Legal uncertainty remains major problem

Classic Indonesian problems, such as regulatory uncertainty, excessive bureaucracy and lack of incentives, have also hampered the development of new and renewable energy.

Of almost Rp 200 trillion in investment commitments to the biofuel sector as of September, only a few of these have been realized, with many investors still waiting for the incentives promised by the government to materialize.

"We are aware that the President has issued a special regulation on the provision of incentives to biofuel producers. However, with the lack of technical guidelines, the regulation cannot be fully implemented, leaving officials on the ground confused as to what they should do," Indonesian Biofuel Producers Association representative Paulus Tjakrawan told The Jakarta Post recently.

The same also applies in the coal-liquefaction and CBM sectors.

It is feared that with the government having not yet decided what kind of incentives it will offer the companies involved in the construction of the first coal liquefaction plant, the project will miss its deadline.

As for CBM, even though the government has offered a more favorable production split of 45 percent to investors, not many companies are interested in the projects due to the many uncertainties over land ownership. By way of comparison, at present a natural gas producer receives 30 percent of the net production, while the remaining 70 percent goes to the state.

CBM is a natural gas formed by the activity of microbes during the coal-forming process, and trapped amid coal beds. The development of a CBM project could therefore cause a conflict with coal concession owners, given the lack of clear regulations for determining whether it forms part of a coal concession or a gas concession.

None of the provisions of the recently-enacted Energy Law, which promotes the development of renewable energy resources, provides a solution to such potential conflicts.

Besides this regulatory problem, minister Purnomo also acknowledged recently at the opening of the 2007 World Renewable Energy Regional Congress and Exhibition in Jakarta in November, that the government's fuel subsidies have hampered the development of the country's renewable and alternative energy sector.

He said, for example, that the 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.

A cut in fuel subsidies is pivotal if the government wants to see the alternative energy sector develop.

It would, therefore, be very wise for the government to start switching some at least of its fuel subsidy spending, which has swollen to almost Rp 90 trillion this year due to rising oil prices from the original target of Rp 50 trillion, to help the development of new and more sustainable energy resources.

"We must learn from how the U.S. government is seriously attempting to find alternative energy resources. Not only are they providing huge financial backup, but also clear targets and supportive regulations," Alhilal Hamdi, head of the government's biofuel development committee, told the Post in a recent interview

Alhilal, who is also the chairman of the Green Energy Society, added that it was only concrete action and support from the government that would lead the quest for alternative energy to a satisfactory conclusion.

-- Ika Krismantari
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