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Govt may give subsidy for biofuels

The government is proposing a subsidy for biofuel in an attempt to promote the use and distribution of this form of renewable energy.

Energy Mineral Resources Minister Purnomo Yusgiantoro submitted this plan in a hearing on Thursday with the House of Representative commission VII, which oversees energy and mineral resources.

Under the plan, the government will give the subsidy to state owned oil and gas company PT Pertamina as the sole distributor of the fuel. 

Pertamina will get a subsidy of Rp 1,000 (8.9 US cents) for each liter of biofuel distributed, he said.

Declining crude oil prices in global markets has made the development of biofuel less commercially attractive, given the high costs involved in producing biofuel.

Pertamina for example, has had to dig deep into its own pocket to keep the price artificially low in the local market, with the company having publicly said it was considering scaling back its biofuel production. As such this would definitely put the country’s renewable energy development plan in danger.

Purnomo said that a subsidy was therefore needed as an incentive for Pertamina to keep its biofuel distribution business going. 

“The subsidy will be given on condition there will be a higher price for biofuel feedstocks,” he said.

The subsidy is aimed at helping Pertamina cover high production costs for biofuel so that it could still sell its biofuel products at commercially reasonable prices. 

Pertamina could for instance sell biosolar, which is a combination of 2.5 percent biodiesel and 97.5 percent conventional diesel, at Rp 4,500 a liter, at the same price as 100 percent diesel. 

Similar pricing would apply to bioethanol with Pertamex.

Pertamina had planned to scrap its biofuel business, as its biofuel products had caused the company to suffer Rp 16.9 billion (US$1.8 million) in losses last year due to the high prices of the two raw materials, namely ethanol and crude palm oil.

Under the subsidy proposal, the government is expected to spend an additional Rp 744.4 billion, topping up the previously agreed subsidy allocation of Rp 57.6 trillion already stated in the 2009 state budget. 

The subsidy is expected to keep the government’s energy policy on track, which is designed to help gradually reduce the dependency on increasingly imported fossil fuels.

The government targets that by 2025, biofuel consumption must contribute at least 5 percent of the national energy portfolio, from less than 1 percent currently. 

Aside from providing a subsidy for Pertamina, the government has required fuel retailers to ensure that biodiesel accounts for at least 1 percent of their national fuel sales. 

While for bioethanol, the quota is set at 3 percent.

Thursday’s meeting at the House also approved the amount of fuels to be subsidized this year.

The amount of subsidized fuels will increase to 38.9 million kiloliters this year from a previous estimate of 36 million kiloliters as the lower price of fuels encourages higher consumption. 

The new fuel subsidy costs are down 0.13 percent on 2008.
Source: Ika Krismantari , The Jakarta Post , Jakarta | Fri, 01/30/2009 2:18 PM | Business