I . BACKGROUND 1 . 1 The Urgency of Alternative Energy Development Indonesia is an archipelagic country comprised about 17 , 000 islands and spreads over a total area of 191 million hectares . The total administrative areas of the Republic of Indonesia are divided into 33 provinces and 349 regencies . The total population of Indonesia is 219 . 2 million and 71 percent or 155 million are manpower and more than half of them resided in Jawa island ( in 2005 ) . Nowadays Indonesia still faces some problems regard their high unemployment and poverty level . Indonesia government finds a difficulty to provide the job opportunity . As the limited job opportunity , the unemployment rate increases . In February 2005 , the unemployment rate was 10 . 26 percent and the number of population below the poverty line is 35 . 1 million people ( BPS , Statistical Yearbook of Indonesia 2005 / 2006 ) . The huge population directly influences the level of energy consumption . As the oil reserves depleted , the crude oil produced is decreased , while the energy consumption always increases each year . During period 1990 up to 2005 , the energy consumption increases at the level 4 . 6 % in average ( Source : Statistical Oil Workbook – BP ) , while the production always decrease because of depleted fields , around 70 % of all fields in Indonesia are categorized as old fields ( data from KADIN , Indonesia Chamber of Trade and Industry ) . Indonesia investment climate also perceived as less conducive . The obligation to pay taxes start from the exploration process has lessened investor willingness to invest in oil sector . For 2005 , the number of oil consumed has exceeded the Indonesia ability to produce crude oil . This condition is worsen by the increasing trend of crude oil price . The increase tension on political condition in Middle East is one of factors contributed the price movement . Source : BP Statistical Review of World Energy June 2006 As the crude oil price in world market increase , government must allocate bigger fund to be placed as subsidy . Fuel price in Indonesia is lower than the world price level , thus as the crude oil price in world market increases , government must increase their budget allocated for subsidy . Oil Subsidy on State Budget 20052006 ( un - revised Budget ) 2007 ( Proposed Budget ) Rp 89 . 194 trillion or 3 . 4 % from Gross Domestic ProductRp 54 . 276 trillion or 1 . 8 % from Gross Domestic ProductRp 61 . 900 trillion or 1 . 75 % from Gross Domestic Product Source : Indonesia State Budget , Ministry of Finance of Republic of IndonesiaThe subsidy allocated for oil has significant proportion on Indonesia gross domestic product . And subsidy placed will be higher as the oil price increases . Based on the research conducted by Institution of Economy and Management Institution of Indonesia University , if the oil price increases US $ 1 / barrel , the state revenue will increase Rp . 3 . 76 – 4 . 1 trillion . The higher revenue is contributed by income tax of oil and gas valued Rp . 0 . 7 – 0 . 76 trillion and state non - tax revenue valued Rp . 0 . 58 – 0 . 63 trillion . However , the US $ 1 / barrel increasing on oil price also raises the government expenditure to finance the oil subsidy . Government must increase the expenses on oil subsidy around Rp . 3 . 3 – 3 . 6 trillion and balanced fund into region around Rp . 0 . 58 - 0 . 63 trillion . Thus the total additional expenditure to finance the increasing one - dollar oil price per barrel is Rp . 3 . 9 – 4 . 3 trillion . So there is deficit Rp . 0 . 1 – 0 . 15 trillion for every 1 - dollar / barrel price increasing need to be financed by central government . The study conducted by Institution of Economy and Management Institution of Indonesia University also shows that oil subsidy is misallocated . The wealthy people gains higher advantage from oil subsidy compare to unfortunate people . The wealthy people consume fuel 8 . 2 times than the poor and they also consume solar 99 . 