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n addition to the increase in oil prices in the world market, the program to increase the mandatory amount of palm oil (fatty acid methyl ester) in biodiesel is hampering the government'€™s efforts to increase the consumption of non-subsidized fuel in the country.

According to figures presented by the Downstream Oil and Gas Regulatory Agency (BPH Migas) on Tuesday, the consumption of non-subsidized fuel reached a total of 26 million kiloliters in 2013, below the 29 million kl recorded in 2012.

BPH Migas acting director for fuel Hendry Ahmad said non-subsidized fuel consumption fell last year because of the sharp increase in fuel prices caused by the drop in the rupiah against the US dollar, forcing industrial users to switch to cheaper sources of energy such as coal and gas.

Industrial users that are prohibited from using subsidized fuel did not have much choice but to use cheaper sources of energy to lower the operating costs of their facilities such as power plants. This partly caused the lower consumption of non-subsidized fuel, he said during a meeting with fuel
distributors.

In addition, many car owners who previously bought non-subsidized fuel now bought subsidized fuel due to price concerns.

He said that in addition to high prices, reluctance on the part of industrial users could also hamper the government'€™s efforts to increase the use of biodiesel. The government raised the mandatory amount of palm oil blended in biodiesel to 10 percent this year. The mandatory blending will be further raised to 20 percent in January 2016 and 25 percent by 2025.

The volume of biodiesel mixing in the first quarter of the year remains below the target, despite the implementation of the 10 percent mandatory blending, according to the renewable energy directorate general. During the first three months of the year, only about 350,000 kl of biodiesel had been blended. The government expects to see up to 4 million kl in biodiesel fuel by the year'€™s end.

Many mining companies, which operate heavy vehicles, are reported to have been reluctant to use diesel oil with a higher biofuel content, because the fuel does not meet the vehicles'€™ engine specifications. They feared the use of higher biofuel content would damage the engines and cancel the guarantees, representatives of fuel distributors such as Shell Indonesia and AKR Corporindo said.

Currently, the installed capacity of biodiesel reaches 5.6 million kl per year. As many as 25 companies have been licensed to distribute the fuel.

Commenting on the industrial sector'€™s reluctance on the use of biodiesel, BPH Migas'€™ commissioner Ibrahim Hasyim said communication between government officials and industries should be encouraged to avoid misunderstanding.

'€œPLN [the state-owned electric company] used to say the blending could not be implemented. However, now they use it,'€ Ibrahim said.