"The first three months will be a transition period. It will be fully effective as of January 1st, 2009," Purnomo said, adding the transition period was meant to provide time for relevant sectors to adjust.

According to the regulation, three types of biofuels will gradually replace traditional counterparts: biodiesel, bioethanol and pure palm oil.

Biodiesel, made from castor and crude palm oil, is expected to gradually replace diesel fuel. The country's annual biodiesel production currently stands at 2 million kiloliters and is expected to grow to 5 million by 2010.

Biodiesel will be mandatory for fuel retailers, manufacturers, commercials business and power plants.

For the first three months, at least 0.1 percent of power plant operators' total fuel consumption must be from biodiesel. For manufacturers and commercial businesses, the minimum requirement will be 2.5 percent.

In addition, fuel retailers will have to devote at least 1 percent of total sale volume to biodiesel.

Under the terms of the regulation, gasoline will gradually be replaced by bioethanol, made from cassava, sugarcane and sweet sorghum. The country's annual bioethanol production capacity stands at 192,349 kiloliters a year, with expectations it will rise to 4 million kiloliters by 2010.

Bioethanol will be mandatory for fuel retailers, manufacturers, and commercial business, starting in January.

The mandatory bioethanol percentages for fuel retailers are one percent of total sales volume for subsidized fuels and five percent for non-subsidized fuels.

The minimum requirement for manufacturers and commercial businesses is five percent.

Kerosene and fuel oil used by manufacturers and power plant operators running low and medium speed engines will be replaced by pure palm oil under the regulation, directorate general for oil and gas at the energy ministry Evita H. Legowo said.

The three types of biofuel will not be difficult to supply as all biofuel producers should be able to produce them, she added, explaining that the mandatory percentages for biofuels will increase over time.

"Our goal is to have biofuel contribute 5 percent of the national energy portfolio by 2025."

The government will provide incentives, including a reduction in the value added tax, for those who develop biofuels, she added.

Companies that violate the mandate risk punishments ranging from reprimands to a cancellation of business licenses.

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