4 times than poor segment . Fuel and solar are mostly used in transportation sector , and transportation sector has highest energy consumption . Therefore , oil subsidy doesn ’ t meet its objective because it is misallocated . Transportation sector consumes almost half of the national energy . In 2005 , transportation sector used 29 , 897 , 901 kilo liter energy which consisted of 40 % solar and 58 % fuel . Industry consumed 19 % of national energy , and most of energy used for industry is solar which is 72 %. While household sector only consumed 18 % of total energy and all is kerosene . Kerosene is mostly consumed by poor people because this segment consumes 1 . 5 times than wealthy segment . From above illustration , solar plays an important role because 44 % ( equal with 27 , 525 , 363 kilo liter ) of national energy consumption is solar . Fuel and kerosene then followed by 28 % for fuel and 18 % for kerosene consumed by 2005 . Energy Consumption – 2005 ( In Kilo Liter ) SectorKerosenePetroleum Fuel SolarDiesel OilBurn Oil T r a n s p o r tationIndustryElectricity Power GenerationHousehold - 90 , 984 - 11 , 233 , 23717 , 471 , 139 - -- 12 , 078 , 2048 , 338 , 270 7 , 108 , 889 - 70 , 879811 , 798 16 , 107 - 277 , 6792 , 310 , 023 2 , 098 , 580 - TOTAL ( In KL ) 11 , 324 , 221 ( 18 %) 17 , 471 , 139 ( 28 %) 27 , 525 , 363 ( 44 %) 898 , 784 ( 2 %) 4 , 686 , 282 ( 8 %) Source : Sales data , Pertamina ( State Oil Company ) From above description , it is very clearly that oil prices plays significant role in Indonesia state budget . As the price changes , the burden of budget is changes . Furthermore , there is a tendency the increasing on oil price . Thus Indonesia government deems to reduce the subsidy or even remove it and consider developing an alternative energy as a substitution of oil . II . GOVERNMENT POLICY 2 . 1 National Policy on Energy and Institutional FrameworkWith regards to the limited fossil energy that up to now still positioned as primary source of energy , Indonesia government considers to develop alternative energy . Through the implementation of Indonesia national energy policy , government plans to employ the alternative energy development as a strategic tool to answer the problem of energy shortage . As an initial pace , government plans to make at least five million hectares ( 12 million acres ) of former forestland available for palm oil , jatropha , sugarcane and cassava plantations in a bid to create jobs for up to three million people . As a frame on alternative energy development , in January 2006 a Presidential Regulation No . 5 / 2006 about the National Energy Policy was released and was followed by the issuance of the Presidential Instruction No . 1 / 2006 about the availability and utilization of bio fuel as the alternative fuel ( Source : National Program Action for Supplying and Utilization of the Alternative Energy , Coordinating Ministry for The Economy , June 2006 ) . Through the implementation of National Energy Policy , Indonesia tries to increase the efficiency of energy utilization . During 1995 to 2003 , energy elasticity for Indonesia is 1 . 84 . It means , in order to produce one unit of product , the energy needed is 1 . 84 units . By 2025 , Indonesia government plans to reduce the energy elasticity into less than one . As the energy usage more efficient , Indonesia able to save the money that previously used to finance the fuel subsidies . Government also targeted the diversification on energy utilization . The proportion of fossil energy will reduce while the proportion of alternative energy will increase . Government will stimulate the utilization of bio diesel as a substitution of solar / diesel , the reduction on gasoline consumption and stimulate people and industry to use compressed natural gas . Government also plans to reduce the consumption of kerosene and replace it with light coal . By 2025 , government plan to achieve the optimal energy mixed , as below : Petroleum becomes less than 20 % Natural gas becomes more than 30 % Coal becomes more than 33 % Bio fuel becomes more than 5 % Geothermal energy becomes more than 5 % Other new renewed energy ( biomass , nuclear , water , solar , and wind energy ) become more than 5 % Liquefied coal becomes more than 2 % Source : Regulation of the President of the Republic of Indonesia No : 5 , 2006 About The National Energy Policy The National Energy Policy also has a target