Indonesia further tightens biodiesel mandate to cut gasoil imports

Jakarta (Platts)--30Aug2013/431 am EDT/831 GMT


Indonesia has further strengthened its biodiesel blending mandate by making it compulsory for power utilities to use gasoil blended with 20% biodiesel, a senior government official said late Thursday.

In an effort to cut its gasoil imports and save on precious foreign exchange, the government earlier this week said it would mandate 10% biodiesel blending in all gasoil from September onward. Indonesia currently mandates 2.5% biodiesel blending in gasoil used in the transport sector.

At a press conference Thursday, deputy energy minister Susilo Siswoutomo said power plants would be asked to use 20% biodiesel-blended gasoil.

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State-owned power utility Perusahaan Listrik Negara currently consumes about 6 million kiloliters (37.7 million barrels) of gasoil annually at its power plants in remote areas.

"With the 20% mandate, the government expects to save at least 1.2 million kiloliters of gasoil," Siswoutomo said.

The government would punish anyone who does not comply with the new mandate, Rida Mulya, renewable energy director general at the Energy and Mines Ministry, said at the same press briefing. The punishment could be in the form of revoking a business license, he said.

COUNTRY HOPES TO CUT GASOIL IMPORTS

Siswoutomo said Thursday the government is targeting to cut its gasoil imports by 1.3 million kiloliters (8.2 million barrels) over September and December.

"Import reduction could reach 4.4 million kiloliters in 2014," he added, without giving further details.

Indonesia does not release official data on gasoil consumption and imports. Oil and gas director general Edy Hermantoro said Tuesday that the country consumes around 35 million kiloliters (220 million barrels)/year of gasoil.

According to information obtained by Platts, the country imports roughly 36 million barrels/year of gasoil. Monthly imports are typically around 2.5 million-3 million barrels, with higher volumes seen in peak demand periods such as Ramadan.

Indonesian Energy Minister Jero Wacik Wednesday said he expects the country to cut its gasoil imports by 3.5 million kiloliters (22 million barrels)/year once the mandate takes effect.

BIODIESEL IMPORTS NOT ALLOWED

All of the additional biodiesel demand created by the new mandate must be met by local supplies, Siswoutomo said, adding that imports would not be allowed.

This is expected to boost the price of crude palm oil, which is the main feedstock used in Indonesia for biodiesel production, and also spur the industry, which has been suffering from under-utilization, he said.

Indonesia has the capacity to produce 4.3 million kiloliters/year (27 million barrels/year) of biodiesel, but 2013 production is expected to be around 2.65 million kiloliters, according to data from the energy ministry. Of this, 1.1 million kiloliters is destined for the domestic market and 1.55 million kiloliters for the export market.

"The new 10% blending rate would translate into an additional 3 million kl of biodiesel demand to a total of 3.7 million kl per year, a substantial increase from 700,000 kl currently," Deutsche Bank said in a report released Wednesday.

The bank also warned that for the blending mandate to work, "many moving parts need to come together, such as government support including Pertamina and all relevant ministers, and perhaps even subsidy."

--Mriganka Jaipuriyar, mriganka.jaipuriyar@platts.com

--Anita Nugraha, newsdesk@platts.com

--Edited by Meghan Gordon, meghan.gordon@platts.com

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