A FORMULATION OF LONG TERM STRATEGY FOR
SUSTAINABLE BIODIESEL DEVELOPMENT IN
INDONESIA
BENY ADI PURWANTO
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY BOGOR
DECLARATION
I hereby declare that the thesis entitled “A Formulation of Long Term Strategy for sustainable Biodiesel Development in Indonesia” is my original work produced through the guidance of my academic advisors and that to the best of my knowledge. This thesis also presented for the award of a degree in The University of Adelaide as a double degree program between Bogor Agricultural University and The University of Adelaide. All of the incorporated materials originated from other published or unpublished papers are stated clearly in the text as well as in the bibliography.
I hereby delegate the copyright of my paper to the Bogor Agricultural University.
Bogor, August 2015
SUMMARY
Beny Adi Purwanto, 2015. A Formulation of Long Term Strategy for Sustainable Biodiesel Development in Indonesia. (Erliza Hambali, Chairman and Yandra Arkeman, Member of Advisory Committee).
Indonesia, the largest producer of palm oil, has been developed palm oil biodiesel as renewable energy in the last decade. Indonesia biodiesel development policies aim to increase domestic value added of palm oil product and reduce the reliance on fossil fuel.
Indonesia has embarked on a comprehensive palm oil biodiesel program since 2006 and targeted the 20% biodiesel blend (B20) in 2016. This article explores the strategy formulation by accommodate the stakeholder perspective in the problems and the solutions.
This research analyzes the information from in depth interview with biodiesel stakeholders (government, industry and researcher) in Indonesia by combine Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis with a Multi Actor Analysis approach. The results show the problems of biodiesel development are mainly on the high production cost due to high price of raw material, production technology and distribution infrastructure. The government policy, technology development and raw material supply are the driving forces of the biodiesel development in Indonesia. In the long term strategy, government of Indonesia should secure the biodiesel raw material, develop an environmental friendly technology in biodiesel processing, and accommodate the improvement idea from other stakeholders.
RINGKASAN
Beny Adi Purwanto, 2015. Formulasi Strategy Jangka Panjang untuk Pengembangan Biodiesel yang Berkelanjutan di Indonesia. (Erliza Hambali, Ketua dan Machfud, Anggota dari Komisis Pembimbing).
Indonesia, produsen minyak kelapa sawit terbesar, telah mengembangkan biodiesel berbasis minyak kelapa sawit sebagai energy terbarukan dalam satu decade terakhir. Kebijakan pengembangan biodiesel di Indonesia ditujukan untuk meningkatkan nilai tambah lokal pada produk turunan minyak kelapa sawit dan mengurangi ketergantungan terhadap penggunaan minyak bumi.
Indonesia telah memulai program biodiesel minyak kelapa sawit secara luas sejak tahun 2006 dan ditargetkan 20% biodiesel campuran (B20) pada tahun 2016. Artikel ini membahas formulasi strategi dengan mengakomodasi perspektif pemangku kepentingan dalam melihat masalah dan memberikan solusi.
Penelitian ini menganalisis informasi dari wawancara mendalam dengan para pemangku kepentingan biodiesel (pemerintah, industri dan peneliti) di Indonesia dan dengan menggabungkan analisa Strengths, Weaknesses, Opportunities, and Threats (SWOT) dengan pendekatan Analisis multi Aktor. Hasil penelitian menunjukkan bahwa masalah pembangunan biodiesel di Indonesia adalah pada biaya produksi yang tinggi akibat tingginya harga bahan baku, teknologi produksi dan infrastruktur distribusi. Kebijakan pemerintah, pengembangan teknologi dan pasokan bahan baku adalah kekuatan pendorong pengembangan biodiesel di Indonesia. Dalam strategi jangka panjang, pemerintah Indonesia harus mengamankan bahan baku biodiesel, mengembangkan teknologi ramah lingkungan dalam pengolahan biodiesel, dan mengakomodasi ide perbaikan dari para pemangku kepentingan lainnya.
Copyright ©2015, by Bogor Agricultural University
All Right Reserved
1. No part or all of this thesis excerpted without inclusion or mentioning the sources
a. Excerption only for research and education use, writing for scientific papers, reporting, critical writing or reviewing of a problem
b. Excerption does not inflict a financial loss in the proper interest of Bogor Agricultural University
Thesis
Submitted to the Graduate School in Partial Fulfillment of Master Of Science
Degree In
Agroindustrial Technology
A FORMULATION OF LONG TERM STRATEGY FOR
SUSTAINABLE BIODIESEL DEVELOPMENT IN
INDONESIA
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY BOGOR
2015
Thesis Title : A Formulation of Long Term Strategy for Sustainable Biodiesel Development in Indonesia
Name : Beny Adi Purwanto
Registration Number : F 351137141
Study Program : Agroindustrial Technology
Approved
Advisory Committee
Prof. Dr. Ir. Erliza Hambali, MSi Chairman
Dr. Ir. Yandra Arkeman, M.Eng Member
Agreed
Coordinator of Program Agroindustrial Technology
Prof. Dr. Ir. Machfud, MS
Dean of Graduate School
Dr. Ir Dahrul Syah, MSc. Agr
ACKNOWLEDGEMENTS
Praise and gratitude to Allah Subhanahu wa Ta’ala, because of Him, the writer can complete this thesis as a requirement to get a Master Degree in Bogor Agricultural University (IPB). The title of the thesis is A Formulation of Long Term Strategy for sustainable Biodiesel Development in Indonesia.
The writer want to say thank you, especially for Prof. Erliza Hambali as a chairman of the advisory committee, Dr. Yandra Arkeman as an advisory committee member, and Dr Wendy Lindsay as an advisor from University of Adelaide whose gave positive criticisms and guidance to shape the outlook of this thesis. Special thanks for Dr. Barry Elsey and Ms. Amina Omarova from The University of Adelaide for their guidance in writing this thesis. They teach me how to write the thesis with a good structure.
