Subsidies hit biofuels development

Ika Krismantari, The Jakarta Post, Jakarta

Government fuel subsidies have hampered the development of the country's renewable energy sector, a minister said Monday.

Energy and Mineral Resources Minister Purnomo Yusgiantoro said at the 2007 World Renewable Energy Regional Congress and Exhibition that growth in Indonesia's renewable energy sector would remain slow as long as fuel subsidies existed.

He said subsidies on fossil-based fuels were hampering biofuel development, as the price of biofuel products was not competitive compared to the price of subsidized fuels.

For almost three decades, Indonesians have enjoyed heavy fuel subsidies from the government, with kerosene, gasoline and diesel sold for below market prices.

Purnomo said such fuel subsidies offered little incentive for people to start using biofuels.

He said the government was reviewing its fuel subsidies policy in light of this, and would gradually reduce the volume of its subsidized fuels.

President Susilo Bambang Yudhoyono has promised not to increase fuel prices until the end of his current term in 2009.

However, the government has started reducing spending on fuel subsidies by reducing the volume of subsidized fuels available.

Next year's fuel subsidy budget will be Rp 46.7 trillion (US$4.9 billion), down significantly from this year's allocation of Rp 56.4 trillion.

In line with this reduction, the government launched a conversion program, in which people were encouraged to use liquefied petroleum gas (LPG) rather than kerosene.

As part of the conversion program, the government is expected to cut the volume of subsidized fuel to 8.6 million kiloliters (kl) next year from 9.9 million kl this year.

Meanwhile, representatives from the business sector have demanded the government promote renewable energy more heavily.

"What we want the government to do is establish a policy making biofuel usage mandatory. Therefore, the price of biofuel would not be such an issue," Micky Alban Hehuwat, chairman of the Indonesian Renewable Energy Society, told The Jakarta Post at the seminar.

Evita H. Legowo, the first secretary of the National Biofuel Development Committee, told the Post that the committee was conducting a study to determine how such a policy could be implemented in the country.

"The mandatory issue is indeed something that has been voiced by biofuel producers and we are now trying to answer their needs," Evita said, adding that the government had also provided financial incentives to the industry.

She said the government needed to boost biofuel usage in the country to reduce its dependence on fossil-based fuels, as the price of crude oil had been hovering above $90 per barrel in recent times.
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