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Indonesia auto industry urges cheaper biodiesel price

Fuel tank drivers wait to load their cargo at a state-owned Pertamina fuel depot in Jakarta, in this Sept 9, 2014.

[JAKARTA] Indonesia's government needs to increase subsidies for biodiesel fuel so it can be sold cheaper than regular diesel if a push to increase the take-up of biofuel is to succeed, an automobile association said on Friday.

Indonesia, the world's top palm oil producer, is promoting the use of biodiesel in an attempt to create new demand for the tropical oil and cut the country's oil import bill.

In July, it began collecting a US$50 per tonne levy on crude palm oil (CPO) exports to fund increased biodiesel subsidies and raised the minimum bio content in biodiesel fuel used for transport to 15 per cent from 10 per cent previously.

This will rise again in 2016 to 20 per cent and in 2020 to 30 per cent.

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Despite the push, motorists are still able to also buy regular diesel at most outlets and it remains the preferred transport fuel for most Indonesian motorists.

"B20 should be cheaper than B-zero," Mr Noegardjito, secretary general at the Association of Indonesia Automotive Industries told Reuters. "People are price sensitive." Indonesia expects to raise US$700 million next year thanks to the new CPO export levy and biodiesel is always sold at the same price as diesel, which retails for about 6,700 rupiah (S$0.70) per litre.

Analysts say that the cost of production for biodiesel is about 2,300 rupiah more than for diesel, and are sceptical that Indonesia can enforce and achieve its 2016 targets after failing in previous years.

The government has forecast total biodiesel consumption is 1.6 million kilolitres this year, rising to a target of 4 million in 2016. "If you're going to sell it cheaper than diesel, that means the government will have to subsidise more," said Ivy Ng, an analyst at CIMB Investment Bank, who forecasts Indonesian biodiesel demand in 2015 to equal 2-3 million tonnes of CPO.

Extra revenue from the new levy will depend on the level of palm exports, she added.

Indonesia's palm oil output is seen at 32.5 million tonnes this year, with exports at 21.6 million tonnes.