In a move to support a rise in the proportion of biofuel that must be added to diesel, the Energy and Mineral Resources Ministry has introduced a new formula aiming to lower the price of the mixed substance purchased by distributors.
Under the new formula, the biodiesel index price will be calculated based on the crude palm oil (CPO) base price plus US$125 per ton. The added $125 is the cost of converting CPO into fatty acid methyl ester (FAME), which is used to produce biodiesel. The conversion cost is lower than a previous formula that put it at $188 per ton.
'Producers have agreed to lower the conversion cost. This will help users, such as Pertamina, as they will buy at a lower price, resulting in lower biodiesel prices,' said Rida Mulyana, the ministry's director general for new and renewable energies and energy conservation.
Price regulation is necessary to ensure that producers can continue supplying and distributors can continue purchasing FAME to be blended into diesel fuel to comply with the government's mandatory biodiesel blending policy amid ongoing decline in the price of crude oil, which makes the fossil fuel more attractive than non-fossil fuels.
The mandatory 15 percent biofuel in diesel, increased from 10 percent, is part of the government's policies to lessen pressure on the rupiah.
The mandatory blending policy is expected to reduce the volume of fossil fuel consumed in the country, in turn reducing Indonesia's imports of petroleum products.
The government previously planned to subsidize biodiesel to protect the biofuel industry against declining oil prices. However, the recent decision to increase the percentage from 10 to 15 percent has also been seen as an effort to boost the funds needed for subsidies, which the state budget cannot afford.
Passing on the price gap between fossil and non-fossil fuel to diesel users is not an option taken by the government, according to Energy and Mineral Resources Minister Sudirman Said.
'We are happy that business players are willing to share the pain of the price gap to create a market that increases the value of future economic activity,' Sudirman stated during a keynote speech at the launching of the biodiesel base price index on Monday.
The gap between diesel fossil fuel and biofuel is around Rp 12 trillion, according to Rida.
Several advantages are expected from the implementation of the 15 percent mandatory mix, including savings of up to $2.5 billion in foreign currency and the additional employment of around 300,000 people.
Apart from lowering the biodiesel price, the government is also considering imposing a levy of $50 on every ton of CPO shipped, with the funds used to help the biofuel industry. Technical details of the levy scheme are still being discussed.
Coordinating Economic Minister Sofyan Djalil has also said that the government might ask CPO producers to earmark 15 percent of their output for domestic usage to ensure the certainty of the supply of CPO to support the mandatory biodiesel policy.
According to palm oil producers association GAPKI, Indonesia produced 31.5 million tons of CPO last year, rising by around 5 percent from a year earlier. Of the total production, 21.7 million tons were exported last year.
If the 15 percent mandatory mix is fully implemented, the country will need 5.3 million kiloliters of biofuel to be blended into diesel. The figure is equal to CPO needs of 4.8 million tons.