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Interview

with Alhilal Hamdi, Chief Executive, National Biofuel Development Team (BBN)

27.09.2007 / Energyboardroom

You are a petroleum engineer with an entrepreneurial background, who is also currently Chairman of the Board at PLN. So what path brought you to the head of the Indonesian National Biofuel Development Team (BBN)?

When President Yudhoyono formed a new cabinet in 2004, I was appointed special advisor for the Coordinating Minister of Social Welfare. Initially, I participated in several of the office’s different activities, including the launch of a poverty reduction program in 2005. At that time, I helped bring together the different stakeholders – meaning the government, farmer associations, business leaders, etc. – in order to sign a statement that would launch an integrated biofuels program in Indonesia for the first time.

My interest in the subject of biofuels goes back several years, and since 2005 I have been writing articles on the issues related to alternative and renewable energies. During a visit to India that same year, I was very impressed with the work being done at an agricultural research centre focusing on jatropha and other energy crops, and came back convinced that Indonesia could also benefit from biofuel development.

The Presidential Decree No.5 and Instruction No.1 of 2006 laid the framework for the acceleration of biofuel development in Indonesia. In August of that year, a team of 45 people was formed consisting of government officials, members from the private sector, universities, research institutes and other experts on the matter. It was called the Indonesian National Biofuel Development Team (BBN), for which I was appointed chief executive by the President.

What are the main topics related to biofuels that BBN deals with, and how does it operate?

BBN is divided into 6 different task forces: policy, technology & production, land development, infrastructure, marketing and funding. The main responsibilities of these teams and of the overall organization are to set up a blueprint and road map for biofuel development in Indonesia, make policy recommendations, and report regularly to the President on our activities.

The heads of BBN’s different task forces include high-ranking stakeholders from different entities. The policy task force is headed by the Director General of Electricity and New Energy; the land development task force is headed by the Head of Forestry Planology Board of the Ministry of Forestry; the funding task force is headed by the Secretary General of the Ministry of Finance; and the marketing task force is headed by Ari Soemarno, President of Pertamina.

What are the reasons behind the Indonesian government’s newfound interest in biofuels over the last couple of years? To what extent does it have to do with the decline of oil production and the country’s growing energy needs?

The statistics regarding the challenges in our energy sector are very clear. With a population of over 220 million that keeps increasing and an economy growing even faster, domestic energy consumption is expanding each year. At the same time, our levels of oil production and reserves keep declining due to a lack of considerable new discoveries. Although this is a big concern, Indonesia can fortunately count on other potential energy sources such as coal or even nuclear which it can develop to help meet demand for power.

However, migrating towards these other energy sources would not help much in solving our other two fundamental problems which are poverty and a deteriorating environment. We consider that biofuels can offer a complete solution to this ‘triangle of challenges’ which Indonesia and so many other developing nations face. This is why BBN and President Yudhoyono are actively encouraging the biofuel initiative all around the country.

Why do you consider biofuels to be much more suited for reducing poverty in Indonesia? What about the possible negative side affects, such as rising food prices and deforestation?

Indonesia has a century of experience in palm oil plantations, sugar cane, cassava, and other potential energy crops. Over 65% of the labour force in the country is still employed in agriculture, and nearly 60% of Indonesians are unable to get an education past the elementary school level. Given that agriculture is a labour intensive activity and that people with any level of skill and education can work in the sector, it can be a very effective means of alleviating poverty in many rural regions of the Archipelago.

It should be said that BBN is not trying to get farmers to shift from traditional crops to biofuel-ready crops. Their development does not only mean large plantations and monoculture either; in fact small farmers can develop the crops in their backyard or parcels without having to renounce to their other crops. According to our blueprint, we aspire to have another 5 or 6 million hectares of energy crops in the coming years. This does not always imply expanding the agricultural frontier because new higher-yielding varieties can be introduced in order to increase productivity of existing lands.

What is BBN’s strategy for biofuel development in Indonesia?

The strategy revolves around 4 key drivers that we believe can determine the success of biofuel development in Indonesia. The first is related to improving the upstream research and development, particularly testing and choosing the most prospective energy crops. The second regards the development of industrial techniques and technologies which integrate the upstream with the downstream efficiently, in order to make biofuels competitive on the energy markets.

