $6 million of investment to run
a biofuel factory with a production capacity of 20,000 tons per year.
Pertamina deputy marketing director Hanung Budia explained that the
subsidy for Biosolar was the same as for regular Solar fuel. Currently
Solar at gas stations is being sold at Rp 4,100, from an orginal price
of Rp 8,695, which means that the government is providing a subsidy of
Rp 4,595 per liter.
"If the production cost of Biosolar is higher than Solar, Pertamina
must cover the gap," he said.
National Biofuel Development Committee chairman Alhilal Hamdi, also a
commissioner at state power company PLN, said that the problem was not
about regulatory issue at the Finance Ministry, but had more to do with
the increasing price of ethanol and CPO and the government's lack of
political will.
"CPO now costs more than $1000 per ton, making the production cost of
Biosolar higher than Solar. If the government were to absorb all the
production capacity of the biofuel producers, it would put greater
pressure on the subsidy budget," he said, without giving the exact
figures.
To help boost domestic demand, Alhilal said that the committee was
planning to propose legislation on the mandatory use of biofuels in
industry as has been implemented at other countries such as in the
Philippines and Malaysia.
He said that the plan was still being discussed with the government,
particularly on the level of consumption that should be mandated.
"We propose of about 1 percent of the total national fuel usage of 60
million kiloliters," he said.
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