Biofuel to Power Anti-Poverty Drive

JAKARTA ~ The government is embarking on an ambitious biofuel program that has already attracted more than US$17 billion in foreign and domestic investment and criticism from conservationists worried about the country’s forests.

While Indonesia is rich in oil and gas supplies, demand in Southeast Asia’s biggest economy is outpacing production and it is seeking alternative energy sources to secure its future.

The government has set a target that 17 percent of the country’s energy requirements must be met from renewable sources by 2025 and last year established a National Team for Biofuel Development to develop alternative energy supplies.

For team chief executive Al Hilal Hamdi, crops such as palm oil, cassava, jatropha and sugar cane could hold the answer not only to Indonesia’s concerns about energy security, but also unemployment, poverty, the environment and local unrest.

Last month foreign and domestic firms signed agreements totaling $12.4 billion to develop biofuel projects to turn crops such as palm oil and sugar cane into biodiesel and bioethanol.

Chinese state-owned China National Offshore Oil Corp. inked the single biggest deal – worth $5.5 billion – with PT SMART, a subsidiary of Indonesia’s Sinar Mas Group, and Hong Kong Energy (Holdings) Ltd.

The other investors also included Malaysia’s Genting Bhd., Japanese firms Mitsubishi and Mitsui, Brazil’s Petrobras and companies from South Korea and Singapore.

“Foreign investment is $12.4 billion and the domestic investment is about $5 billion – half of that is for the farmers through the Indonesian banks,” Hamdi said.

Over the next eight years, some five million to six million hectares will be planted with biofuel crops, he said.

But just where all this land – an area far larger than Denmark and a bit smaller than Sri Lanka or the US state of West Virginia – is going to come from is what worries conservation groups concerned about deforestation.

And according to a surprising study by Netherlands-based Wetlands International and Delft Hydraulics, biofuel is often more polluting than fossil fuels.

Drainage of vast peatland areas for oil palm plantations leads to huge emissions of carbon dioxide as drained peat decomposes very rapidly, the study found.

The decomposing peatland can release 70 to 100 tons of carbon dioxide per hectare per year and result in emissions 10 times higher than if coal was used instead of biofuel, the study found.

“Production of palm oil in Southeast Asian plantations degrades huge peatland areas. The large amounts of carbon dioxide being emitted due to this degradation makes the use of palm oil many times more polluting than burning oil or coal,” Wetlands said.

Hamdi, who attended the UN conference on climate change in November, said: “We in Indonesia have already taken some action to improve or to recover the degradation of the peatland.”

While energy security and safeguarding the environment are concerns, he said eradicating poverty and tackling massive unemployment were the main focus of the biofuel program. About 40 million Indonesians live below the national poverty line of $1.55 a day.

“Actually our concern for the biofuel development program, number one is to reduce poverty, to create more jobs for the people,” the former manpower minister said.

“We would like to cut our unemployment rate from 10.2 percent last year to six percent in 2009-2010. About four million jobs need to be created for the people,” he said, but tens of millions more are underemployed.

While it sounds ambitious, Hamdi says his goal is achievable.

“Four million jobs is equivalent to five to six million hectares of oil palm, jatropa and cassava and the income for the people is above the minimum wage,” he said.

At current crude palm oil prices, two hectares of oil palm would give the owner Rp4 million ($440) a month while one hectare of sugar cane for bioethanol could yield an annual net income of Rp12 million to Rp14 million.

“It’s a good income for the people in the villages, where the minimum (monthly) wage is only $75,” he said.

The introduction of new crop varieties and better cultivation methods with the help of state enterprises would also increase the productivity of small farmers, which was often less than half that of commercial plantations.

“Malaysia has a good experience with that model. They can improve the yield,” he said.

And while prices for oil and biofuel fluctuate, Hamdi said Indonesia was studying the flexible approach taken by Brazil, one of the world’s leading producers of bioethanol.

“We are learning from Brazil. When the international price of bioethanol is above that of gasoline, they give the commodity for export and import more gasoline. It’s an excellent model that we are going to copy in Indonesia,” Hamdi said.

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