The third key is having an appropriate regulatory framework. In this regard, the parliament recently approved a new Energy Law which dictates that the government should promote a progressive increase in the use of renewable energies in Indonesia. The text does not specify a precise timeframe or percentage, as is the case in the Philippines, but it is nonetheless a step forward for biofuels.

Finally, the fourth driver is the government’s actions that support and facilitate investments in the biofuels sector. Indonesia is already offering incentives in the form of tax reductions, accelerated depreciation of assets, and an allocation of 100 million dollars this fiscal year for subsidies to small farmers. Moreover, there is a ‘green energy fund’ of 200 million dollars which gives us the chance to directly invest in biofuel development.

In addition to all this, BBN has developed a three-step plan to accelerate the biofuel program. The first is to help set up the self sufficient energy families; second is the development of special biofuel zones for the big areas and agriculture estates; and third is to allow every region develop their own crops. For example, if on a certain island there is an abundance of coconuts, the community is encouraged to use the oil as biofuel for their own needs. We provide support and equipment for processing through the Ministry of Industry.

Brazil is often cited as the main player in the global biofuels arena. How do you see Indonesia compared to Brazil, and to what extent are you cooperating with them and other biofuel producing and consuming countries?

Indonesia and Brazil are quite similar with regards to biofuel development. Brazil has 5 million hectares of sugar cane plantation and Indonesia has 6 million hectares of palm oil plantation. This year, our palm oil production of 17.5 million tons makes us first in the world, overtaking Malaysia, and the output is expected to keep growing. Indonesia is able to export a large part of our current production, because the needs for cooking oil are only of about 3.6 million tons per year. Brazil’s production of ethanol is at a similar level to that of our palm oil production. There is no rivalry between our countries; in fact we meet frequently with Brazilian officials and recently signed a Memorandum of Understanding in order to look into ways to work together on agriculture and biofuel issues.

BBN has made official visits to the USA , Europe, China, Malaysia, Thailand and other countries in order to promote Indonesia’s biofuel program. During these trips, we explain our vision of biofuel development and also communicate the incentives that the government is offering to investors in the sector.

How have investors responded to the government’s biofuels initiative to increase production considerably over the coming years? Is the financial sector also supporting the biofuel initiative?

In January 2007, 60 commitments were signed by investors for biofuel projects worth about 12.4 billion dollars. Since then, a few more have been signed, and here at BBN we are constantly receiving potential investors interested in learning more about the opportunities.

Regarding the financial backing, 7 Indonesian banks have already agreed with the Ministry of Finance to offer about 4 billion dollars of funds for biofuel projects in upstream and downstream. There are also foreign financial institutions, such as the Japanese Bank for International Cooperation (JBIC), the Interamerican Development Bank (IDB) and the French Development Bank (AFD) which have committed to give financial support to biofuel programs in Indonesia. In addition US Ex-Im Bank is offering financing with favourable terms to Indonesian biofuel exporters towards the United States.

Is the official goal of replacing 10% of the domestic fossil fuel consumption with biofuels by 2010 feasible? What are the main challenges that need to be overcome to make it a reality?

I would say that in theory, Indonesia could reach that objective and even be ahead of schedule. However, there is a big obstacle to Indonesia’s biofuel development which is related to the domestic pricing policy. Biofuel products have to compete on the market with highly subsidized fossil fuels, a situation which discourages investment in the sector. Brazil offers an interesting example of how this issue could be resolved. Over there, they automatically switch to a greater use of ethanol when the gasoline price is higher, and when ethanol is the more expensive fuel they export it and consume more gasoline.

Moreover, we simply have an enormous challenge of getting more people and companies to produce biofuels. An increase in supply on the market would already help by reducing prices, and therefore making biofuels more competitive vis-à-vis other energy sources.

Would you like to give a final message to OGFJ’s readers about the future of biofuel development in Indonesia?

Biofuels can help this country meet its energy needs of the future, but the true importance of its development goes much further. If we achieve a massive turn towards biofuels, this will also mean better chances of reducing poverty and protecting the environment in Indonesia.

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