to achieve the energy prices that encouraging the utilization of alternative energy . The fuel price today is less than the international market price because government gives a subsidy to fuel price . Fuel subsidies is a burden for state budget , furthermore only 18 % of the energy consume by household sector . Therefore , subsidy is mostly enjoyed by transportation and industrial sector . Beside that , subsidy makes the price of alternative energy less competitive . As government reduces the subsidies and in the long run removes subsidies from domestic fuel price , it will stimulate the development of alternative energy . One of alternative energy that plans to develop is bio fuel . Bio fuel is natural resource based , so it is renewable energy . The development of bio fuel will realize the safety of domestic energy supplies and reduce the dependency on fossil fuel import and enabling technology development . Energy based on natural resource also gives a benefit into the environment because it will decrease the gas emission so the energy is environmental friendly . As a natural resource based energy , plants are the source of the energy . Bio fuel has gained real credibility as fuels to supplement petroleum motor fuels . Brazil has started to develop bio fuels since 1970 as the world experienced of energy crisis that has boosted oil price significantly . Brazil applied pro - alcohol program for the development of bio ethanol . From Brazil experience , bio ethanol offers a solution to supplement gasoline or diesel fuel by incorporated bio ethanol in blends . Unlike other alternative motor fuels such as LPG and NGV that are able to fully replace oil . NGV and LPG also can be used in existing motor fuel distribution networks without having to modify vehicles ( Source : Panorama 2005 Report on Biofuels Worldwide ) There are three bio fuel energies that will develop , which are bio ethanol , bio diesel and bio oil ( Source : Green Energy ( Bio Fuel ) Investment Opportunities in Indonesia , National Team for Indonesia Green - Energy Development Program , August 2006 ) . Bio ethanol is anhydrous alcohol from the fermentation of sugar , cassava , or corn . Bio ethanol can be blended with gasoline up to 15 % and used in vehicle without special modification on the vehicle . The resulting of fuel is known in United States as gasohol and gasoline type C in Brazil . Two common mixtures in United States are E 10 and E 85 which contain 10 % and 85 % of ethanol , respectively , while the common mixtures in Brazil are gasoline type C and its high octane variants , which contain 20 % and 25 % ethanol ( Source : Wikipedia , The Free Encyclopedia ) . Bio ethanol also can be used up to 100 % as a fuel , but the vehicle must be modified so it will compatible with the fuel . Bio diesel is made from palm oil , coconut oil , soybean oil , jathropa oilseeds that undergoes chemical change from the original characteristics . The mixture composition of bio diesel to be able to use in diesel vehicle is up to 15 %. Bio oil is pure plantation oil without undergoes chemical change from the original characteristics , e . g . refined bleached - deodorized ( RBD ) olein , R palm oil , soybean oil and straight jathropa oil ( SJO ) . Bio oil can be used as a replacement of solar up to 15 % ( + 85 % solar ) without special modification on vehicle . While for the utilization up to 100 %, there should a modification on the vehicle . Bio oil can be used as a replacement of kerosene ( up to 20 %). 2 . 2 National Team of Bio Fuel DevelopmentIn order to accelerate the bio fuel development , government formed National Team through the issuing of Decree of The President of Republic of Indonesia No . 