Donny Winarno , Molindo Raya Industrial
Release Date: 2007-10-17
To what extent to you attribute the growing interest for the biofuels sector to the soaring oil prices the world has experienced over the last several years?In my opinion, the current price of oil has more to do with political issues than with the dynamic between supply and demand. Although the markets are well supplied, many counties are encouraged to have high levels of reserves as a result of concerns over possible disruptions in the future. The oil price is a very difficult thing to predict, which is why I believe that the biofuels issue should not be tied to such an unstable variable. The relation that should be made is between biofuels and the feedstock, because this is the crucial aspect for the economic stability and sustainability of the business.
Brazil was already serious about developing biofuels even back when the crude oil barrel was below $20 and the price of ethanol was over 50% higher. They were able to see that at some point fossil fuels would become scarce and expensive, and decided to take early actions. And analyzing their own availability of natural resources, it became clear that biofuels could be developed to make up an important part of the energy mix.
Getting into the biofuels sector today is a strategy for anyone in the world who has the capacity to do so. Indonesia is particularly well suited for this sector thanks to its huge agricultural potential for different types of biofuel crops. As mentioned explicitly in the Presidential Decree No. 1 of 2006, Indonesia possesses four plants that can serve as feedstock for large-scale biofuel development: palm oil, jatropha curcas, cassava and sugar cane. Through biofuels development, we can also contribute to the development and prosperity of the agriculture community.
Which are the main trends you see with regards to biofuels in the international arena, and how would you frame Indonesia within this context?
The biofuels business in countries around the world is not geared towards the export market, but rather towards national objectives. For example, the United States now has a level of production which surpasses Brazil, whereas before it still depended on imports from the South American nation. This has in turn led Brazil to a greater use of ethanol for the domestic market with energy purposes. What makes the Brazilian case special is that they are the only country selling the hydrous variety of ethanol (below 96%) for cars, while everywhere else the mixtures are make with the anhydrous variety (99.5%). They can do this thanks to their ‘flexible fuel vehicles’ (FFV) which can run on hydrous.
In the ASEAN region, Thailand is a pioneer in biofuel research since the 1980s, and the Philippines have taken a big step by mandating the use of a certain percentage of biofuels by the year 2009. Indonesia has just launched its biofuels initiative in 2006, and there is no indication yet that a similar move to make it mandatory will be made soon. Although initially there has been a very big interest in biofuel development from companies from the industrial sector, given the uncertainty and slow pace of progress in regulations this excitement will likely diminish. However, I consider that companies with a strong background in agriculture have very little reasons not to get involved in biofuels.
The main problem faced by countries all around the world is regarding infrastructure. I went as a delegate on a recent trip to the US, together with a dozen other personalities involved in the sector, and realized how even the US has difficulties related to infrastructure, particularly with bioethanol. The anhydrous variety developed everywhere outside Brazil is very critical in terms of storage and distribution.
Some people are very bullish about Indonesia, but the reality is that right now we are not in a condition to compete with Brazil on the ethanol market. They have a well-tuned and integrated system and benefit from generous government incentives. Indonesia as a country has to really think and make big decisions on biofuels, from the agricultural basis to the final downstream channel. This is a country in a similar situation to that of the United States, in the sense that 95% of the gasoline in the country is utilized for transportation, with only 40% of diesel used for the same purpose (the remaining 60% is allocated for industry). Thus, feedstock will be the main key to success.
What are the main issues in terms of regulations and policy that will have to be addressed in order to attract the necessary investments to make the Indonesian government’s ambitious projections to have biofuels make up 5% of the energy mix in 2025 a reality?
Above all, the Indonesian government needs to focus on formulating a biofuel policy for the agriculture sector. The price of crude palm oil is soaring, therefore seriously diminishing Pertamina’s ability to make money with its biodiesel mix. In addition, both producers and consumers should be given incentives to choose the biofuel mix at the retail level. This leads to the subject of subsidies, which in the case of oil represent a growing expense for the government and have also isolated the local market from the global volatility, inhibiting its ability to react. The curious thing is that once there is a biofuel component in a mixture at the pumps, it is not covered by the subsidy and therefore has a very hard time being competitive on the market. For this reason, Pertamina has been losing money and reducing the amount of biodiesel in the mix, making it unattractive for the suppliers.
Bioethanol producers like Molindo Raya are not as affected, because we are fortunate to have ‘pertamax’ fuel mixture (3.5%-5% ethanol) which is sold under market rates anyways. The main issue is that the volumes are still very small, and this is not likely to change unless the oil subsidy system itself is modified.
Molindo Raya has been one of Indonesia’s leading ethanol producers for many years, so what drove you to get seriously involved in the bioethanol business?
