Indonesia drafts bioethanol incentive scheme

The  Ministry of Energy and Mineral Resources is finalizing an incentive scheme for bioethanol blending as the government prepares to introduce E10 and E20 fuel programs in 2027 and 2028.

Energy and Mineral Resources Minister Bahlil Lahadalia said the financing mechanism could adopt an approach similar to the Palm Oil Plantation Fund Management Agency (BPDPKS), which supports the country's mandatory B50 biodiesel program.

"We are still formulating the scheme, but it may be similar to BPDPKS," Bahlil told reporters in Jakarta.

He said the government is evaluating the most suitable funding mechanism while taking into account domestic feedstock supplies, including sugarcane, cassava and corn, with the aim of ensuring economically viable prices for farmers.

According to Bahlil, the reference price for bioethanol will be linked to fossil fuel prices and feedstock production costs. If market prices for non subsidized gasoline remain higher than bioethanol production costs, government compensation would not be required because bioethanol would remain commercially competitive.

He said the government is designing an economic pricing formula that provides fair returns to feedstock producers, particularly sugarcane farmers whose molasses is used as a bioethanol feedstock.

However, if global crude oil prices decline sharply and gasoline prices fall below bioethanol production costs, the government plans to introduce a compensation mechanism to cover the price gap and support the domestic bioethanol industry.

Bahlil said the final formula is intended to balance the interests of industry, farmers and the government while supporting the planned rollout of ethanol blended fuels.

Editing by Alexander Ginting