10 / 2006 about the National Team for Developing Bio Fuel for the Acceleration of Reducing Poverty and Unemployment . They have a function to compose the blue print of bio fuel development , prepare the formulation of the steps for developing the bio fuel , implement the evaluation toward the implementation of bio fuel development and report any progress regard to the bio fuel development . For 2006 , the National Team will finish the concept of bio fuel development and all the supported regulation for bio fuel development . The raw material readiness is the first consideration . Indonesia will start to provide the plantation of jatropha , as a crop developed for bio diesel . During this year , Indonesia develops some plantation in some provinces as a pilot project . As a limitedness of seed , government still not able to meet the target of pilot project of jatropha plantation . This year , government also starts to release certification of jatropha oilseeds for assuring the product meet with standard . One of the objectives of bio fuel development is to building the community ability to fulfill their own need of energy . Start from 2007 , government will create the policy of the forming of Self Food & Energy Village ( DeMEP ) . This village is educated to process jatropha oilseeds - that produced from their own land - into energy replacing kerosene for household needs such as cooking . From village , then enlarge to bigger area . Starting at 2007 , National Team also extent the plantation for raw material support . The construction of fabrics and infrastructure also begin to develop . As regulation has already set up , the pilot project of jatropha plantation already done , and the fabric and infrastructure already available , begins at 2008 , the bio fuel development enter the extension stage . There will an extension on energy plantation , fabric , and infrastructure . 2006 · Finished complete blue print , road map , and action plan · Finished Indonesia Green Energy Fund plan · Finished supported policy ( Investment , fiscal , standardization ) · Synchronize RKAKL ( Ministry work plan ) with the action of bio fuel program · Socialization to stake holder · Carried out ( 15 %) stock taking and the allocation of field usage and bio fuel fabric compared to field conditions . · Certification of jatropa oilseeds and its spread ( 1 %)· Small scale jatropa oilseeds in some areas : 200 unit of processors & demplot plantation 2007 · The beginning of self food & energy village ( DeMEP ) · The beginning of self food & energy plantation ( DaMEP ) · The beginning of the construction of new fabrics · The beginning of the construction of infrastructure · Investment & international cooperation in green energy fund · Carried out ( 45 %) stock taking and determining of bio fuel plantation and fabric · Certification of jatropha oilseeds and its spread ( 50 %)· Small scale jatropha oilseeds in some areas : 1 , 000 processor units & demplot plantationSource : Green Energy ( Bio Fuel ) Investment Opportunities in Indonesia , National Team for Indonesia Green - Energy Development Program , August 20062008 - 2010 · The extension of DeMEP & DaMEP · The extension of energy plantation · Add new fabrics and supported infrastructure · The extension of investment & international cooperation in green energy fund · Carried out ( 100 %) stock taking and determining of bio fuel plantation and fabric · Certification of jatropha oilseeds and its spread ( 100 %) 2 . 3 Agro Industry as a Basis of Bio Fuel Development The development of bio fuel is started by the plantation of crops that used as raw materials of bio ethanol or bio diesel . Sugar , sugarcane , cassava , and corn are some corps that can be produced as bio ethanol . While , raw materials needed to produce bio diesel , we can utilize palm oil , coconut oil , soybean oil , and jatropha oilseeds . AGRO INDUSTRYPlantation of Sugar cane Cassava CornPlantation of Palm Oil Coconut Oil Jathropa Soybean OilProduced into Bio EthanolProduced into Bio Diesel Distributed by Pertamina ( State Oil Company ) Electricity Power GeneratorTransportation SectorIndustrial SectorHousehold & Commercial SectorsBIO FUEL Government chooses to develop jatropha as a source of bio diesel . Palm coconut also able to utilize for bio diesel . However , currently the oil produced from palm coconut utilizes as vegetable oil . Thus , Indonesia gives a priority to jatropha because it hasn ’ t been developed in massive scale since people don ’ t have any information about the usage of jatropha . This crop can ’ t be consumed as food ; therefore it wouldn ’ t disturb the food supply . Government selects jatropha to be developed because the plant has many