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ealization of biofuel blend volume in the first quarter of this year has been lower compared to the same period of 2014 mainly because of inconsistencies in the government'€™s policy and uncertainty about the amount of subsidies.

Data from the Energy and Mineral Resources Ministry showed the volume of biofuel blend as of March was 224,025 kiloliters, with state company Pertamina contributing 180,456 kiloliters and 43,569 kiloliters coming from other companies.

The volume was lower than 350,000 kiloliters of biofuel blend produced in the first quarter of last year.

'€œThe realization is low partly because there is no fixed allocation of biofuel subsidy policy in the state budget. It was also because of widening disparity in the prices of oil fuel and biofuel,'€ Dadan Kusdiana, director for bioenergy, said.

The government has ordered the blending of diesel fuel with a portion of biofuel in a move to reduce the country'€™s growing dependency on oil fuel. The blending of a certain amount of biofuel into diesel fuel is expected to substitute the volume of oil fuel, thus reducing the country'€™s crude imports and saving its foreign exchange.

In September 2013, the government changed the blend composition, requiring all diesel fuel to have a biofuel content of 10 percent of its total volume. The policy was maintained throughout 2014, however, the target of total blended fuel volume was missed.

Earlier this year, as part of the attempt to encourage the fuel blend, the ministry proposed a higher allocation of subsidy from the state budget. However, in the final revised state budget, the allocation was not mentioned and government officials said that the biofuel subsidy would be put into the fixed subsidy for diesel fuel.

While biofuel subsidy is seen as uncertain, the government made another move in mid-March by increasing the mandatory bio-content to 15 percent starting from April, a move said to be a part of economic measures amid a plunging rupiah. The higher content triggered further worries because it would need a bigger chunk of the allocation of the fixed subsidy for diesel fuel.

In its latest move, the government planned to impose export levies to fund the biodiesel subsidies, as well as replanting, research and development. Under the plan, every metric ton of palm oil exported would be imposed with a US$50 levy, while $30 would be imposed for other processed products, Coordinating Economic Minister Sofyan Djalil has said.

The government would also set up a body serving as a crude palm oil (CPO) sustainable fund to manage the levies from the industry. Regulations are currently being drafted to detail the fund'€™s operation and are expected to be realized soon, according to Rida Mulyana, the director general for new, renewable energy and energy conservation.

Due to the uncertainty, Pertamina has been lacking fatty acid methyl ester (FAME) '€” a substance used in the blending '€” in March as a supplier declined to deliver around 900,000 kiloliters in volume contracted under last year'€™s tender as the price was seen as uneconomic.

Therefore, to break the deadlock, Pertamina decided to renew the contract with a new price that would still benefit the supplier.

'€œHowever, we need to wait for the government'€™s regulations so that there is clarity over the subsidy scheme,'€ Pertamina vice president for supply chain and distribution Alfian Nasution said.

For future supply, Pertamina is also planning to hold a new auction for the procurement of up to 3 million kiloliters of FAME.
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'€œThe realization is low partly because there is no fixed allocation of biofuel subsidy policy in the state budget. It was also because of widening disparity in the prices of oil fuel and biofuel.'€