I also would like to express gratitude to all the respondents who have taken their time to conduct an interview with the author. Special thanks to Mr. Rachmat Syah from PT.
Wilmar Bioenergi Indonesia, Dumai, Mr. Tatang Hernas from IKABI and Mr. Abdul Cholid from PT. Pertamina. My gratitude to Dr. Ir. Dadan Kusdiana, M.Sc, Director of Bioenergy, Ministry of Energy and Natural Resource, for the complete explanation in the history of biodiesel development in Indonesia.
In this acknowledgment, I also want to thank my father, mother, and brother who continuously to give their support, both in the difficult and good period. Last but not the least, I want to show my gratitude to all my friends in the same program, namely Danang, Karim, Tri, Andar, Farda, Iwan, Nur Aini, Dwi, Syarifa, Aditya, Dickie, Ahmad Rudh, Koko, Nuni, Anin, and Yani for their moral support especially when we lived in Adelaide.
Bogor, August 2015
TABLE OF CONTENT
1.2. Statement of the Problem 2
1.3. Background and Need 2
1.4. Purpose of the Study 3
1.5. Research Questions (RQ’s) 3
1.6. Significance to the Field 3
1.7. Limitation 4
2 LITERATURE REVIEW 4
2.1. Biodiesel Development Policy 4
2.2. Policy Analysis in Multi Actors 6
2.2.1. System Analysis 7
3.6.3. Long term strategy formulation 16
4 RESULTS AND DISCUSSION 17
4.1. Problem of Biodiesel Development 17
4.2. Driven Factors of Biodiesel Development 19
4.3. Long Term Strategy of Biodiesel Development 22
LIST OF TABLE
Table 1 Mandatory biodiesel blending in regulation No. 20/2014 5 Table 2 Key stakeholders in the biofuel and oil palm sectors in Indonesia 9
Table 3 Sustainable indicator of GBEP (2011) 11
Table 4 Interview participant name and institution 13
Table 5 SWOT Strategic Alternatives Matrix 16
Table 6 Problem and Solution from stakeholder perspective 18 Table 7 Contextual factors of sustainable biodiesel development 20
Table 8 Driving forces of the contextual factors 20
Table 9 SWOT synthesis of biodiesel development in Indonesia 22
LIST OF FIGURE
Figure 1 Biodiesel development roadmap in 2006 5
Figure 2 Model of policy analysis in multi-actors system 6
Figure 3 Flow sheet of sequence of activities for the sustainability analysis 10
Figure 4 Palm oil biodiesel stakeholders 13
Figure 5 Research Framework 14
Figure 6 The Garbage Can model by Cohen et al. (1972) 15
Figure 7 Biodiesel stakeholders interactions 23
LIST OF APPENDIX
Appendix 1. Biodiesel Profile 27
Appendix 2. List of Questions 29
1
INTRODUCTION
1.1. Introduction
Since 2008, Indonesia is net importer of petroleum. The national production capacity of petroleum cannot fulfill the national demand. In the 2013, the total consumption of petroleum is 72 million kiloliter (diesel fuel: 34 million kiloliter). In the supply, the import number of petroleum reach 32 million kiloliter (diesel fuel: 11 million kiloliter), so 44 % of the petroleum supply in Indonesia is imported.
The government sees the opportunity to reduce petroleum import by utilize biofuel. The government promotes bioethanol to substitute gasoline and biodiesel to substitute diesel fuel. In the progress, the development of bioethanol is stagnant. It was caused by Indonesia is lack of glucose and starch as raw material of bioethanol. Only biodiesel is success in the development because Indonesia has adequate Crude Palm Oil (CPO) as raw material.
In the first step of the biofuel program, the Indonesia Government through National Biofuel Team formulated a regulation on the biofuel mixing up to 5% (B5). The regulation is Presidential Regulation No.5/2006 on National Energy Policy, calling for 5% biofuels in the energy mix by 2025. And then, government established by the National Team for Biofuels Development to coordinate industry expansion (July 2006). On the biofuel, National Team for Biofuels proposed development of Bioethanol from sugar cane or cassava and Biodiesel from palm oil or Jatropha Curcas. Until now, only palm oil biodiesel has been developed on industrial scale.
For the raw material supply, palm oil plantation in Indonesia is 7.9 million hectare, produce 26.5 million ton of CPO (exported: 18.1 million ton, domestic use: 8.4 million ton) – the biggest in the world. As listed in Ministry of Energy and Natural Resources, there are 26 biodiesel companies with the total national capacity about 5.6 Million kiloliter/year. Those regulations successfully got the attention from the investor.
In the demand side, the government regulated mandatory blending of biodiesel, believing it will generate domestic demand for biodiesel that will encourage the growth of the biodiesel industry. In 2006, the government target of biodiesel mandatory blending is 5% (b5). So the total demand of biodiesel will reach 1.3 Million Liter, Considering the target 5% biodiesel blending and the national demand of diesel fuel (26 Million Liter).
One of government action was increase the biodiesel mandatory blending of 5% to 10%. In the implementation, the domestic usage of biodiesel is always below the target. From the 2009 until 2013, the realization is far away from the target.
1.2. Statement of the Problem
Indonesia has a specific supply chain of petroleum products where almost all of the gas stations get the petroleum fuel from Pertamina, one of national state owned companies in oil and gas supply. So, Pertamina is the one user of biodiesel. The government was confident to set up target with 10% biodiesel usage in overall petroleum usage. In the implementation of this program, many problems have occurred at every stage of the biodiesel production from plantation, CPO factory, Biodiesel factory, biodiesel blending and distribution. Lack of coordination among the stakeholders (Government, Industry, and Researcher) has led to the inefficiency of the biodiesel development policies. The problems in biodiesel development were caused by government failure to identify the role of each stakeholder in the biodiesel program.