advantages . Jatropha can be grown in arid zones ( 20 cm rainfall ) as well as in higher rainfall zones and even on land with thin soil cover . It is quick yielding specie even in adverse land situation for example degraded and barren lands under forest and non - forest use , dry and drought prone areas , marginal lands , even on alkaline soils and also as agro - forestry crops . Jatropha can be a good plantation material for eco - restoration in all types of wasteland . Jatropha also grows readily from plant cuttings or sees up to the height of 3 - 5 m . Jatropha also highly pest and disease resistant . The plant not only able to utilize as bio diesel , various parts of the plant are of medicinal value , its bark contains tannin , the flowers attract bees and thus the plant is honey production potential . It is also environmental friendly because it removes carbon from the atmosphere , stores it in the woody tissues and assists in the build up of soil carbon ( Cited from Green Energy ( Bio Fuel ) Investment Opportunities in Indonesia , National Team for Indonesia Green - Energy Development Program , August 2006 ) . Bio ethanol can be produced from sugarcane , molasses , sweet sorghum , sorghum seeds , cassava , corn , sweet potato and sago palm . Corps with higher yields of energy such as sugarcane and sorghum are more effective in producing ethanol than corn ( Source : Wikipedia , The Free Encyclopedia ) . Productivity of Some Corps – Raw Materials to Produce E t hanolCorpsProductivityTon / ha / yearAlcohol ProducedLitter / TonLitter / ha / yearSweet PotatoSweet S o rghumSugarcaneCassavaSago PalmSorghum seedsMolasses 62 . 5 ( 2 & half / year ) 80 ( twice / year ) 75256 . 863 . 6 1 2 5 7 5 6 7 1 8 0 6083302707812600050254500 41332000973 Source : Villanueva ( 1981 ) , Holmes and Newcombe ( 1980 ) , Taveendron III . BARRIER IN BIO FUEL DEVELOPMENTUnlike jatropha that can ’ t be utilized as food products , almost all plants utilized for ethanol production are food - based plants . There might be land competition between the energy and food industries , because bio fuel technologies post fairly low energy efficiency per hectare . Owing to a number of agricultural constraints , it is impossible to grow all species in all soil types under identical condition . Therefore , one result of large - scale bio fuel development will be competition between the energy and food sectors over land occupancy . The competition between those two sectors can also arise since they use the same raw materials . If we use sugarcane to be made as bio fuel , it will compete with sugar industry . Sugar is one of important commodities in the international market . Brazil , India , United States , West Europe , Australia and Thailand are the prominent sugar producer in the world . While China , Indonesia and some countries past member of Soviet Union are sugar importer . World sugar production in 2004 was 141 . 1 million tons while the consumption was 143 . 3 million tons . During 1998 - 2004 , there was a deficit in sugar market caused by the increasing of Brazil ethanol production . FAO predicts in 2010 , the sugar price will achieve US $ 17 - 21 per kg . Indonesia is one of sugar importer country . Currently , 40 - 50 % of domestic demand is fulfilled by importing . Government has a policy to achieve self - fulfillment ( Swasembada Program ) on sugar and Indonesia will be able to self - fulfilled the sugar domestic need by 2008 ( Tempo Interaktif , July 16 , 2005 ) . As the local sugarcane production still not able to meet with the sugar industry needs , the bio fuel must not able to utilize the current stock of sugarcane . Thus , investor must open the plantation of sugar for supplying the need of raw materials . The cost of producing bio fuel is higher than the price of fossil fuels , even if the high barrel price is narrowing the gap . The table below gives a cost comparison between bio fuel and petroleum motor fuel in United States . Bio Ethanol USPetroleum Motor Fuels US $ 25 / barrelPetroleum Motor Fuels US $ 50 / barrel $ 0 . 3 / l $ 0 . 2 / l $ 0 . 