On 3 January 2010, the government of Indonesia announced that it would enforce the mixing of biofuel by more than 1% to regular automobile fuels. In this consequence, Indonesian people expect that the government will double the subsidy for biofuel which at present is 1,000 Rupiah (10 yen) per one liter of biofuel.

The production of biofuels in Indonesia in FY2009 proved to be barely 104,000 kL, which showed 96 % reduction from the record of the FY2008 that scored 2,560,000 kL. Last year, among eleven Indonesian biofuel makers, six companies stopped production and of the rest, utilization of their factories was less than 5 %.

The sharp drop of biofuel production from palm oil was caused by the following market conditions:

Indonesian government made a decision in the middle of 2009 to subsidize biofuel, giving 1,000 Rupiah/liter, only to make little effect. This year, therefore, people are expecting that the subsidy will be doubled to 2,000 Rupiah.

In addition to the aforementioned enforcement of mixing 1 % of biofuel to regular automobile fuels, fuels for industrial use were made obligatory to include 2.5 % of biofuel, and also national electric power stations were made to use biofuel at least 0.25%.

Fig. Market Price of Palm Oil in Recent Years (Made from World Bank website)

Source: JakartaGlobe 2010.01.03
http://thejakartaglobe.com/business/local-biofuel-output-dives-in-2009-as-cpo-price-rises/350599
http://siteresources.worldbank.org/INTDAILYPROSPECTS/Resources/Pnk_0110.xls