VZCZCXYZ0000
RR RUEHWEB

DE RUEHJA #3302/01 3371052
ZNR UUUUU ZZH
R 031052Z DEC 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 7246
RUCPDOC/DEPT OF COMMERCE WASHDC//USTIC//
INFO RHMFIUU/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF CMMERCE WASHDC

UNCLAS JAKARTA 003302 
 
SIPDIS 
 
USITC FOR SCHLITT 
DEPT FOR EAP/MTS AN EB/ESC/IEC 
DEPT PASS OPIC, EXIM, TDA 
DOE FOR UTLER/PI-32 AND GILLESPIE/PI-32 
COMMERCE FOR 443/BERLINGUETTE 
 
SENSITIVE 
SIPDIS 
 
 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV OTRA ID
SUBJECT: SITC REQUEST FOR BIOFUELS INFORMATION 
 
REF: A) Stte 133131 (USTIC Biofuels Request) 
      B) Jakata 2857 (Biofuels Bonanza?) 
 C) Jakarta 2611 (U/ Discusses Biofuels) 
 D)) Jakarta 854 (Engaging Idonesia on Biofuels) 
 E) 06 Jakarta 9864 (Billios for Biofuels) 
 
¶1. (U) SUMMARY:  This cable respnds to a request for information 
(ref A) from th U.S. International Trade Commission regarding 
bofuels adoption and researrch in Indonesia.  The Goernment of 
Indonesia (GOI) is continuing its ambtious 5-year, multi-billion 
dollar investment pla to boost biofuel production to 200,000 
barrels er day by 2010.  On January 9 the GOI signed 58 intial 
agreements reporteddly worth $12 billion wit foreign and domestic 
biofuels investors.  Chinee, Japanese, and Malaysian firms are the 
most actve in announcingg deals. When announced in June 206,( the 
GOI said it plae d to invest USD 22 billion over the next five years 
to boost biofuel production in a bid to cut fosiil fuel consumption. 
GOI officials say they wills"pend USD 6 billion for 6 million 
hectares of ladd to grow the fuel feedstock with the remaining USQ 
16 billion to build factories, roads and other support services. 
Few GOI funds are dedicated to rssearch and development in biofuels, 
though a smal( program is based at Bogor Agricultural Universit.. 
More in-depth embassy biofuels reports are foud  in refs B, C, D, 
and E. End summary. 
 
GOI Biofuel Policy 
------------------ 
 
¶2. (U) Ministeroof Energy and Mineral Resource Purnomo YusgiantoroQ 
announced the GOI's biofuel initiative in July 2006 along with 
biodiesel production targets throuh( 2010: 187,000 kiloliters (KL) 
in 2007, 377,000 KL in 2008 and 1.337 million KL in 2010.  The GOIhhas subsequently announced the goal to sell 9.84 ml(lion KL by 2015 
and 22.26 million KL by 2025.  hhe GOI has stated that its goal is 
to cut fossilf"uel use in the transportation sector by 10 percent 
and by 50 percent in the electricity sector. 
 
.. (U) The vast majority of Indonesian biofuel willc"ome from crude 
palm oil (CPO) for biodiesel, bu  they are also looking to make 
ethanol from suga,( and cassava, both of which are grown in 
abundance in Indonesia. The GOI is targeting production of11.67 
million KL of ethanol in 2007.  However, in November 2006, the 
Ministry of Finance raised the excise tax for ethanol to Rp 10,000 
per liter from Rp 2500 per liter.  Many analysts believe this tax 
will inhibit already low levels of ethanol production.  The GOI is 
also promoting the production of bio-oil, made from pure vegetable 
oil, and biogas, made of liquid waste and poultry droppings, both of 
which can be used as alternatives to kerosene.  Some types of 
biofuel are already available in the retail marketplace, such as 
E-10, a combination of 10 percent ethanol and 90 percent gasoline, 
and B-10, a combination of 10 percent biodiesel and 90 percent 
diesel.  State oil company Pertamina stopped selling unblended 
diesel in Jakarta in August 2006. 
 
¶4. In August 2007, GOI said it will make biofuel use mandatory for 
vehicles beginning in early 2008.  Minister Purnomo said that by 
2010 biofuels will make up 20 percent of the diesel and gasoline 
fuel mix, up significantly from the current 2.5 percent.  In 
November 2007, Pertamina said it had lost $55 million year-to-date 
selling biodiesel due to inadequate government subsidies.  The 
company unilaterally cut the blend of biodiesel from 5% to 2.5% in 
August.  The GOI has so far failed to fulfill its 2006 promise to 
subsidize the retail sale of biofuels above the existing subsidy for 
regular petrol.  The GOI also promised in August to prepare a 
special biofuel zone in Papua to speed the investment process 
related to land acqusition. 
 
¶5. Effective November 1, the GOI increased the export tax on CPO to 
10% from 7.5%, since October's average palm oil price was above $850 
per ton.  Under Indonesia's progressive CPO export tax system, 
tariffs are changed in tandem with international palm oil prices. 
Energy Ministry contacts tell us they are advocating repeal of the 
CPO export tax to stimulate production. 
 
¶6. (U) The GOI has also announced several modest policy initiatives 
designed to promote biofuels development.  On December 20, 2006 
Finance Minister Sri Mulyani Indrawati signed memoranda of 
understanding (MOUs) with state-owned Bank Mandiri, Bank Rakyat 
Indonesia, Bank Bukopin, and two regional banks, to provide up to Rp 
25.6 trillion ($2.8 billion) to finance the development of biofuel 
feedstock crops and infrastructure. The banks will disburse the 
loans in stages over the next few years.  Under the terms of the 
MOU, interest rates on loans to plantations will be capped at 10%, 
with the GOI subsidizing any further interest charges.  The GOI 
pledged to provide interest-rate subsidies of up to Rp 1 trillion 
($108 million) to support the program.  The remainder of the money 
will go to rural areas to build biofuels processing plants and 
roads. 
 