4 / lSource : IEA / IFP Bio Ethanol will be profitable to be produced if the price of petroleum motor fuels reaches US $ 50 / barrel . If less than $ 50 / barrel the production cost of bio ethanol is relatively higher than petroleum fuels . Thus the public authorities support is really needed in bio fuel development . The availability of stand by buyer is needed in initial phase to encourage investor to invest in bio fuel . Replicated from Brazil experience in assigning Petrobas , the national oil company to guarantee the bio ethanol purchasing , Indonesia already assigned Pertamina , the state oil company and PLN , the state electricity company to purchase bio ethanol . Government also needs to withdraw the subsidy on fuel in order to realize competitive price between petroleum fuel and bio fuel . The subsidy removal will be tough decision for government to be taken . It will increase the petroleum fuel price and furthermore it will induce the price increment of other commodities . The price of raw material can also be a problem on sustainability bio fuel supply . Nowadays many countries set bio fuel development in their national agenda . As the increasing on bio fuel production , it will raise the need of raw materials . As the demand increases , the price of raw material will increase , thus the bio fuel cost will increase . Regarding to the business climate , Indonesia hasn ’ t able to provide conducive climate for investment . As the implementation of decentralization policy , some authorities have been removed to local government in order to empowering local community to develop their region based on local competency . Allocating some authorities into local government also believed as an effective toll to reduce level of bureaucratic , thus the economy will be more efficient . However , in the implementation of decentralization policy , some problems have been arisen as a result of lack of coordination between central and local government . Some regions issued regulation that contra productive to investment . Currently , central government has been decided to cancel some regulation issued by local government . Those regulations are perceived as barriers for investment activity . Regulation issued by Indonesia government , both local and central government also perceived as overlapping , especially among different sector . We also often found that regulations issued by local government are not consistent with the higher regulation . It will hamper investment activity because investors find a difficulty to have legal certainty in pursuing their business . IV . Land Availability 4 . 1 Jatropha PlantationLand is an important element for agro industry development . The availability of compatible land is one of factor to encourage bio fuel investment . Based on land characteristics , climate type and land height , there are three types of land regard to the suitability with the plant , which are S 1 as very much suitable , S 2 rather suitable , S 3 less suitable . The total land that compatible with Jatropha plants in Indonesia is 48 , 929 , 679 hectare . Kalimantan is the most potential island for Jatropha development . 36 % of total suitable land for Jatropha is located in Kalimantan , which divided into 15 % in East Kalimantan , 10 % in West Kalimantan , 8 % in Middle of Kalimantan and 3 % in South Kalimantan . Sumatera is also potential place for Jatropha development . In overall , 27 % of total suitable land is located in Sumatera , with South Sumatera as the most potential province with 3 , 759 , 991 hectare or 8 % from total . Papua also potential because this province contributes 10 % in total land , and from 10 % suitable land , around 980 , 457 hectares are categorized as very much suitable . Suitable Land for Jatropha Plants Very Much Suitable ( ha ) Region Portion of Very Much Suitable Land ( ha ) Rather Suitable ( ha ) Less Suitable ( ha ) Total ( ha ) Region Portion of Suitable Land ( ha ) Nangroe Aceh Darussalam 180 , 1391 % 160 , 764836 , 0011 , 176 , 9042 % North Sumatera 215 , 3932 %- 1 , 390 , 4751 , 605 , 8683 % West Sumatera 4 , 2690 . 03 %- 781 , 189785 , 4582 % Riau 80 , 7180 . 