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Faced with soaring oil prices, Indonesia turns to biodiesel

By Eric UnmachtCorrespondent of The Christian Science Monitor / July 5, 2006



JAKARTA, INDONESIA

With global oil prices continuing to soar, Indonesia is joining other countries in the race for alternative fuels at the pump. High costs, a lack of private-sector zeal, and environmental and social concerns are among the obstacles here on the road away from heavy dependence on fossil fuels and toward alternatives such as biodiesel – a fuel that can be made from vegetable oils.

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"Many crude palm oil companies want to make biodiesel for themselves, to run their factories," says Tatang Soerawidjaja of the Indonesian Biodiesel Forum. "But when it comes to making it to sell at the petrol stations, they say there's no profit in it."

Indonesia should be well-situated for the production of biodiesel. With Malaysia, it controls nearly 85 percent of the production of crude palm oil (CPO). But nearly 10 million tons of Indonesia's 15-million-ton production of CPO is exported, and export demand is rising. Edible palm oil, extracted from the fruit of the oil palm tree, is used in everything from chocolate and margarine to soap and lipstick.

The demand to use CPO in biodiesel is also increasing in Europe, as well as in Colombia, India, South Korea, and Turkey, which will drive prices still higher.

"Most of the time, it's just the people who want biodiesel, not the government or companies," says Rosediana Suharto, executive chairman of Indonesian Palm Oil Commission. "The price of palm oil is too high."

The dampening effect of the high cost of CPO on private investment in biodiesel in Indonesia is compounded by the low price of regular diesel sold in the country. Billions of dollars in government subsidies offset the high price of fuel bought overseas. Indonesian consumers buy some of the cheapest petrol in the world – around 50 cents per liter ($1.90 per gallon) for gasoline and diesel.

Indeed, the rising cost of fuel subsidies is what is spurring government interest in biodiesel.

"The government is looking for alternatives a lot right now," says Tara Khaira, a manager at EcoSecurities, a developer and trader of carbon credits on the global market. "The only real reason is to reduce the subsidies."

Cutting subsidies is a highly charged political issue. Late last year, the country's popular new president, Susilo Bambang Yudhoyono, let pump prices double. But they are still nowhere near market levels. Mass protests have been sparked by subsidy cuts before, notably the unrest that eventually led to the ouster of Suharto in 1998.

Faced with this fiscal crisis, as well as some of the worst pollution in the world, officials in Jakarta late last month began promoting biodiesel at some state-owned petrol stations.

"The air pollution in Jakarta is very terrible," says Amir, a bus driver who was filling up at a state-owned Pertamina petrol station in East Jakarta. "I chose to use biodiesel to support our government's planning and make the air in Jakarta fresher than now." Biodiesel burns significantly cleaner than petro diesel does.

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