Support for Bio-fuels


Economic News

22 Jul 2010
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During a short visit to Indonesia on November 20, US President George W. Bush met with President Susilo Bambang Yudhoyono. Among the topics discussed, the two leaders agreed to increase cooperation in their quest for alternative fuels, in response to continuous high prices for fossil based sources.

Both presidents decided to endorse the US-Indonesia Energy Policy Dialogue as a forum to explore ways to obtain clean and safe alternative energy, including bio-fuels.

Yudhoyono updated Bush on his ambitious bio-fuel programme, with more than Rp13 trillion ($1.4bn) coming from the state budget for 2007. In addition, the government will prepare around 500,000 hectares of land in 2007 for planting crops that can be used for biofuels, such as palm oil and jatropha for bio-diesel and cassava and sugarcane for bio-ethanol.

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) will be used to secure seedlings. The remaining Rp1 trillion ($109.67m) will be used to subsidise bio-fuel related loans.

Earlier this year, 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.

Since May, Pertamina, the state-owned oil and gas company, has been selling bio-diesel to customers, mixing normal, hydrocarbon-based diesel with 5% palm oil-based bio-diesel. The objective is to increase the level of bio-diesel up to 15% in the future.

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.

Retail suppliers such as Shell and Petronas have not yet started selling biofuels.

Roberto Moran, the managing director of Shell in Indonesia, recently told OBG, "while there is a natural fit in Indonesia because of the palm oil and agricultue industry potential, as well as employment generation, there are concerns around the supply availability to meet the customer needs. There are also issues around the economics of it and thus its sustainability. Today, there is already a need to subsidise biodiesel producers... we also want to have a level playing field for all competitiors in fuels and market based mechanisms to ensure fair competition."

Moran's comments illustrate growing concerns over the increased utilisation of palm oil-based bio-diesel at the expense of affordable palm oil supply, necessary for food production in a country where famine still exists.

The cooperation agreement between the two countries raises hopes to promote sustainable development of a healthy bio-fuel industry, enabling the country to become less dependent on oil, while not jeopardising food supply.

Besides bio-fuels, the two presidents discussed a wide range of issues that included the potential of Indonesia to participate in Iraq, avian flu, and re-affirmed both countries' commitment to the international war on terrorism. Bush reasserted US support for developing the education sector in Indonesia, highlighting the $157m US-Indonesia Education Initiative, aimed at improving education at a regional level.

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