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Infrastructure, price issues to challenge 10% biodiesel rule

While the government claims that the mandatory obligation to blend biodiesel into solar fuel is on track, several issues are set to challenge the program’s sustainability

Raras Cahyafitri (The Jakarta Post)
Jakarta
Mon, December 9, 2013

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Infrastructure, price issues to challenge 10% biodiesel rule

W

hile the government claims that the mandatory obligation to blend biodiesel into solar fuel is on track, several issues are set to challenge the program'€™s sustainability.

In an attempt to reduce spending on oil and diesel imports, the government introduced last September an obligation to blend solar fuel with a minimum 10 percent of biodiesel. Figures from the Energy and Mineral Resources Ministry'€™s directorate-general for renewable energy show that the obligation, specifically for subsidized fuel, is proceeding smoothly.

According to the department'€™s figures, 294,085 kiloliters of biodiesel were blended with subsidized solar fuel during the September to November period. This number only covers fuel in Sumatra, Java and Kalimantan due to state-owned oil company PT Pertamina'€™s limited capacity to supply blended diesel fuel to all areas in the country.

Under its plan, the directorate is targeting to see a total of 379,513 kl blended during September to
December.

'€œGiven the trend, it is likely that this target will be exceeded,'€ renewable energy director-general Rida Mulyana said.

Rida added that up to Rp 1.19 trillion (US$99.48 million) in subsidies would be saved from the four months of the program'€™s implementation.

The policy of using biofuel was initially launched in 2006 based on the issuance of a presidential instruction; this was followed by an energy and mineral resources ministerial decree in 2008 stipulating the mandatory use of biofuel for transportation, industry and power plants.

Pertamina was already implementing a 7.5 percent blend for its solar energy when the government decided to put in place a 10 percent mandatory blending of biodiesel last September in an attempt to reduce diesel fuel imports, which had been contributing to the current-account deficit.

According to the renewable energy directorate-general, around 722,000 kl of biodiesel were blended into diesel fuel between January and October, prior to the implementation of the 10 percent mandatory ruling.

The country'€™s subsidized diesel-fuel consumption is estimated to stand at 15.6 million kl this year, with projections that it will rise to 16.5 million in 2014. The full implementation of the 10 percent rule on biodiesel across the country is expected to begin next year, bringing the total amount of biodiesel blended into subsidized diesel fuel to 1.6 million kl.

Pertamina'€™s vice president for retail fuel marketing, Muhammad Iskandar, said the company was prepared to cover all areas of the country with blended biodiesel next year.

'€œWe may not be ready by early January [for the full 10 percent coverage of mandatory blending]; however, the infrastructure is ready,'€ Iskandar said.

'€œWe will blend the biodiesel in large terminals, such as the Wayame terminal in Ambon, before then distributing the fuel to smaller terminals in Papua and Maluku. Blending in small terminals would be too costly,'€ he added.

Iskandar said that Pertamina was also blending biodiesel for non-subsidized diesel fuel.

It is estimated that the overall consumption of subsidized and non-subsidized diesel fuel may exceed last year'€™s figure of 31 million kl.

As part of its effort to secure adequate supplies of biodiesel, Pertamina launched last September a tender in which the company will buy 6.6 billion liters of biodiesel from 25 licensed local producers over a two-year period. The result of the tender is expected to be announced this month.

In 2012, the country'€™s biodiesel production reached 2.21 million kl, a more than fourfold increase compared to 500,000 kl in 2010. As many as 1.54 million kl were exported in 2012, while the domestic market only absorbed 669,000 kl. The national installed capacity of biodiesel currently stands at 5.67 million kl per year. Of that total, 4.5 million kl are ready for production.

Paulus Tjakrawan of the Biofuel Producers Association (Aprobi) said biodiesel producers were ready to help meet the increasing domestic demand, due to the implementation of the mandatory blending rule, especially since the country'€™s biodiesel vendors may see lower exports due to dumping allegations.

However, he said, the pricing of biodiesel would likely become a problem in the near future. Paulus pointed out that according to Pertamina'€™s tender, the price being sought was below the Mean of Platts Singapore (MOPS) benchmark.

'€œProducers will still be able to supply to the government [through Pertamina, which blends the biodiesel into subsidized diesel fuel]; however, it will be like a charity. This creates a concern about sustainability as palm oil prices may end up higher than biodiesel'€™s MOPS level, such as in previous years,'€ Paulus said.

'€œThe government should intervene regarding the price and not allow this to become a '€˜business by business'€™ matter,'€ he added.

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