29/04/2008 (Reuters, UK), Jakarta - Indonesia state oil firm Pertamina has cut the biofuel blend in diesel fuel to 1 percent from 2.5 percent as rising palm oil prices and lack of incentives have cut margins, a company official said on Tuesday.
Since the company introduced Biosolar in May 2006, it has gradually cut its biodiesel content from an initial 5 percent to 2.5 percent in 2007 for the same reason.
The government subsidises biodiesel at the same level as fossil fuels, leaving Pertamina to cover the difference when biodiesel production costs exceed fossil fuel costs.
Pertamina has cut the biodiesel blend to 1 percent since April 11, Djaelani Sutomo, the firm's vice-president of marketing and trading, told Reuters by phone.
"Soaring palm oil prices have propelled prices of biodiesel, making them not feasible for the firm," Sutomo said.
Crude palm oil prices have jumped more than 45 percent since the beginning of this year.
The cost of biodiesel has surged to 8,900 rupiah a litre in April 2008 from around 6,750 rupiah a litre in June last year.
But Pertamina sells the biodiesel in gas stations in Jakarta, Surabaya and Denpasar at the same price as subsidised diesel oil at 4,300 rupiah.
Indonesia, the world's biggest palm oil producer, has been pushing the use of biofuels made from various resources such as palm oil, sugar cane and cassava to cut the use of costly petroleum products.
Palm oil futures have tumbled around 25 percent from a record high of 4,486 ringgit a tonne last month on a bearish concoction of Jakarta export tax moves and dismal Asian demand. But prices are nearly 10 percent higher since.
Rising palm oil feedstock and low domestic prices have prompted many biodiesel producers and countries to delay introduction of the green fuel in the local market.