Right now, the gap of biodiesel usage target and realization still exist. The government sees the problem is just the matter of time. Pertamina need a time to build some new blending facilities in their distribution center all over Indonesia. The supply of CPO, as biodiesel raw material, is over the demand. On the figure 3, the export of CPO is increasing, same condition with domestic consumption in food use and feed waste. CPO consumption in biodiesel included in industrial domestic consumption.
The government of Indonesia has targeted to use 30% biodiesel blending in 2025. The actual of biodiesel consumption is below the target. The problem and obstacles in underperforming of the biodiesel policy should be identified and analyzed to produce the solution.
1.3. Background and Need
Wirawan and Tambunan (2006) Explained that the aims of the biofuel development were to improve energy security, boost economic growth, create employment and reduce poverty in rural areas. This objective has the similarity with other developing country in South East Asia like Malaysia, Thailand and Philippine. The main objective of biofuel development policy was to reduce the dependence on oil import and socio-economic concern, such as to increase the employment and income generating opportunities in the rural areas. Climate change is currently not the primary motive of these countries to pursue biofuel development policies (Kumar, Shrestha, & Salam, 2013).
According to (Hall, Daneke, & Lenox, 2010) the connection between sustainable development and entrepreneurship is depend on many factor like business sector, industry structure and the dynamics of its interplay, and also depend on trade off among competing economic, social and environmental. As the biodiesel sustainable development in Indonesia, it is to lay on the sustainable development on the entrepreneur responsibility. Right now, the biodiesel business is not profitable economically. The biodiesel development is government initiative to increase the value added of palm oil product and reduce the dependency to petroleum import (Daryanto, 2010). In the result, the government is the main driver of sustainable development of biodiesel in Indonesia.
1.4. Purpose of the Study
The purpose of this study is to formulate a long term strategy for sustainable biodiesel development among biodiesel stakeholders in Indonesia and provide recommendations to the government for the implementation of the policy of biodiesel development.
1.5. Research Questions (RQ’s)
This study has several research questions to be answered, as follows: 1. What are the obstacles preventing the implementation of effective biodiesel
policy in Indonesia?
This research will give an understanding of the how a long term strategy in biodiesel development in Indonesia should be formulated. In the broader view, other sectors could implement the same methodology to develop the development strategy. The latest research on the biodiesel policies in Indonesia was conducted in 2011(Caroko et al. 2011), they provide the key stakeholders with motivation and interest in the biodiesel development. Adding this updated data will generate the latest stakeholders’ analysis of the biodiesel program.
1.7. Limitation
This research has limitation on the data collected from interview. There are 5 participants consisting of one researcher, one industrial practitioner, one people from government and two people from business. This data may not cover and represent all of the population which means it cannot be generalized for all palm oil biodiesel industry. However, this research focuses more on the exploration of the development strategy of biodiesel. It is very important given the fact that collaboration among the stakeholders is key factor in developing and implementing the strategy. Moreover, the action plan and policy design may become the guidance for further development of sustainable biodiesel development
2
LITERATURE REVIEW
2.1. Biodiesel Development Policy
Biodiesel is made from biological resources such as vegetable oils or animal fats. The main compound of biodiesel is a methil ester compound. Biodiesel can be made from the transesterification of fatty acids. Fatty acids, from vegetable oils, are mixed with fatty esters and alcohol to produce by products such as glycerine. In the market, glycerine has a high economic value.
Biodiesel has been widely used as a substitute for diesel fuel. Biodiesel feedstock development depends on the natural resources of a nation, for example canola oil in Germany and Austria, soybean oil in USA, palm oil in Malaysia and Indonesia, coconut oil in the Philippines (Abdullah, Salamatinia, Mootabadi, & Bhatia, 2009).
Figure 1 Biodiesel development roadmap in 2006 (Wirawan, Tambunan 2006)
In 2014, the government targeted to increase biodiesel mixing to 10% (B10) that was stated in Minister of Energy and Mineral Resources Regulation No: 20/2014. This regulation targeted to utilize the biodiesel in Transportation, Industry and Power Plant sector.
Table 1 Mandatory biodiesel blending in regulation No. 20/2014
Sector Sep
PSO : Public Service Obligation
Source: Minister of Energy and Mineral Resources
As the substitute of petroleum, the main advantage of using palm oil biodiesel is there is no direct negative effect on the engine. However, Jayed et al. (2011) has listed many engine problems using the palm oil biodiesel usage e.g. fuel injector coking, carbon deposit on piston, gum and wax formation and corrosion on some high pressure parts. The government should develop a tight controlling regulation on the palm oil biodiesel quality standards.
development is far away from the target. The implementation of regulations that relate to the social development is questioned.
Palm oil biodiesel is facing the issue on food versus fuel. The main product of palm oil is Crude Palm Oil (CPO). The Indonesia production capacity of CPO is increasing (figure 3). As the world’s largest edible oil consumed and one of the important feedstock for transport biofuels, future increases in global demand will continue to push up demand for palm oil. Nonetheless, along with the rapidly increasing interest on palm oil use for transport fuels in recent years, serious concern about the sustainability of palm oil production has also increased and has stirred up new debates (Yean & ZhiDong, 2012). As the increasing demand of CPO in food product, biofuel, industry, and export market, the production capacity of CPO will reach a peak because of the limited palm oil plantation in the future.
2.2. Policy Analysis in Multi Actors
In Indonesia, biodiesel development was conducted by government with the support from industry, academics, research center and palm oil grower. This means the biodiesel development policy is multi actor policy. In this condition, every problem in the formulating and the implementation of the policy is become complicated. Different actor has their own view on the problems and also on the solutions.
The model of policy analysis in multi actor organizes the stakeholder in the network rather than classic hierarchy. This means the desired solutions is products of cooperation among the actors (Enserink et al., 2010).
