Reuters - USA; JAKARTA, Jan 30, 2009 - Indonesia's government is planning to pay a subsidy to biofuel producers starting this year to encourage them to remain in the business and promote widespread use of the alternative energy source, an energy ministry official said on Friday.
The government wants to make the use of biofuel mandatory from this year to ensure the survival of the fledgling industry, an aim made more urgent since biofuel became more expensive than crude oil-based fuel after oil prices dived more than 70 percent from their peak in July last year.
"We will only pay the subsidy if biofuel prices are higher than crude oil-based fuels," Evita Legowo, director general of oil and gas at the energy ministry told Reuters.
Under the plan, if prices of biofuel products are higher than crude oil-based fuels, the government will pay subsidy of 1,000 rupiah ($0.08) per litre on average.
"At the moment, palm-based biodiesel is more expensive than crude oil-based diesel, but prices of bioethanol are not," Legowo said.
Bioethanol is made using both cassava and cane molasses.
Palm biofuel and bioethanol compete with cheap domestic petrol diesel in Indonesia, one of the lowest priced in Asia because of generous government subsidies.
Palm-based biodiesel prices were around 5,800 rupiah per litre on Friday, or about 1,500 rupiah higher than diesel, said Paulus Tjakrawan, secretary general of Indoesian Biofuel Producers Association.
State run PT Pertamina, which sells subsidised fuel products, is estimated to blend 194,444 kilo litres of bioethanol and 580,025 kiloliters of palm-based biodiesel in 2009, a government document showed.