Indonesian government urged to promote incentives for bio-fuel

Sep 11, 2006, 7:46 GMT

Jakarta - Proponents of bio-fuel called on the Indonesian government Monday to eliminate bureaucratic red tape and provide more incentives for companies to invest in the renewable energy source.

At the same time, they warned, the government must continue to increase investment in and production of fossil fuels, including the sluggish oil sector, as bio-fuels will alone not meet all of Indonesia's energy needs.

The comments came during a roundtable discussion on the increasingly highlighted bio-fuel industry, which the Jakarta government has embraced as a solution to create jobs and end state subsidies of petrol.

Bio-fuel is a renewable energy source produced from crops such as castor oil plant, oil palm, cassava and sugar cane, all of which are abundant in Indonesia and many Southeast Asian nations.

But Indonesia, the world's second-largest palm oil producer, must have incentives to attract foreign investors and find viable export markets if bio-fuel is to be sustainable.

'We are now trying to see and secure our own market,' Rosediana Suharto, executive chairwoman of the Indonesian Palm Oil Commission, said during the discussion, hosted by the Jakarta Foreign Correspondents Club.

The Jakarta government has pledged to set aside billions of dollars in the next five years to develop the industry. Current draft regulations would enable multinational firms such as Petronas of Malaysia and Shell of the Netherlands to buy bio-fuel wholesale from domestic producers and sell to the Indonesian public for transport purposes.

But oil industry analyst Kurtubi, chairman for the Centre for Petroleum and Energy Economics Studies, said the government could not afford to divert possible investment in oil exploration and production, noting that Indonesia's daily crude output had dropped to just more than 1 million barrels a day, rendering it a net oil importer.

'Indonesia's oil law ... has discouraged investors,' he said. 'This law is more complicated, more bureaucratic compared to the old law.'

Last month, President Susilo Bambang Yudhoyono met with three Malaysian energy companies to encourage them to invest in Indonesia's budding bio-energy sector. Yudhoyono hopes to create millions of new jobs in the industry to help ease Indonesia's staggeringly high unemployment rate of more than 22 percent.

The government plans to construct eight bio-diesel plants and hopes that production output plants will reach 13 million tons per year by 2009, and set aside millions of hectares of land for palm oil plantations.