¶7. (U) In January 2007 the GOI issued a regulation granting tax 
incentives for Indonesian domestic investments in certain business 
sectors, including biofuels. The new regulation provides: 
 
-- Accelerated depreciation of fixed assets at twice the rate under 
normal circumstances; 
 
-- Tax loss carry-forward up to 10 years (instead of 5); 
 
-- Investment tax credit reduction of net income by 30% of capital 
(land, buildings, equipment) invested to be pro-rated over six 
years, at 5% per year. 
 
Though they have taken no official action to date, the GOI also 
announced in November 2006 it was considering granting a five to ten 
year tax holiday for biofuels investors. 
 
¶8. (U) The Japan Bank for International Cooperation (JBIC) said in 
February it is ready to fund GOI or private sector biofuel projects 
in Indonesia.  JBIC said that it has unlimited lending authority 
from Tokyo, according to press interviews with JBIC's Toyoaki 
Fujita.  Fujita said JBIC would offer fixed-rate terms that undercut 
commercial rates currently on offer in Indonesia. 
 
Research and Development 
------------------------ 
 
¶9. In January, coal mining firm PT Berau Coal signed agreements with 
Berau regency administration and the Ministry of Agriculture's 
Center of Plantation Research and Development to develop jatropha 
curcas projects.  Also to develop jatropha curcas as a source of 
biofuel, Sinar Mas will cooperate with the Bogor Institute of 
Agriculture and the Agriculture Ministry to establish a 500 hectares 
research center in Deltamas, Kerawang, West Java. 
 
¶10. (U) USAID is also funding a biofuels pilot project in Flores. 
As part of its Agribusiness and Marketing Support Activity project 
(AMARTA) USAID is developing a 50 - 70 hectare pilot project to 
cultivate and process crude jatropha oil to partially meet the 
energy needs of remote fishing villages.  USAID offers grants to the 
villages as part of the three year project to fund purchase of plant 
materials, planting and maintenance, harvesting and post-harvesting 
equipment, and processing of crude jatropha oil.  USAID is also 
paying for training, education, and demonstrations on uses of 
jatropha oil as a kerosene substitute, as well as developing a soap 
making cottage industry with the extracted glycerin byproduct. 
 
¶11.  Local biofuels producers will be hosting a conference in 
Jakarta from January 23 - 25, 2008 where industry leaders and 
academic researchers will present papers and discuss current topics. 
http://www.futureenergyevents.com/jatropha/ 
 
 
Biofuel Producers 
----------------- 
 
¶12. In November 2007, Astra Agro Lestari, the biggest agricultural 
company by market value in Indonesia, said it will increase the size 
of its oil palm plantations by 13 percent to meet demand from India 
and China and provide for the use of palm oil as an alternate fuel. 
The company will add 30,000 hectares of CPO plantations in Aceh, 
East Kalimantan, and Sulawesi, according to press reports.  Astra 
Agro had 228,000 hectares under cultivation currently. 
 
¶13. (U) China National Offshore Oil Corp (CNOOC), China's dominant 
offshore oil and gas producer, has announced the largest venture to 
date in January when it signed a $5.5 billion MOU with Indonesian 
conglomerate Sinar Mas.  CNOOC may team up with Sinar Mas to develop 
biodiesel from crude palm oil and bioethanol from sugar cane or 
cassava in Papua and Kalimantan.  The companies will develop the 
project in three phases and over eight years.  If the project comes 
to fruition, in terms of investment value it would roughly equal 
BP's $5 billion Tangguh LNG project in Papua and supercede China's 
biggest overseas oil acquisition, the $4.2 billion PetroKazakhstan 
acquisition in 2006.  As of December 3, however, the two parties 
were still engaged in tough negotiations, according to several 
embassy contacts. 
 
¶14. (U) Malaysia's Genting, one of the country's leading 
corporations, also inked a plan to invest as much as $3 billion for 
biofuels plants in Papua, according to local press.  They will 
invest via their Singapore-based Genting Biofuels Asia.  Meanwhile, 
compatriot MultiVest Corp. announced a partnership with several 
Indonesian parties to build a $1 billion biofuel production center 
in West Kalimantan, where the company already has 100,000 hectares 
of plantation land. 
 
¶15. (U) Indonesian firms also announced new partnership agreements 
at the conference.  PT Medco Etanol Indonesia, a subsidiary of 
national energy firm PT Medco Energi International, signed an 
agreement with state plantation firm PTPN VIII to develop 
cassava-based bioethanol projects in Garut and Cianjur, West Java. 
Separately, State electricity company PLN signed an MOU during 
February with the International Finance Corporation for a 
feasibility study on the development of biofuel-based power plants. 
 Singapore's Wilmar Energy subsidiary, PT Bukit Kapur Reksa (BKR) 
started operations in May 2007 for its one million liters per year 
biodiesel plant in Dumai in Riau province. 
 
Key Policy and R&D Contacts 
--------------------------- 
 
-- Mr. Hilal Hamdi, Chair, GOI National Biofuel Promotion Committee 
 
-- Ms. Rosediana, Chair, Indonesia Palm Oil Commission 
 
-- Dr. Erliza Hambali, Head of Surfactant and Bioenergy Research, 
Bogor Agricultural University 
 
Embassy Point of Contact 
------------------------ 
 
¶16. (U) Energy and Mineral Resources Officer Kurt van der Walde, 
email: vanderwaldek@state.gov, telephone: +62-21-3435-9066. 
 
 
HUME