57 %- 1 , 600 , 8441 , 681 , 5623 % Jambi 218 , 2842 %- 993 , 1341 , 211 , 4182 % South Sumatera 530 , 2074 %- 3 , 229 , 7843 , 759 , 9918 % Bengkulu --- 602 , 022602 , 0221 % Lampung 718 , 8235 % 66 , 023706 , 9311 , 491 , 7773 % Bangka Belitung 156 , 3191 %- 947 , 8811 , 104 , 2002 % TOTAL SUMATERA 2 , 104 , 15215 % 226 , 78711 , 088 , 26113 , 419 , 20027 % West Jawa 231 , 0112 % 445 , 022306 , 989983 , 0222 % Middle of Jawa 494 , 6303 % 74 , 416338 , 824907 , 8702 % Daerah Istimewa Yogyakarta 35 , 2270 . 25 % 33 , 9998 , 45477 , 6800 . 16 % East Jawa 960 , 5957 % 574 , 121255 , 7221 , 790 , 4384 % Banten 134 , 4840 . 94 % 116 , 57636 , 646287 , 7060 . 59 % TOTAL JAWA 1 , 855 , 94713 % 1 , 244 , 134946 , 6354 , 046 , 7168 % Bali 19 , 8920 . 14 % 51 , 42324 , 26595 , 5800 . 20 % NTB 37 , 8770 . 27 % 428 , 539124 , 466590 , 8821 % NTT 595 , 4214 % 833 , 293322 , 1741 , 750 , 8884 % TOTAL NUSA TENGGARA 633 , 2984 % 1 , 261 , 832446 , 6402 , 341 , 7705 % West Kalimantan 67 , 4630 . 47 % 984 , 3403 , 897 , 0054 , 948 , 80810 % Middle of Kalimantan 171 , 0631 . 20 %- 3 , 632 , 3243 , 803 , 3878 % South Kalimantan 833 , 7456 % 48 , 559623 , 3261 , 505 , 6303 % East Kalimantan 3 , 643 , 05926 % 680 , 4682 , 878 , 1617 , 201 , 68815 % TOTAL KALIMANTAN 4 , 715 , 33033 % 1 , 713 , 36711 , 030 , 81617 , 459 , 51336 % North Sulawesi 143 , 7601 %- 538 , 555682 , 3151 % Middle of Sulawesi 506 , 8874 %- 373 , 638880 , 5252 % South Sulawesi 435 , 4833 % 122 , 407613 , 7801 , 171 , 6702 % South East Sulawesi 1 , 015 , 8257 % 27 , 248177 , 8331 , 220 , 9062 % Gorontalo 290 , 1462 % 13 , 701 - 303 , 8471 % TOTAL SULAWESI 2 , 392 , 10117 % 163 , 3561 , 703 , 8064 , 259 , 2639 % Maluku 766 , 8885 % 162 , 982316 , 2231 , 246 , 0933 % North Maluku 809 , 4706 %- 716 , 9091 , 526 , 3793 % TOTAL MALUKU 1 , 576 , 35811 % 162 , 9821 , 033 , 1322 , 772 , 4726 % PAPUA 980 , 4577 % 711 , 0303 , 445 , 6995 , 137 , 18610 % TOTAL 14 , 277 , 535 5 , 534 , 91129 , 117 , 23248 , 929 , 679 Source : The National Team of Bio Fuel Development 4 . 2 Sugarcane PlantationBased on the development scheme of bio fuel development created by National Team of Bio Fuel Development , sugarcane is stipulated as commodities that will developed as ethanol based . Ethanol can be produced from sugar or molasses . As sugar domestic production still not able to fulfill the domestic demand , Indonesia government suggest utilizing molasses for ethanol production . Molasses is a thick syrup by product from the processing of the sugarcane or sugar beet into sugar ( Source : Wikipedia , The Free Encyclopedia ) . The quality of molasses depends on the maturity of the sugar cane or beet , the amount of sugar extracted , and the method of extraction . Indonesia has created the map shown land that suitable for sugarcane based on the climate and land characteristics . There are 0 . 5 million hectares land that suitable for sugarcane plantation . Most of it are located in Sumatera , especially Lampung and South Sumatera . Based on the data from Agriculture Department of Indonesia , for 2006 , there is 399 , 692 hectare of sugarcane plantation in Indonesia . From 399 , 692 hectare of sugarcane plantation , sugarcane produced is 31 , 827 , 874 ton . And 4 % from sugarcane production process will resulted as molasses . Currently , 40 % of molasses has been used for ethanol production , and the rest of it ( 60 %) used for amino acid , MSG , soy souce industry . The Availability of Ethanol Made from SugarcaneItems 20062007200820092010 Area ( Ha ) Sugarcane ( Ton ) Molasses ( Ton ) 40 % molasses used for ethanolEthanol in kilo liter 399 , 69231 , 827 , 8741 , 432 , 254 572 , 901155400 , 50533 , 330 , 0671 , 499 , 853 599 , 941162405 , 59834 , 183 , 0931 , 538 , 239 615 , 295166407 , 81034 , 772 , 4181 , 564 , 758 625 , 903169409 , 84935 , 370 , 5041 , 591 , 673 636 , 669172 Source : Ministry of Agriculture of Republic of Indonesia Referring to the map of suitable land for jatropha and sugarcane plantation , Indonesia provides 49 million hectares for jatropha and 0 . 