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he Energy and Mineral Resources Ministry hopes to subsidize biodiesel and bioethanol more to help producers maintain their productivity and meet the government'€™s mandatory mixed-fuel target.

The bigger subsidy bill is needed because producers are experiencing high production costs while the benchmark price is declining as a consequence of the declining oil price, according to the ministry'€™s director general for renewable energy, Rida Mulyana.

In a proposal submitted to the House of Representatives, the ministry has proposed that the subsidy for biodiesel be set at Rp 5,000 (US$0.39) per liter, an almost triple increase compared to Rp 1,500 per liter proposed in the state budget earlier. Meanwhile, the bioethanol subsidy has been proposed at Rp 3,000 per liter compared to the previously proposed Rp 2,000 per liter.

'€œThe subsidy is set based on the assumptions of, among other things, the rupiah exchange rate and the crude price,'€ Rida said.

In the proposed revised state budget, the rupiah exchange rate is set at Rp 12,500 per US dollar while the oil price assumption is $60 per barrel.

The government is proposing that 3.41 million kiloliters of biodiesel be mixed in diesel and 0.117 million kiloliters bioethanol, which would total Rp 17.4 trillion in subsidies. That is a significant increase from the Rp 3.09 trillion previously planned for 1.58 million kiloliters of biodiesel.

'€œThe Rp 17.4 trillion is standby money and the realization will depend on the realization of blended volume,'€ Rida said.

The proposal is pending approval by the House.

The planned mandatory biodiesel and bioethanol mandatory mix program is estimated to save the country Rp 20 trillion from not importing oil fuel, according to Rida.

Indonesia, a former member of the Organization of Petroleum Exporting Countries (OPEC), imports a huge volume of oil fuel to meet growing domestic demand amid declining production at depleted oil fields in the country and as refineries are run below capacity.

Since late 2013, the government has implemented a mandatory mix of 10 percent biodiesel to 90 diesel fuel as part of efforts to reduce the use of fossil fuel. Besides the biodiesel mix, the government also requires the usage of bioethanol by 0.5 percent to 1 percent into ethanol.

Due to poor infrastructure, the government failed to meet the target of the diesel volume that must be blended with biodiesel. In 2014, only 1.17 million kiloliters biodiesel were blended, lower than a targeted 1.57 million kiloliters. Meanwhile, realization of bioethanol blending was zero.

State-owned Pertamina, which is the biggest fuel distributor in the country, said it had failed to hold a tender on the procurement of fatty acid methyl ester (FAME), which is a component of diesel mixes. The failure also contributed to the low realization of last year'€™s 10 percent mandatory blending using biodiesel.

'€œNo one participated in the tender because the FAME price was too low. They are waiting for the new formula of the price setting. Also, a subsidy of Rp 5,000 would be attractive,'€ Pertamina marketing director Ahmad Bambang said, adding that there would be a new procurement this month.