Figure 2 Model of policy analysis in multi-actors system (Enserink et al., 2010) Problem
Formulatio n
System Analysis
Actors Analysis
Scenario Analysis
Solution
The policy analysis in multi actors system starts with problem formulation. Every actor provides problem and solutions according their perspective. And then the analysis divided into three methods:
2.2.1. System Analysis
The system analysis provides conceptual framework of the system, the area of research, and also identified the means, external factors and criteria. The steps in system analysis are problem demarcation, specify object and criteria, identify the means and map the main causal, and the last is provide of the problem area using a system diagram.
2.2.2. Actor Analysis
The objective of this research is providing a recommendation of long term strategy in biodiesel development. The activity of the policy analysis in this the stakeholders. The stakeholder definitions depend on the interest, role, power and impact. Knowing who the key actors are, their knowledge, interests, positions, alliances, and importance related to the policy allows policy makers and managers to interact more effectively with key stakeholders and increase support for a given policy or program (Schmeer, 1999). Furthermore, Bryson (2004) emphasize that failure to attend to the information and concerns of stakeholders clearly is a flaw in thinking or action that too often and too predictably leads to poor performance, outright failure or even disaster. Understanding the stakeholder will provide a firm base to develop the strategy. In case of biodiesel development in Indonesia, how far the government understands the issues and shows concerns for the stakeholder interest is questionable. Caroko, Komarudin, Obidzinski, and Gunarso (2011) Provide an explanation that the blueprint of biodiesel development was developed with limited involvement from stakeholders such as the business sector, non-governmental organizations and the scientific community. Stakeholder input was sought only when the final draft was released. So, the government of Indonesia was unable to involve the key stakeholders in the biodiesel development and this condition generated many problem and obstacles in the policy implementation.
In the beginning of Stakeholder Analysis, this approach was applied to health policy development in The Partnerships for Health Reform (Schmeer, 1999) and then advanced development into general strategic management (Bryson, 2004).
The description of key stakeholders above was only focused on the interest and motivation of the stakeholders. The other factors like power, role and impact should be also addressed in the analyzing of palm oil biodiesel development (Bryson, 2004). Not only parties that effect the policy but also social (individual and group) that is impacted even though they are do not have an interest and motivation.
The weakness of the stakeholder analysis was due to the limited literature in public and not-profit organization like government in the policy development (Bryson, 2004). But in the progress, Gilson et al. (2012) promote stakeholders analysis to develop a strategy on the universal coverage of health in South Africa and Tanzania. As the result, stakeholder analysis has provided significant support in developing strategy in implementing of the public policy.
2.2.3. Scenario Analysis
Table 2 Key stakeholders in the biofuel and oil palm sectors in Indonesia (Caroko et al., 2011)
Stakeholders Description, interests and motivation
Affected communities Some communities feel that oil palm has positively affected their livelihoods, providing a steady income, access to health facilities and basic education. Other communities consider oil palm as having negative impacts on their livelihoods and capital.
Indonesian
Association of Biofuel Producers (APROBI)
APROBI is an association of private business entities, some of which have established biofuel plants and links to oil palm growers. In 2007, 5 of the 22 APROBI members had biofuel processing facilities, with a total installed capacity of 1.1 million tons per year. Unfortunately, only 15% of the capacity was being used due to limited domestic demand and supplies.
Indonesian Palm Oil Association (GAPKI)
This association of oil palm companies was established to develop oil palm plantations and join companies to function as an economic entity that would help improve prosperity and government revenues, and would increase the bargaining position of oil palm companies in the international market. In 2011, the association has 382 members and has been active in providing inputs to the development of policies (e.g. market prices).
Indonesian Palm Oil Commission (KMSI)
The commission, comprising government and private sector elements, was established to foster synergy among oil palm stakeholders, encourage
investment in oil palm and promote the country’s palm oil in international
markets while counteracting the negative campaigns by nongovernmental organizations (NGOs).
NGOs NGOs have diverse interests. Some of them are proponents of oil palm plantations, highlighting the arguments that oil palm benefits local communities and produces local revenues and employment. Others, however, believe that biofuel development has negatively affected local communities and ecosystems, and should be carefully managed. Provincial and district
governments
Most provincial and district governments consider oil palm plantations and palm oil–based biodiesel development critical for the development of their regions. These industries are regarded as important for the generation of revenues, employment and welfare. This view is particularly obvious in regions which are dependent on agriculture and those newly created (as a result of regional division). Provincial and district governments have the authority to issue location permits and conduct environmental impact assessments. Depending on the scale and geographical location of the proposed concessions, provincial and district governments also have the authority to issue plantation permits that enable investors to start operations. Roundtable on
Sustainable Palm Oil (RSPO)
The roundtable comprises oil palm growers, banks and investors, consumer goods manufacturers, social and environmental NGOs, palm oil processors, and retailers. It has 388 ordinary members, 103 affiliate members and 10 supply chain associates. As of November 2010, certified outputs are 3.25 million tons of palm oil and 641 000 ha of oil palm plantations.
Scientific community This group includes academics and research institutes. While their views are rarely heard in oil palm and biofuel debates, they play a major role in providing scientific evidence and informing decision making processes. Despite their neutrality, their views on whether biofuels are sustainable are influenced by their institutional missions. Some support and others oppose the expansion of oil palm.
Small-scale oil palm growers
This includes family-based enterprises producing oil palm on less than 50 ha.
In 2010, 42% of the country’s oil palm plantations (7.8 million ha) were
2.3. Sustainable Development
Sustainable development has caught the researcher spotlight lately. Many organizations like profit, non-profit, public, government and NGO have promoted the label sustainable development. Sustainable development, although a widely used phrase and idea, has many different meanings and therefore provokes many different responses. In broad terms, the concept of sustainable development is an attempt to combine growing concerns about a range of environmental issues with socio-economic issues (Hopwood, Mellor, & O'Brien, 2005). The separation of environment, society and economy often leads to a narrow techno-scientific approach, while issues to do with society that are most likely to challenge the present socio-economic structure are often marginalized, in particular the sustainability of communities and the maintenance of cultural diversity (Giddings, Hopwood, & O'brien, 2002).
