Biofuels, Indonesia, Renewable Energy

Indonesia Risks Going Green

July 24, 2007 – ( JAKARTA – Indonesia is now formally on the vanguard of the global green energy movement. A new energy law approved last week aims to reduce significantly the economy’s dependence on imported refined oil while boosting the use of other energy sources, including natural gas, biofuels and geothermal supplies.

The law mandates the establishment of a National Energy Board, chaired by the president, which will carve out policies and oversee development in the energy sector. The new law also stipulates that a strategic reserve in both conventional fossil fuels and renewable energy resources, such as bio-diesel, will be maintained and penalties will be imposed on industrial energy users who ignore conservation. Those who promote it, on the other hand, will be given incentives.

The new scheme includes a dramatic altering of the national energy-use mix, with renewable energy sources, currently 5%, accounting for more than 17% of total supply by 2015. Over the same period, the use of oil is scheduled to be reduced from 52% to 20% and alternative fossil fuels such as natural gas and others to more than 60%.

While earning a US$1.36 billion surplus in crude-oil trading last year, at the same time Indonesia net-imported $8.66 billion worth of refined oil products. That energy trade deficit resulted in the government paying Rp60.5 trillion ($6.6 billion) in fuel-price subsidies.

The new policy includes incentives, such as government financial assistance, for private and state companies involved in the distribution and utilization of renewable energies, including biofuels. That’s potentially good news for the foreign investors and politically connected local companies that have recently piled into biofuel production, including state-owned oil-and-gas utility Pertamina.

Pertamina currently has an in-country monopoly on biofuel distribution, but has run up heavy losses because biofuel is still more expensive than subsidized gasoline and diesel at the pumps. As global oil prices hit new 10-month highs of about $75 per barrel, Indonesian policymakers are keen to reduce the national fuel bill and move toward more energy sufficiency.

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