Indonesia will increase the minimum bio content in diesel fuel for transport to 15 per cent from 10 per cent, the chief economic minister said on Friday, in a move it hopes will help cut costly diesel imports.
An increase would follow an earlier 2013 regulation that Southeast Asia’s biggest economy and the top producer of tropical palm oil introduced to help boost the use of palm-based biodiesel and cut fuel imports.
A greater use of palm oil in biodiesel would likely support benchmark palm futures, little changed this year after falling nearly 15 percent in 2014. Prices, though, are expected to ease back later this year as supply rises.
“At the moment the biodiesel [mix] is 10 per cent, it will be increased to 15 per cent,” Sofyan Djalil told reporters. “This will be a part of a set of government regulations to narrow the current account deficit. We can reduce diesel imports and it’s also better for the environment.”
Sofyan said he expected the energy ministry to issue a regulation that would take effect next week. Energy ministry officials were not immediately available for comment.
Earlier, Rida Mulyana, director general of renewable energy at the ministry had said in a text message: “If the biofuel mix will be increased, increasing up to 15 per cent is good for this year.”
Indonesia’s government is looking at ways to improve the current account deficit and steady a weak rupiah, which hit its lowest since August 1998 on Wednesday.
Indonesia missed last year’s biodiesel targets, largely due to logistical and infrastructure problems, but the government is still looking to protect its biofuels industry against lower crude prices and has ramped up subsidies.
The bio content for transport was already due to rise to 20 percent next year — after being lifted to 10 percent in 2014—-but the government has now acted sooner.
Further, Finance Minister Bambang Brodjonegoro earlier told reporters the government may eventually push for a 30 percent minimum “but not now.”
Palm investors, however, will be sceptical that the higher bio blend would prove a success, said Alvin Tai, regional head of plantations at RHB Research Institute, after last year’s targets were missed.
“Because they can’t spread it throughout the country, they’re just raising the blend number (to increase the consumption),” he said.
Total estimated production of biodiesel is seen at about 3.4 million kiloliters for this year.
Any consumption boost may also benefit biofuel producers and plantation owners such as Wilmar International and Astra Agro Lestari and Musim Mas.
A trial conducted by the energy ministry into diesel engines using a 20 per cent blend showed that the fuel was almost 4 per cent less efficient and would increase consumption by 3 per cent, The Jakarta Globe reported.
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