Sustainable development analysis of palm oil biodiesel is sequenced steps started with defining the system boundary biodiesel and then followed by identifying the kinds of impacts (economic, environmental, and societal). This impact would accrue as a result of the biodiesel development, then identifying, selecting, and prioritizing the indicators to be used to evaluate the alternative routes for sustainability evaluation. Comparison of the indicators data will lead to a decision on which of the alternatives is more sustainable. (Mata, Martins, Sikdar, & Costa, 2011).
Figure 3 Flow sheet of sequence of activities for the sustainability analysis
In term of sustainability of bioenergy, there are some approaches to guarantee the sustainability of biodiesel in Indonesia. In the supply side, the palm oil plantations and palm oil mills has to certify by ISPO (Indonesia Sustainable Palm Oil) as the implementation of RSPO (Roundtable Sustainable Palm Oil). In biofuels, The Global Bioenergy Partnership (GBEP) established the GBEP Task Force on Sustainability to promote sustainable production and use of bioenergy. GBEP members are 27 countries (include Indonesia) and 12 International Organizations and institutions and further GBEP partners reach 23 countries and 14 international organizations and institutions.
According to GBEP (2012) The 24 indicators of sustainable bioenergy development were grouped in three pillars, i.e.: environmental, social and economic. The indicators are starting points from which policy-makers and other stakeholders can identify and develop measurements and domestic data sources that are relevant to their nationally-defined needs and circumstances. The GBEP indicators do not provide answers or correct values of sustainability, but rather present the right questions to ask in assessing the effect of modern bioenergy production and use in meeting nationally-defined goals of sustainable development. The indicators as follow in table 3.
Table 3 Sustainable indicator of GBEP (2011)
Source: GBEP Report, 2011
In the future, all the strategy of biodiesel development in the aspect of supply raw material and demand of biodiesel usage have to acknowledge the sustainable development criteria. The sustainability is the most important in the policy decision. For example in the supply of raw material, the future raw material of biodiesel must be environmental friendly, accepted socially and feasible economically.
According to (Hall, Daneke, & Lenox, 2010) the connection between sustainable development and entrepreneurship is depend on many factor, for example: business sector, industry structure and the dynamics of its interplay, and also depend on trade off among competing economic, social and environmental aspects. Biodiesel sustainable development in Indonesia is to be made the responsibility of the entrepreneur. The condition of economic side of biodiesel business is not profitable. The biodiesel development is government initiative to increase the value added of palm oil product and reduce the dependency to petroleum import (Daryanto, 2010). In the result, the government is the main driver of sustainable development of biodiesel in Indonesia.
Biodiesel development program has been executed for 9 years. The government has made some change on the policy many times. Those changes were decided by the government to catch the opportunity to grow the economic by utilizing biodiesel industry, but the government did not give the attention to the problems and solutions of the stakeholder. This condition made the implementation of biodiesel development policy did not effective. This research is approaching the stakeholders perspective to formulate the problem, provide the scenario of future, and recommend the long term strategy to sustain the biodiesel development in Indonesia.
2.4. Summary
This research aims to understand the key factors in the formulation of strategy in Indonesia biodiesel development. The problems of biodiesel development result from obstacles in Technical, Financial, Regulation, Social and Market (Daryanto 2010). In this chapter, the problem area will be divided into biodiesel development policy, policy analysis in multi actor, and sustainable development. The theoretical background in this research will provide the identification of problems and a formulation of the biodiesel development strategy.
3
METHOD
3.1. Introduction
3.2. Setting
The research is conducted by using data from Indonesia palm oil biodiesel experts. The criteria of expert come from their activities in the biodiesel development in Indonesia. The supply chain of biodiesel product in Indonesia starts with palm oil plantation then continues through to distribution at the gas station (illustrated in figure 8).
Figure 4 Palm oil biodiesel stakeholders
In this research, the stakeholders of biodiesel are focused on the biodiesel industry until distribution to gas station, because the stakeholders on the Crude Palm Oil (CPO) have less influence in the palm oil business.
3.3. Participants
The primary data collections conducted by semi structure interviews. The participant is divided by government sector, business sector and researcher/expert sector. Detailed description of the participants will be provided, including demographic data, their specific knowledge and also their experience in the biodiesel development. The interviews have been conducted with the people detailed in table 4.
Table 4 Interview participant name and institution
Participant’s Name Institution
Rachmat Syah Head Plant – PT. Wilmar Bioenergi Indonesia, Dumai Tatang Hernas Chief of IKABI (Indonesia Biodiesel Expert Association) Dadan Kusdiana Director of Bioenergy, Ministry of Energy and Natural
Resource
Secondary data’s collected by exploring the journal, articles, and statistical reports from government institutions and other institution. The secondary data that has been collected included:
1. Profile of biodiesel industry in Indonesia (Number of Company, Production Capacity, Utilization)
2. Biodiesel usage (domestic and export) 3. Government policies and regulations.
3.4. Measuremet Instruments
In the interview, open ended question have been prepared but sometimes the new questions will be asked to get more detailed insight from the research question. The interview was set up to finish in one hour, however with some participants they were interested unspecific the questions and their detailed answers overran the anticipated duration of the interview.
3.5. Procedure
The procedure of interview started with contacting the participant by using email and telephone call, then the time and location of interview has decided. Before the interview, the question sent by email to the participant and asked them to prepare with some secondary data that will be needed in this research.
3.6. Data Analysis
3.6.1. Problem Formulation
The first in policy analysis is formulating the problem. This is a crucial and difficult activity in the multi-actors system. In the condition of biodiesel development policy in Indonesia, problem solving process proved to be very difficult and same problem arises over the following years of implementation the biodiesel program. The garbage can model, proposed by Cohen, March, and Olsen (1972), can be applied in the complex situation of biodiesel program in Indonesia.
