January 2008

Current Issues
Limited raw materials still become a constraint
At present, vegetable fuel development to replace fossil fuel still continues. Biofuel will replace premium, diesel fuel, and kerosene or petroleum. The government makes a target that between 2009 and 2010, composition of biofuel and fossil fuel will reach 15 percent compared to 85 percent.

The national need for vegetable fuel is at least 18 billion liter per year. However, limited raw materials is the main constraint because they must be shared with other industries.
The Head of National Team for Vegetable Fuel Development, Alhilal Hamdi, also declared that limited stock of one of the main raw materials of biofuel, namely ethanol, to fulfill the need for fuel became the main constraint. Ethanol available is competed over other industries. Ethanol in Indonesia is still used for alcohol industry or other industries like cigarette and plastic.

The same with another raw material of biofuel, namely Crude Palm Oil (CPO), the current production is needed more to fulfill domestic for vegetable oil raw material than for biofuel production.

Jarak Pagar (Jatropha) is one of the raw materials of biofuel that is highly recommended by the government to be developed extensively in order to fulfill the need for biofuel raw materials. Availability of seeds and limited planting land are additional constraints.

Small scale economic development among the community has not indicated significant profit level if compared to agribusiness activities in general like vegetables and fruits, thereby influencing the people's interest in developing Jarak pagar tree planting.

Uncompetitive selling price
In addition, one of the constraints in biofuel development in Indonesia is excessively high price compared to fossil fuel price. In fact, in the beginning biofuel use is expected to become alternative energy source that is inexpensive and environmentally friendly in order to replace fossil fuel that is getting more expensive.

Expensive selling price of biofuel also affects consumption level in the home country. Meanwhile, to enter export market, biofuel product are prevented by high import fee fixed by a number of destination countries amounting to 30 percent.

PT Bakrie Rekin Bio Energy, a joint venture of PT Bakrie Sumatera Plantations Tbk. and PT Rekayasa Industri, is forced to postpone the production plan of 100,000 ton of biofuel that was originally targeted to be realized at end of 2008 until end of 2009.

Several biofuel producers hope that the government can help biofuel industry players in the home country by giving incentive in the form of subsidy for biofuel sale in domestic markets. Because if the subsidy is given, biofuel selling price in domestic markets can automatically become more inexpensive than fossil fuel. Therefore, biofuel consumption level in the home country will increase in line with numerous consumers that move from using fossil fuel to biofuel.

Development of biofuel industry at present

Brazil and United States of America are the biggest producers and consumers of bioethanol
At present, biofuel industry in the world is still dominated by bioethanol production that reaches about 700,000 barrel per day, meanwhile, biodiesel production is only about 75,000 barrel per day in 2006.

United States of America and Brazil are main producers and consumers of bioethanol in the world. Bioethanol production of the two countries reaches 80% of total world production. Bioethanol consumption by United States of America and Brazil reaches 75% of total world consumption.

Brazil has currently exceeded bioethanol production of the United States of America, which places the country as the largest producer of bioethanol in the world, with production that reaches 320,000 barrel per day.

Besides in the United States of America and Brazil, bioethanol has also developed rapidly in European Union countries, such as Germany, Spain, and  Sweden. Meanwhile, Hungary, Lithuania, and Czech Republic are new producers of bioethanol.

In Asia, bioethanol begins to develop in several countries among others, India, Thailand, China, Malaysia, and Indonesia.

Germany is the biggest producer and consumer of biodiesel
Biodiesel develops rapidly in Europe, with production that reaches 88% of total world production that reaches 75,000 barrel per day in 2006.

Germany is the largest producer and consumer of biodiesel in the world, with production almost 50% of total world production. Other main producers of biodiesel in Europe are France, Italy, Austria, Czech Republic, and Poland.

Riau and North Sumatera are potential areas of biofuel industry in Indonesia
Biofuel industry in Indonesia just enters initial development phase, since awareness of maintaining crude oil potentials and preparing new renewable energy sources have just been performed in the last two years. 

Large-scale biofuel development project is being prepared by several national and multinational private companies in Indonesia.

The majority of biofuel plants currently still have a relatively small scale, because most of them are owned by several survey institutions as pilot projects.

In 2006, there were only 2 large-scale biodiesel plants in Indonesia, namely PPKS in Medan and Eterindo in Gresik. For ethanol production, at present, there are 9 ethanol plants with total production capacity of 133,632 kiloliter, and some of them begin to produce in 2007.

Several large biofuel producers that begin to operate in 2007 integrate with oil palm plantation among others, PT Musimas with capacity of 100,000 ton per year in North Sumatra and PT Prajona Nelayan with capacity of 60,000 ton per year in Riau.

At present, the Indonesian government has determined Dumai, Riau, as the largest biodiesel development center in Indonesia, considering abundant supply of raw materials among others, oil palm in this area, and supported by availability of port facility and existence of the largest biofuel processing plant, namely PT Wilmar Bioenergi with production capacity of 350,000 ton per day.

The need for biofuel triggers increase in ethanol production
The increasing need for biofuel also encourages the development of ethanol industry in Indonesia. At present, there are 9 companies with total production capacity of 133,632 kiloliter.

From these 9 companies, only 2 of them producing ethanol with specification for fuel/bioethanol, namely PT Bukitmanikam Subur Persada in Lampung and PT Indo Acidama Chemical in Surabaya. Total production capacity of these companies reach 93,282 kiloliter per year.

Economic aspects of biofuel

The government through the National Team for biofuel fuel Development has estimated investment cost that must be spent for biofuel development in Indonesia until 2010, with attainment of targeted use of 10% biodiesel and 5% bioethanol, is Rp 200 trillion.
The investment cost includes construction of infrastructures, such as roads and seaport, biofuel plant, development of oil palm, jarak, sugarcane, corn, cassava plantations, and so forth, that constitute raw materials of biofuel and development of technology and human resources.

Investment and production cost of biodiesel plant
In order to attain the government's target of 10% biodiesel use in total consumption of fuel in Indonesia in 2010, there must be biodiesel production of 2.41 million kiloliter available (about 2.12 million tons).

Therefore, if average production capacity of biodiesel plant is 60,000 ton, about 35 biodiesel processing plants will be needed in 2010 to serve domestic needs.

Referring to the research of Palm Oil Institute, the construction of biodiesel processing plant with oil palm as raw material requires investment of Rp 2 million per ton, outside the cost for oil palm plantation development.

The construction of 35 biodiesel processing plants requires investment cost of about Rp 4.2 trillion and oil palm planting area extending 630,000 hectare. .................

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