Biofuel Plan In Limbo Due To Sugarcane Output Problem

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The Jakarta Post | Kamis, 9 April 2020

Indonesia\’s plan to roll out sugarcane-based biogasoline will miss another deadline this year as upstream problems in the country\’s sugarcane heartland remain unsolved. The Energy and Mineral Resources Ministry issued five years ago a regulation mandating the nationwide use of 10 percent bioethanol-mixed gasoline (E10) starting this year, an increase from 2 percent in 2015, yet the target has still not been achieved. The biogasoline will be made from molasses, a byproduct of sugar production. However, a sugarcane farmers association in East Java, a province that accounts for half of domestic production, told The Jakarta Post that crop productivity had been falling over the past four years. “For bioethanol, the challenge is economic feasibility. [High] molasses prices and Dow] sugarcane productivity makes etha-nol\’s main raw ingredient quite expensive,” said Fabby Tumiwa of energy watchdog Institute for Essential Services Reform (IESR) on March 30. “Right now, even the facilities to produce fuel-grade ethanol are insufficient.” Fabby estimated that an E10 policy would require up to 4.5 million kiloliters of fuel-grade bioethanol each year. Indonesia\’s existing production capacity, which comes from two East Java-based companies, covers less than 3 percent of that estimate.

The government\’s biogasoline policy is intended to run parallel with a biodiesel policy in slashing oil imports to Southeast Asia\’s largest fuel market. Indonesia consumed 79.56 million kl of fuel last year, around half of which was gasoline and 40 percent of which was diesel. In cutting diesel consumption, President Joko “Jokowi” Widodo kicked off the mandatory use of 30 percent palm oil-mixed biodiesel (B30) late last year. The government successfully met its B30 deadline but not its E10 deadline. The Energy and Mineral Resources Ministry\’s bioenergy director, Andriah Feby Misna, told reporters in January that the ministry was “still working out where to source an incentive” to set into motion the E2 program. The government, which has thrown in the towel on implementing E10 this year, sought to avoid using the already burdened state budget to subsidize biogasoline. “We hope to start production as soon as possible. East Java has been ready for a while,” Feby said.

Contrary to Feby\’s statement, data from the Indonesian Sugarcane Farmers Association in East Java (APTRI X) show that sugarcane productivity in the province has fallen at least 14.3 percent from 84 tons of sugarcane per hectare in 2016. APTRI X chairman Muhammad Mubin told the Post that members, who are plasma farmers to state-owned sugarcane plantation firm PTPN X, struggled with shrinking farmland, fewer fertilizer subsidies and a lack of high-yield saplings. The saplings used to be provided by the now financially constrained Indonesian Sugar Plantation Center (P3GI). Authorities, he continued, had asked the farmers to purchase nonsubsidized fertilizer, which costs up to 57 percent higher at Rp 300,000 (US$19.50) per 100 kilograms than the subsidized variant. “This is what makes farmers reconsider sugarcane farming; because its production costs will swell,” said Mubin. “Honestly, I did not know sugarcane could be made into a product other than sugar. I don\’t know those numbers because I\’ve never been invited to a discussion.” Nevertheless, he felt certain association members would sell their crops to bioethanol producers given the farmers receive a profitable price of at least Rp 55,000 per 100 kg. He compared it to sugar factories, which were buying at a minimum of Rp 69,000.

Due to the high upstream costs, on top of high processing costs, Indonesian biofuel producers are struggling to meet a government- regulated bioethanol ceiling price (HIP BBN). The price is regulated under Energy and Mineral Resources Ministerial Decree No. 6034/2016. “The HIP BBN is not enough to cover bioethanol production costs and there isn\’t a policy to cover that difference,” said Paulus Tjakrawan, vice chairperson of the Indonesia biodiesel Producers Association (Aprobi).

Molasses and cassava shortages even forced publicly listed oil company PT Medco Energi Internasional to shut down its 4-year-old bioethanol refinery in Lampung province in 2013.. The refinery produced up to 60,000 kl of ethanol each year. Paulus noted that several organizations were experimenting to overcome the price problem by substituting sugarcane. He mentioned the Indonesian Institute of Sciences (LIPI), which has a pilot plant that can convert organic waste into 10 liters of biofuel per day. East Java\’s Energy Agency head Setiajit said his office had arranged meetings between the Energy and Mineral Resources Ministry, biofuel producers and Indonesia\’s top fuel distributor; state-owned Pertamina, several times to discuss the bioethanol plan but “we still haven\’t found the right price”. The provincial administration, he continued, was willing to provide an incentive – such as a temporary tax break for bioethanol-using vehicles – to help achieve the ministerial regulation, given that the energy ministry assigns Pertamina to buy and sell bioethanol at fixed prices. “So, my idea is rather playful like that,” Setiajit said. “But that way, Pertamina and ethanol producers can work together.” Fabby said Indonesia could learn from Brazil and the United States, which are the world\’s champion ethanol producers. The two countries heavily invested in their respective sugarcane and soybean industries through, among other things, subsidies and research. “Government policies, regulations and incentives are the key,” the IESR executive director said.