Figure 6 The Garbage Can model by Cohen et al. (1972)
3.6.2. Driven factor determination
Enserink et al. (2010) Provides the sequence of step in the described of contextual concept to determine the contextual factors and driving forces. The following steps are:
Step 1, Determine the key question, problem definition and proposed policy
Step 2, Determine the factors or crucial power in the environment of the policy field
Step 3, Determine the driving forces or mega trends behind those factors and then indicate which actor cannot be influenced by own policy Step 4, Arrange the contextual factors and driving forces according the
3.6.3. Long term strategy formulation
SWOT is an acronym for Strength, Weaknesses, Opportunities, and Threats. As the name implies, SWOT analysis is used to identify the strengths, weaknesses, opportunities and threats. It is used to decide on the actions to be taken after the elements of SWOT have been determined (Mason, 2011).
Luecke (2006) In his elaboration of SWOT analysis posits that although strategy begins with goals, goals cannot stand in isolation and must draw upon insights from the sensing of the external environment and their organization’s internal capabilities. He points out that practical people form goals based on what is feasible, given the environment in which they must operate their own resources and capabilities, and that strategic choices available to the enterprises comes from “looking outside and inside”
Table 5 SWOT Strategic Alternatives Matrix
External Opportunities (O)
Strategies that use strengths to maximize opportunities. weaknesses by taking advantage
of opportunities.
This is will help to identify strategic alternatives that address the following additional questions:
Strengths and Opportunities (SO) – How can you use your strengths to take advantage of the opportunities?
Strengths and Threats (ST) – How can you take advantage of your strengths to avoid real and potential threats?
Weaknesses and Opportunities (WO) – How can you use your opportunities to overcome the weaknesses you are experiencing? Weaknesses and Threats (WT) – How can you minimize your
The stakeholder analysis is conducted to analyze the interest, power and relation among the stakeholders. Overall, there are three major steps on stakeholder analysis (Gilson et al., 2012):
Identifying the groups and individuals (the stakeholders) relevant to the policy issue of focus;
Determining the current position (in terms of support or opposition) of each stakeholder on the issue;
Determining the relative power of each stakeholder over the issue.
4
RESULTS AND DISCUSSION
4.1. Problem of Biodiesel Development
From the industry side, the problems faced by the biodiesel industry are similar to the problems faced by the industry at large in Indonesia. The problems associated with the distribution of goods in Indonesian infrastructure. A case in point is Dumai, as a city that has the largest biodiesel industry in Indonesia. Dumai sea port has a small capacity for handling CPO and biodiesel. This resulted in the duration of loading and unloading at the port that increased cost of the port.
Furthermore, in terms of raw material, biodiesel in Indonesia relies heavily on palm oil, as palm oil is the only raw material that is successfully developed in Indonesia. Initially, raw material for biodiesel that is developed there are several including Jatropha curcas, Reutealis trisperma (Blanco) Airy Shaw, used cooking oil, and palm oil, but only palm oil growing up at industrial scale. For biodiesel industry which has an oil palm plantation, availability of raw materials not crucial problem, but for industries that do not have oil palm plantation, availability of raw materials is the dominant issue they face each year.
CPO supply in the future can also be a problem for the biodiesel industry as CPO also used by other industries such as food and cooking oil. And the food industry has a higher profit margin than the biodiesel industry. Large scale Biodiesel companies also produce many palm oil product for food, cosmetic, pharmaceutical and biodiesel. If biodiesel product does not provide feasible profit, the management change their production focus on the others product.
The next problem of the biodiesel program is the lack of standard rules in the selling price of biodiesel in Indonesia. Pertamina as the sole purchaser of biodiesel submit a pricing mechanism to the government, but until now the standard price that should be used is still unclear. In Indonesia, there are three standard selling price of biodiesel is
1. MOPS (Mean of Plats Singapore) standard, biodiesel price depend on petroleum price
2. Export Price Standards, biodiesel depend on the global biodiesel price. 3. Production Cost Standard, biodiesel price depend on the biodiesel
Third standards above have fluctuating prices, respectively, and the government should immediately set the standard prices prevailing at Pertamina. The quality of biodiesel produced by each uncontrolled biodiesel industry, in particular small and medium-scale industry that does not have complete testing facilities. Poor quality of biodiesel will lead to problems on machines that use biodiesel. The last problem is the environmental issues. As the only raw material, palm oil still has homework related to deforestation, land acquisition, and greenhouse gas emission. The stakeholders also provide their idea of solution related to the problems, complete problems and solution are listed in table 5. Table 6 Problem and Solution from stakeholder perspective
No Actors Problems Solutions
1 Biodiesel Industry
High cost distribution Improvement in infrastructure Pricing standard not fix Agreement on Pricing standard
2 Academic Biodiesel depend on CPO
3 Government Consumer acceptance on high blending
Environmental issue Technology development in biodiesel productions
Subsidy only for biodiesel not a biodiesel blending fuel.
5 Pertamina Biodiesel
From the table 5, the solutions from one stakeholder are also the solutions for the other stakeholder. They share their perspective in the problem and solutions. Overall, the problems in biodiesel development in Indonesia are:
• High Cost production due to price of CPO, production technology and infrastructure of distribution
• Different pricing standards
• Biodiesel Standardization: low quality control
• Environment issue: deforestation, fire, GHG Emission and social problem • Biodiesel depends on palm oil supply
According to Daryanto (2010), the biodiesel development faced obstacles in Technical, Financial, Regulation, Social and Market. Those obstacles are arising until now, even though government has revised the biodiesel policy. The government should accommodate the solutions offered by the other stakeholders.
