B

iofuel producers want a new pricing scheme that will make production less costly so as to meet an expected increase in demand as the government aims to boost biodiesel use to reduce dependence on fossil fuels.

The Biofuel Producers Association (Aprobi) has proposed that the benchmark price, which is used in sales tenders with major biofuel consumer PT Pertamina, be based on palm oil prices instead of crude oil prices.

'€œWe expect the new index price to be approved by the government. If it is so and can be applied in all biodiesel purchase contracts in 2015 as well as existing contracts, we can see a
significantly higher domestic consumption this year,'€ Aprobi secretary general Togar Sitanggang told a press briefing recently.

Currently the pricing scheme for biofuel sales contracts is based on the benchmark Mean of Platts Singapore (MOPS). At 103.5 percent to MOPS per ton, biofuel prices do not compensate production costs, hence discouraging the industry from boosting output.

Aprobi has demanded that the new pricing scheme be based on the price of crude palm oil (CPO), which is the raw material of biofuel. The scheme would be the CPO price plus US$188 each ton, so as to compensate production costs that can reach $150 per ton.

Once put in place, biodiesel in Indonesia will be priced at a similar level as in Malaysia, where it is the cost of refined, bleached and deodorized (RBD) palm oil plus 515 ringgit ($145) per ton.

Indonesia has a mandatory diesel fuel blending program that has been implemented since 2008. In late 2013, in order to cut oil imports that have put pressure on the nation'€™s balance of trade, the government raised the biofuel content in the fuel mix from 7.5 percent to 10 percent for industrial and transportation use.

With the current pricing, producers suffer losses of around $900,000 each day, which is derived from the $150 per liter production costs multiplied by the 6,000 kiloliters distributed to state-owned firm PT Pertamina and other private firms, according to Aprobi chairman Paulus Tjakrawan.

'€œOne by one [biofuel producers] are reducing supply and two producers even stopped supplying last week,'€ Paulus said.

The biofuel producers expected higher biodiesel subsidy, as agreed by the House of Representatives and the government last week, to help push up domestic consumption of biodiesel. The group estimated that biodiesel consumption might climb to 2.2 million kiloliters this year, up nearly 30 percent from 1.7 million kiloliters in the past year.