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Clouds appear on horizon for govt's biodiesel push
As the government aims to blend more biodiesel into diesel fuel, problems surrounding the ability of domestic biodiesel producers to meet higher demand and uncertainty over the subsidy mechanism might prevent the policy from making a significant impact on the economy
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As the government aims to blend more biodiesel into diesel fuel, problems surrounding the ability of domestic biodiesel producers to meet higher demand and uncertainty over the subsidy mechanism might prevent the policy from making a significant impact on the economy.
Among the government's efforts to prop up the plunging rupiah is a plan to raise the mandatory mix of biodiesel in diesel fuel from 10 percent to 15 percent, to reduce imports of diesel fuel that have helped the country suffer a current-account deficit, a major worry among investors.
The Energy and Mineral Resources Ministry's director general for new, renewable energy and energy conservation, Rida Mulyana, said that biofuel producers in the country have enough capacity to support the program. However, clarity on details of the policy would have to be determined and a revision of a regulation will be needed.
'As the implementation of the 15 percent blending was not started in January, the demand figure will be lower and still can be managed by local producers,' Rida said.
Currently, the country has a number of producers with 5.8 million kiloliters in installed capacity of biodiesel production. However, out of the total, only 4.47 million kiloliters is in active production, figures from the directorate general showed.
Given that the total demand of subsidized and non-subsidized fuel this year will reach around 34.1 million kiloliters, the mandatory 15 percent blending will boost the target of blended biodiesel to around 5.1 million kiloliters for the full year, higher than the active production capacity.
The higher content of biodiesel ' which uses renewable sources such as fatty acid methyl ester (FAME) made of crude palm oil ' blended into diesel fuel is expected to reduce the volume of fossil fuel and in turn reduce the country's imports of petroleum products.
The mandatory biodiesel mix of 10 percent was introduced in September 2013 for the same reason, to lessen the current-account deficit, as imports, particularly of oil and its products, were continuing to rise. The policy was continued last year, although its realization was below target.
Out of a plan to blend 1.57 million kiloliters into subsidized diesel fuel, only 1.17 million kiloliters was realized as poor infrastructure hampered distribution, while auctions for FAME procurement were not fully successful as producers complained about the pricing schemes.
Meanwhile, for non-subsidized fuel, the realization of the mandatory mix only reached 520,000 kiloliters.
Prior to the new policy of a 15 percent mandatory mix of biodiesel, the government has targeted to see a total of 3.41 million kiloliters blended this year, or 10 percent of the total estimated diesel consumption. The amount consists of around 1.7 million kiloliters blended into subsidized fuel and another 1.7 million kiloliters into non-subsidized fuel.
As part of an attempt to secure a supply for the biodiesel blending, state owned PT Pertamina, which is the country biggest fuel distributor, has kicked off the first phase of an auction for the procurement of 3 million kiloliters of FAME. The process is now ongoing, according to the company's marketing director Ahmad Bambang.
He said that Pertamina was ready to support the government's new plan for a 15 percent mandatory mix. However, clarity over regulations and budgeting would be necessary.
'One of the problems is the subsidy for biodiesel. An inclusion of the biodiesel subsidy into diesel fuel's fixed subsidy won't be sufficient,' Ahmad said.
The government earlier obtained an approval from the House of Representatives' Commission VII overseeing the energy sector to subsidize the sale of biodiesel so that FAME producers can continue their operations despite the ongoing decline in oil prices. If biodiesel blending is to be increased to 15 percent, subsidies for biodiesel should also be higher.