Molindo was founded in 1961, and was initially dedicated to the agriculture business. Through substantial growth, the company diversified into mining and the industrial activities, and the focus became ethanol, which was supplying the pharmaceutical, cosmetics and other traditional industries for carrier solvent use. Our company maintained itself very up to date on the trends around the world in the ethanol business, and in 2004 the CEO, Mr. Sandoyo Rustanto and Commissioner, Mr. Indra Winarno had the vision to start developing biofuels.
One of the most important aspects for Molindo has always been the impact of our activities on the environment. We are proudly the only ethanol producer with zero waste, thanks to our integrated production mechanism which turns liquid waste into fertilizer and purifies gas for food grade liquid carbon dioxide. So naturally, we saw an opportunity to develop ethanol for energy purposes at an early stage, and this is what allowed Molindo to become a supplier of choice for Pertamina. The company took the leap into this sector well before the Presidential Decree of 2006, because we consider that the future of all ethanol companies in the world will inevitably be linked to biofuels from now on. Since taking the strategic decision to get into the biofuel business, everyone in the company takes it very seriously; for example, all of the managers and directors in the company mix 10% of ethanol in their car’s fuel in order for us to experience the benefits in the first place.
What is your strategy of growth for the biofuels business? What are the main variables which will determine your ability to reach those objectives?
Molindo’s plans for growth currently involve the building of at least 2 more ethanol plants by 2012, one in Lampung (Sumatra) and the other probably in East Java. Depending on government policy on the energy mix and incentives, our growth could be considerably bigger. Like most of the players interested in biofuels, we are waiting and watching carefully, to determine what the government is going to do. The exact nature of the incentives is still uncertain, regarding areas like taxation and import duties for equipment. And then, of course, just as important is seeing how the market will respond to the situation. In particular we will have to take into account Pertamina’s decisions on the matter, because they are already reluctant following the difficulties of their biodiesel-mixed ‘solar’ fuel. Hopefully they will seek more opportunities in taking ethanol as the better value compared with a volatile crude oil, and the lower emission reduction for green environment.
There are certainly also opportunities for exporting the production, in particular to countries more advanced in implementing mandatory use of biofuels like Philippines and Thailand, but our hope is to be able to provide bioethanol for the Indonesian market. As stated in the Presidential Decree on biofuels, this initiative looks to not only offer a new energy source but also a means of reducing unemployment and poverty in rural areas of the country. If we develop a model aiming at exporting our production, we will not be a part of the development of the farmers and of the final consumers of the fuel.
Molindo wants to be a part of the integration of the biofuels business in the local market, benefiting everyone from the agricultural and retail side. The potential is definitely there: the demand for fuel in Indonesia is about 18 billion liters per year, so supposing a 5% component,
this means 900 million liters of biofuel per year. Taking into account that the economy of scale for an ethanol company is at around 50 million liters, the country would need 18-20 new ethanol companies just for the bioethanol market.
What kind of partnerships is Molindo Raya interested in developing in the biofuels sector?
Molindo is interested in establishing partnerships with companies with experience in this activity, who can offer us value in terms of new technology in feedstock processing, R&D, and a stronghold in the biofuels sector. In particular, we would like to complement our own in-house research of the equation.
Molindo Raya is focused on the production of bioethanol in a country that is more associated with biodiesel development thanks to its available feedstock (palm oil primarily). Do you see this situation as more of a challenge or opportunity?
Ethanol is Molindo’s core business, and we have to continue growing and expanding our market. We will develop the enormous bioethanol potential Indonesia offers. Although it is true that crude palm oil is a hot commodity right now in the country and around the world, Indonesia is lucky to also have cassava which is also a highly promising feedstock for bioethanol. There are huge areas of undeveloped lands and feedstock, and interesting opportunities to reach economies of scale. Taking into account the high population and growth rates of Indonesia, the prospect of representing 5% or even 3% of the energy mix means that biofuels have enormous room to develop. This is still a work in progress, and core industry is ethanol since 50 years, so we want to make sure that we are sustaining this core business. There are many details to continue working out from both the production and trading side, but ultimately the rate of progress is going to depend on the government’s concrete decisions in relation to the biofuels framework.
The company’s current production dedicated to biofuel level is 10,000 kl per annum from 50.000 kl capacity, but you have stated that towards the future Molindo Raya aspires to a capacity of 100,000 kl. How are you planning on achieving this exponential growth, and what timeframe are we talking about?
The timeframe we have set for this growth is over the next 3 to 5 years. Molindo wants to continue as leader in ethanol and be at the forefront of biofuel business in Indonesia. This is a global and irreversible trend, therefore biofuels are destined to become a fact of life for everyone around the world. We want to see Indonesia assume its role as major biofuel player in the world, and of course to see Molindo contributing in a big way to this achievement.
| Company: | Molindo Raya Industrial |
| Position: | Vice President |
| Country: | 印尼 |