4.2. Driven Factors of Biodiesel Development
The available data indicate that the realization of the absorption of biodiesel in 2010 and 2011 respectively by 20.73% new and 27% of the target set. Based on the information Indonesia Biofuel Producers Association (APROBI), pricing policies are the main cause on business and not optimal absorption of biofuel in Indonesia.
The government has issued several regulations related to business and the use of biofuel. The increase in oil prices was high enough in 2005 to force the government to raise subsidized fuel prices. This is the driving factor for the development and utilization of biofuel for domestic interest.
From the data, the biofuel consumption is still much lower than the target in 2014. Existing regulations stipulate biofuel consumption in 2025 reached more than 5% of the total national energy consumption. With the condition that the energy consumption continues to increase in the range of 1 - 1.5 times the economic growth, the growth of biofuel cultivation and utilization needs to be forcibly promoted if it wants the target to be achieved.
implementation of these regulations, there is still no biodiesel use by non-transport sector like industry and power plant.
According to the contextual condition above, each of contextual factors will be analyze to determine the driving forces of each contextual factor. The detail contextual factors and driving forces provide in table 6 and table 7 below.
Table 7 Contextual factors of sustainable biodiesel development
No. Contextual Factors
1 Biodiesel production 2 Biodiesel demand on fuel
3 Biodiesel demand on industry and power plant 4 Export Biodiesel
5 Supply of CPO 6 Price of CPO 7 Price of Biodiesel 8 Price of Petroleum
9 Supply of other biodiesel raw material 10 Government incentive
11 Government Subsidy
12 Demand of CPO in food product 13 Profitability of Biodiesel
14 Profitability of Food product
15 Technology development in biodiesel production 16 Technology development in Biodiesel Usage 17 Technology development in CPO usage
18 Technology development in other renewable energy 19 Biodiesel & CPO Tax policy
20 Biodiesel Standardization
21 Biodiesel distribution infrastructure 22 Biodiesel blending facility
23 Customer acceptance 24 Environment issue
Table 8 Driving forces of the contextual factors
No. Driving forces & Contextual Factors A Government Policy
Biodiesel demand on fuel
B Technology Development
Technology development in biodiesel production Technology development in Biodiesel Usage Technology development in CPO usage
Technology development in other renewable energy Environment issue
Customer acceptance
C Raw Material Supply Supply of CPO
Price of CPO
Supply of other biodiesel raw material
D Infrastructure
Biodiesel distribution infrastructure Biodiesel blending facility
E International Factors Biodiesel production Export Biodiesel Price of Petroleum
F Economic Feasibility
Demand of CPO in food product Profitability of Biodiesel
Profitability of Food product
4.3. Long Term Strategy of Biodiesel Development
From 2006 until 2015, biodiesel program has developed to supply the domestic market and global market. The focus of formulated strategy is on the domestic market. Government has targeted to use 20% biodiesel blending in 2016. SWOT analysis will provide the current position of the biodiesel program implementation and then draw the strategy to sustain the development of biodiesel program.
Table 9 SWOT synthesis of biodiesel development in Indonesia
STRENGTH WEAKNESS
Some large scale biodiesel industries have strong support in technology research
Biodiesel is less profitable than other product
Government has fully support on the biofuels program and Indonesia has a lot of raw material of biodiesel
The coordination among the government institution is not well organized. The investor trust in biodiesel program is low. In this new government, biofuels
development is one of the main programs.
Biodiesel pricing from industry to pertamina is under renegotiation as the drop of petroleum price. Biodiesel blending facility has been
built in many area especially east Indonesia.
Biodiesel product from industry has poor quality control. The biodiesel industry has adequate
supply to meet the target. biodiesel as palm oil product. Transportation, Industry, and power
plant sectors are large market of palm oil biodiesel.
Increasing demand on palm oil food product could decrease CPO supply for biodiesel
In the beginning of new government, the policy will execute in the long term.
Public acceptance of B20 (20% Biodiesel mixture) is an issue of biodiesel.
Petroleum fuel is very depend on the international supply and price, while biodiesel is made and processed in Indonesia
On the long term strategy, the government should focus on the strength of biodiesel program to get the opportunity. The strength of this program is stakeholders support and adequate source of biodiesel raw material. In Indonesia, Government is the main actor of the Biodiesel Development, so the long term strategy that should be taken by government in support the research in development of new raw material and the development of biodiesel technology, for both in the production technology and also usage technology in vehicle, industrial machinery and power plant.
The implementation of the long term strategy depends on the interaction among stakeholders. According to Caroko et al. (2011), there are 9 key stakeholders in biodiesel development according to the interest and motivation but in this research we focus on specific biodiesel stakeholder without the stakeholder of CPO (Crude palm oil).
a. Recent Stakeholders Interactions b. Improved Stakeholders Interactions
Figure 7 Biodiesel stakeholders interactions
From the figure 7, the current interaction of biodiesel stakeholders is only dominated by government. The bold arrow shows a high influence on the biodiesel program. The government has high influence to Pertamina in case of biodiesel blending. Same condition is happening from Pertamina to the industry. The influence of Pertamina to the biodiesel industry is very high because Pertamina is the only buyer of biodiesel in Indonesia. The government develops the biodiesel development policy with their own knowledge. The academics influence to the government is low, their opinions on the biodiesel development is neglected by the government.
5
CONCLUSION
5.1. Summary
Developing technology and raw material of biodiesel is the first key of sustainable biodiesel development in Indonesia. The criteria of new raw material are environmental friendly, accepted socially and feasible economically. According to GBEP report (2014), the current issues of sustainable CPO and Biodiesel industry in Indonesia are Green House Gas (GHG) emission, water pollution and habitat loss and the impact in biological diversity.. The GHG emission coming from forest fire, peat decomposition and fermentation of palm oil mill effluent (POME),
The first key of long term strategy in biodiesel development is guarantee the sustainable raw material of biodiesel especially CPO. The government should secure the supply of CPO as raw material of biodiesel by providing sustainable palm oil plantation exclusive to biodiesel.
