Bio-Fuelling the Future


Economic News

22 Jul 2010
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In a move to lessen reliance of hydrocarbon-based fuel, the government of Indonesia began 2007 with the signing of a large number of agreements to develop the country's bio-fuel industry.

Currently the world's second largest palm oil producer, Indonesia has much to gain from developing alternative energies. National oil production has been on the decline and the government price subsidies on imported oil is placing a heavy burden on state coffers.

Last week the government signed a total of 58 agreements with 59 firms to develop Indonesia as one of the world's top bio-fuel producers by 2010.

Alhilal Hamdi, the chairman of the government's bio-fuel development committee, said at the signing that he was confident in the future of bio-fuel energy in the country. He added that he anticipated Indonesia "to produce 200,000 barrels of oil equivalent in bio-fuels per day by 2010".

The memoranda of understanding (MoU) will lead to an estimated $12.4bn investment in the country's renewable energy sector.

President Susilo Bambang Yudhoyono has committed more than Rp13 trillion ($1.4bn) from the state budget for 2007 to develop bio-fuels. In addition, the government will prepare around 500,000 hectares of land in 2007 for planting crops that can be used for the alternative source.

Out of the Rp13 trillion envelope, Rp10 trillion ($1.1bn) will be used to build infrastructure around bio-fuel related plantations, and Rp2 trillion ($219.34m) for seedlings. The remaining Rp1 trillion ($109.67m) is to subsidise bio-fuel related loans.

In 2006, the government announced the construction of 11 bio-fuel plants, ready to produce almost 190m litres in 2007, increasing to 1.4bn litres in 2010.

Calculations compiled by the Indonesian Renewable Energy Society show that if Indonesia could replace 5% of its total fossil-based fuels with bio-fuels in 2007, it could save up to 2.4m kilolitres of hydrocarbon fuels next year.

The biggest investment will come from the Chinese state owned energy company, China National Offshore Oil Corporation (CNOOC), which is partnering with Sinar Mas Agro Resources and Technology (SMART), a palm oil producer subsidiary of Singapore's Golden Agri Resources, and Hong Kong Energy to invest $5.5bn.

This investment is thought to be one of the biggest bio-fuel investments worldwide. The $5.5bn investment is to develop in three phases over the next eight years to produce crude palm oil based bio-diesel, and sugarcane or cassava-based bio-ethanol, according to a joint statement by the companies.

"The project will be carried out in Papua and Kalimantan where the regional governments have reserves of about one million hectares of land," said a SMART executive.

Hamdi added that many of the companies, most of them local, were to begin producing bio-diesel and bio-ethanol during this year. Wilmar Energy is set to produce one million tons of bio-diesel fuel by the end of this year. "This will become the world's largest bio-diesel fuel production" according to a Wilmar Energy senior executive.

Local governments are also partnering with state owned energy firms to develop their bio-fuel feedstock plantations. These include Papua, Pacitan in East Java and Wonogiri in Central Java, which are all major producers of palm oil, cassava and sugar cane, the basic feedstock for bio-diesel and bio-ethanol production.

To reach the 2010 production target, the government has announced that it plans to allocate 6.5m hectares of uncultivated land for the production of bio-fuel feedstock. Through this policy, the government intends to replace 10% of the country's total hydrocarbon-based fuel consumption with bio-fuels.

The agreements signed on Tuesday also included MoUs with financial institutions which will be providing financing for the projects. At the signing a total of Rp50 trillion ($5.4bn) of loans were committed to the green energy fund.

The Rp50 trillion, provided by Bank Rakyat Indonesia, Bank Mandiri and Bank Bukopin among others will be equally divided to provide loans for the development of plantations and the for building processing plants.

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