High palm oil prices squeeze Indonesia biodiesel mix

* Since last May, Pertamina has been retailing Biosolar — biodiesel made of 5 percent crude palm oil and 95 percent diesel

JAKARTA: Indonesian state-owned oil firm Pertamina has cut the biodiesel blend in diesel fuel to 2.5 percent as rising palm oil prices and lack of incentives have reduced margins, an official at a biofuel group said on Tuesday.

Since last May, Pertamina has been retailing Biosolar — biodiesel made of 5 percent crude palm oil and 95 percent diesel — in 201 gas stations in Jakarta and 15 gas stations in Surabaya in East Java.

But the government subsidises biodiesel at the same level as fossil fuels, leaving Pertamina to cover the difference when biodiesel production costs exceed fossil fuel costs. “Pertamina has cut its biodiesel content to 2.5 percent from five percent since April this year due to high costs of palm oil feedstock,” said Evita Legowo, secretary at the National Biodiesel Development Team.

“It’s also difficult for Pertamina as biodiesel is not subsidised fuel,” she said. The Asia Pacific’s only OPEC member subsidises retail fuel prices, meaning biofuel has to compete with cheap subsidised fossil fuels.

This happened against the backdrop of climbing palm oil prices that have slashed biodiesel margins across the region and forced some countries, including Malaysia, to delay the introduction of biodiesel in its market. Palm oil futures in Malaysia hit an all-time high of 2,764 ringgit a tonne in June. The futures price for the September contract closed at 2,514 ringgit a tonne by lunch on Tuesday. An official at Pertamina, who declined to be identified, confirmed the company had cut the biodiesel content of Biosolar due to rising palm oil prices but gave no further details. “We have cut biodiesel blend due to high palm oil prices and also because the government has yet to compensate Pertamina for the costs of buying feedstock,” said the official.

Incentives: Legowo said the government was still working on a number policies to return to 5 percent biodiesel blend for diesel oil as the country has planned to increase biodiesel content to 10 percent in 2010. Possible policies included cutting value-added tax on the raw material, now at 10 percent, and blending biodiesel with the non-subsidised Pertamax.

Indonesia plans to plant 5.25 million hectares of unused land with palm oil, jatropha, sugar cane and cassava by 2010. By that time, biofuel will make up 2 percent of the country’s total energy mix or 5.29 million kilo litres. reuters

Home | Business