The second key of sustainable biodiesel development is technology development. The government should support the research on the development of biodiesel production technology. The latest technology in biodiesel development is bioprocess by using enzyme. The bioprocess technology will reduce the production cost and infestation cost. The technology in the biodiesel utilizations also should be developed. Until now, the maximum biodiesel blending on the standard engine is 20%, higher biodiesel blending will make some problem to the engine and fuel pump. The latest technology that has been developed is Catalytic Hydrocracking Technology. This technology claimed that able to use 100% of biodiesel. Some automotive manufacture company has started the development of this technology.
In formulating long term biodiesel strategy, government should accommodate the idea from other stakeholders like Academics and Association. In the stakeholder relationship, the biodiesel experts including academics, researcher, and industrial consultant should has more knowledge power to influence the government in the formulating biodiesel policy. The academics and biodiesel industry should create a joint research in biodiesel technology, because both of them have different knowledge that will be very useful to share.
5.2. Recommendation
5.3. Implication
BIBLIOGRAPHY
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Appendix 1 Biodiesel Profile
Biodiesel Production Capacity
Appendix 2 List of Questions
List of Question to the Government Person
1. What is your opinion about the implementation of biodiesel development policies? And why? (Historical)
2. What is the advantage of Indonesia in developing biodiesel? (Opportunity and Strength )
3. What is the target of the biodiesel development policies? (Objectives) 4. What are the problems and obstacles in biodiesel development?
(Threat and Weakness)
5. What is the next step to achieve the target in biodiesel development? (Improvement)
List of Question to the Business Person
1. What is your opinion on the biodiesel development policies until right now? (Exploring)
2. What is prospect of biodiesel industry in the future? (Opportunity) 3. What is the main problem and obstacle of biodiesel industry? (Threat
and Weakness)
4. What do you have to overcome the problem? (Strength) 5. What are your suggestions for biodiesel development?
(Recommendation)
List of Question to the Academic person
1. What is your opinion about government target in biodiesel development? (Exploring)
2. How effective the government policies to develop biodiesel? (Opportunity)
3. What is the bottle neck in biodiesel development? (Threat and Weakness)
4. What is the strength factor of biodiesel development? (Strength) 5. What action should government and other parties take to solve the
31 Appendix 3 SWOT Matrix
STRENGTH
Biodiesel production capacity increasing annually. Some company is ready to build another factory in east Indonesia. This company has plantation and CPO mill and also has supporting technology from China. They have collaboration research on the next biodiesel technology and they also have their laboratory to control their raw material and biodiesel product.
Government has fully support on the biofuels program by targeting renewable energy usage until 2025 and provide subsidy to the biofuels. Indonesia has a lot of raw material of biodiesel. One of them is Pongamia (Millettia pinnata) that has best characteristic to be converted as biodiesel. Pongamia is non-edible seed.
In this new government, biofuels development is one of the main programs. In the new regulation, government has accelerated the biodiesel usage target in January 2016 by mandatory blending until 2016.
Biodiesel blending facility has been built in many area especially east
Indonesia, so biodiesel distribution will increase. The increasing demand also coming from industrial sectors.
Government has increased the biodiesel mandatory blend that generates huge market in domestic. The biodiesel industry has adequate supply to meet the target.
WEAKNESS
Some Biodiesel companies also produce many palm oil product for food, cosmetic, pharmaceutical and biodiesel. If biodiesel product does not provide feasible profit, the management change their focus on the others product.
The coordination among the government institution is not well organized. The ministry of agriculture, Ministry of Forestry and Ministry of Energy has different project in the biodiesel raw material. The investor trust in this biodiesel program is low.
Biodiesel pricing from industry to Pertamina is under renegotiation as the drop of petroleum price. Until 2014, biodiesel utilization limited to vehicle transportation, expanding to industry and power plant is still on the long road.
Biodiesel product from industry has poor quality control. The standard has been implemented with SNI (Indonesia National Standard) but the sampling and control is limited.
OPPORTUNITY
In line with economic growth of Indonesia, domestic biodiesel demand will increase especially in vehicle fuel, industry and power plant.
Indonesia has plenty supply of biodiesel raw material and also huge number of biodiesel demand. Transportation, Industry, and power plant sectors are large market of palm oil biodiesel.
In the beginning of new government, the policy will execute in the long term. The economic growth is positive and supportive to develop biodiesel and provide incentive.
Growing demand in east side Indonesia should be utilized to increase biodiesel usage in Indonesia.
Petroleum fuel is very depend on the international supply and price, while biodiesel is made and processed in Indonesia
THREAT
Environmental issues around biodiesel like deforestation and greenhouse gas has given a lot of pressure to the palm oil biodiesel producers.
Increasing demand on palm oil food product could decrease CPO supply for biodiesel since food product generates more profit.
Environmental issues and public acceptance of B20 (20% Biodiesel mixture) is an issue of biodiesel. Automotive manufacturers are conducting test on B20 effect to the standard diesel engine.
Biodiesel mix in 20% (B20) does not tested yet in the long time use in standard diesel engine, the engine failure issue has to be managed.
33 AUTOBIOGRAPHY
Beny Adi Purwanto, the author of this thesis was born on March 04, 1983 in Tuban, Indonesia. He completed his elementary education in 1995 and continued to SMPN 1 Plumpang for junior education. He later joined SMAN 1 Tuban and finished in 2001. In 2006, He graduated from Sepuluh Nopember Institute of Technology, Surabaya majoring in Mechanical Engineering.
The author started working with PT. LG Electronics Indonesia as R&D engineer since 2006. He moved to become public servant in 2010. He has been working in ministry of Industry as structural staff. As a government official, he engage with several activities namely policy design, create Indonesia National Standard (SNI) and training/ workshop. In 2011 and 2012, he joined an Indonesia task force to promote regulation of local content in electrical machinery industry and medical device.
