Indonesia, the world's top palm oil producer, is not ready to implement a price formula for biofuel slated for June, an energy ministry official said on Wednesday, dealing a blow to the fledgling biodiesel industry.
Indonesian biodiesel firms, which have mostly stopped operations after being squeezed by rising palm oil prices, have been awaiting the price formula, which is key to calculating not only biofuel sale prices but also government subsidies.
The biodiesel industry is expected to play an important role in absorbing growing palm oil output in Indonesia, but as feedstock prices become more expensive than fossil oils, it is difficult for the industry to expand without government support.
"We initially planned to implement the pricing formula on June 1 and everything is ready. But the presidential decree on energy subsidies has not been signed yet," Evita Legowo, director general of oil and gas at the energy ministry, told reporters without elaborating on a likely new timetable.
President Susilo Bambang Yudhoyono needs to sign a decree to allow biofuel to be subsidized as is the case with fossil fuels.
The government had planned to subsidize biofuel for transportation and a price formula had recently been agreed by the industry but had not yet taken effect despite the implementation of a mandatory biofuel policy since January.
The formula sets the selling price for palm-based biodiesel based on a combination of Indonesia's biodiesel price issued by London-based Argus Media Ltd and the monthly palm oil base export price issued by the trade ministry.
For bioethanol, the government will use a combination of bioethanol benchmark prices issued by Argus and bioethanol prices from the country's bioethanol producers association.
The government has said it will pay a subsidy of 1,000 rupiah (97 U.S. cents) per liter on average this year if prices of biofuel for transport are higher than fossil fuel prices, but it still needs to be approved by parliament's budget commission.
Legowo said subsidies for biodiesel for January-April this year were 99.37 billion rupiah, while subsidies for bioethanol were 1.5 billion rupiah, but the government had not paid biofuel producers yet due to complex rules.
Biofuel producers said they expect the price formula to be implemented soon.
"We will wait but we cannot run the business without the price formula," Imanuel Sutarto, the association's vice chairman told Reuters, adding that producers will meet with the government and parliament this week to speed things up.
The association has said six out of 11 Indonesian palm-based biodiesel firms have halted operations, while the remaining five firms are running at below 5 percent of their capacity.
Earlier on Wednesday, Indonesian biofuel producers told parliament they wanted the authorities to allocate higher subsidies next year, following a surge in crude oil prices.
The Indonesian biofuel producers' association is seeking a subsidy for this year of 1,450 rupiah ($0.141) per liter for bioethanol and 1,660 rupiah per liter for biodiesel if crude prices reach $70 per barrel.
The proposal would bring total biofuel subsidies next year to 1.245 trillion rupiah, the association said.
The proposed biofuel subsidy by producers is in line with the government's plan of providing a subsidy of 1,500-2,000 rupiah per liter next year, but is still under discussion, Legowo said.