Lack of land and incentives hamper biofuel investment

Andi Haswidi, The Jakarta Post, Jakarta

Amid an ambitious government plan to develop the bioenergy sector, a lack of land for growing oil-producing crops and limited fiscal incentives pose significant obstacles to progress, a business group says.

Apart from increasing land prices, particularly in densely populated areas like Java, a lack of legal tools for acquiring unproductive land is also a major constraint on the establishment of new plantations.

Mukti Sardjono, a technical advisor to the newly formed National Biofuel Development Committee, said Thursday that there were one million hectares of land in Indonesia that were not being used productively.

He gave as an example the fact that some forestry concession holders had abandoned their concessions, leaving the land lying idle.

"We, at the national committee, are therefore currently discussing a scheme that will include legal recourses for recovering the land and turning it over to productive use," he said without elaborating.

Currently, there are four main plants used in Indonesia to provide the raw material for biofuel production: oil palm and jathropa for biodiesel, a replacement for diesel, and sugar cane and cassava for bioethanol, a replacement for gasoline.

Indonesia is already the world's second largest crude palm oil (CPO) producer. However, allocating part of the nation's 14 million tons of annual CPO output to biofuel production could jeopardize domestic household consumption and exports.

That's why new oil palm plantations are needed, Mukti said.

"The government is planning to turn over 1.5 million hectares to oil palm plantations and another 1.5 million for jathropa plantations."

Suharyo Husen, the chairman of the Indonesian Chamber of Commerce (Kadin)'s Jathropa working group, said that in addition to the lack of land, a lack of incentives from the government was also hampering investment in the sector.

Many of the planned investments were being put on hold as the government had yet to remove the 10 percent value added tax (VAT) currently imposed on primary products, which included the raw materials used for biofuel production. Nor had it disbursed the Rp 1 trillion in interest subsidies that it had promised earlier.

"The decision to remove the 10 percent tax on primary products is still pending at the Finance Minister. We've been waiting a year now since the House of Representatives approved it," he complained.

As for the interest subsidies, Husen said that these would make it possible for growers and businesses to invest in biofuel refinery equipment.

Suharyo pointed out that a rough calculation showed that biodiesel would cost around Rp 4,600 a liter, compared to the subsidized price of automotive diesel, currently standing at Rp 4,300 per liter. So, the efforts to develop the alternative fuel would not be economically feasible, said Suharyo, unless the government provided more incentives.

"The market price of automotive diesel is already subsidized by some Rp 2,000 per liter. If the subsidy were to be transferred to biodiesel, let's say Rp 1,000 per liter, it would make biodiesel much more competitive," he said.

In order to promote more interest in the biofuel sector, Kadin will hold a national workshop titled "The Alternative Energy Business is Profitable Business" on Nov. 21.
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