5 million hectares for sugarcane . However , not all the suitable land can be utilized for jatropha or sugarcane plantation . We should examine more about the land ownership to local government to gather the exact data of suitable land that still able to use for jatropha and sugarcane plantation . If the land is owned by government , investors can utilize than land after obtain the right to utilize the land ( HGU – Hak Guna Usaha ) . If the state land is included in forest area , the HGU can be processed after the status of land is not part of forest area . HGU can be processed for the land more than 5 hectares and maximum 25 hectares for individual . While legal entity is able to acquire more than 25 hectares , depends on the wide of land needed for the economic activity that gives more benefit . The HGU is given maximum for 35 years and it can be extended maximum 25 years ( Source : PP 40 / 1996 , Hak Guna Usaha , Hak Guna Bangunan , Hak Pakai Atas Tanah ) . The problem with land acquisition is mostly arisen when the land is owned by local ethnic or popular with name “ Tanah Ulayat ” . Most of land in Kalimantan and Sumatera are owned by local ethnic . Tanah ulayat is given based on Ulayat right . The ulayat right is given to certain ethnic that lives in the land for long period . They have a right utilize the land for their welfare ( Source : Decree of Head of National Land Agency No : 2 / 2003 ) . Land acquisition becomes a problem as the owners usually don ’ t have paper based evidence to prove their ownership of the land . Beside that , the negotiation process to acquire the right to utilize the land also takes time . The agreement must be reached with all parties that relates with the tanah ulayat . In order to solve the problem arising from tanah ulayat , government has issued the Decree Number 5 / 1999 ruling the manual of the Settlement of Tanah Ulayat . Government will start to develop the database of Tanah Ulayat in order to have proper information of the land status . The decree also stated that all problems arisen from Tanah Ulayat should be solved through discussion that involved the local ethnic . 4 . 3 Palm Oil PlantationIndonesia is second largest producer of palm oil , below Malaysia . Based on the official data from Plantation Directorate General , oil palm plantations are located in 19 provinces spread in Sumatera , Kalimantan , Jawa , Sulawesi , Maluku , and Papua . In 2005 , Sumatera had the largest plantations accounting for 4 , 280 , 094 hectares or 76 , 46 % of the plantations in the country . In Sumatera , Riau has the largest part of 1 , 383 , 477 hectares , followed by North Sumatera with 962 , 257 hectares . Kalimantan also has large oil plantations totaling 1 , 108 , 288 hectares or 19 , 80 % of the total plantations in the country . West Kalimantan has the largest part of 466 , 901 hectares , followed by Central Kalimantan with 269 , 043 hectares . Jawa has only 26 , 046 hectares or 0 . 46 % of the total in the country . Oil palm plantations in Jawa are found only in West Jawa and Banten . West Jawa is know more for its tea plantations accounting for 77 . 83 % of the country ’ s total . Province 200020012002200320042005 Nanggroe Aceh Darussalam 218 , 493252 , 114257 , 684262 , 151268 , 329261 , 101 North Sumatera 785 , 732869 , 074886 , 612919 , 680954 , 854964 , 257 West Sumatera 229 , 575266 , 387270 , 047306 , 496307 , 166324 , 331 Riau 805 , 6461 , 047 , 6441 , 238 , 1061 , 319 , 6591 , 370 , 2841 , 383 , 477 Jambi 406 , 315422 , 503429 , 209456 , 327457 , 452466 , 709 South Sumatera 557 , 849496 , 950516 , 928502 , 481515 , 371532 , 365 Bengkulu 60 , 89966 , 73070 , 40980 , 21882 , 49683 , 583 Lampung 97 , 445119 , 803131 , 362137 , 721138 , 19683 , 583 Bangka Belitung 9189 , 22590 , 06594 , 88696 , 702100 , 681 West Jawa 12 , 3506 , 2516 , 2516 , 2426 , 2426 , 406 Banten 6 , 30414 , 08016 , 98319 , 20019 , 54819 , 639 West Kalimantan 363 , 269389 , 006406 , 372416 , 807455 , 814446 , 901 Central Kalimantan 196 , 801217 , 666221 , 034241 , 615244 , 281269 , 043 South Kalimantan 120 , 694129 , 673138 , 634141 , 638143 , 321150 , 212 East Kalimantan 128 , 256144 , 567191 , 146201 , 871206 , 137222 , 132 Central Sulawesi 33 , 59340 , 97647 , 02943 , 74343 , 76244 , 215 South Sulawesi 73 , 37677 , 36383 , 08578 , 93280 , 63080 , 991 Southeast Sulawesi 13 , 28613 , 28613 , 2854 , 0784 , 1064 , 150 Papua 48 , 10550 , 13752 , 81749 , 81252 , 87253 , 375 TOTAL 4 , 158 , 0794 , 713 , 4355 , 067 , 0585 , 283 , 5575 , 447 , 5625 , 597 , 158 Source : Indonesia Commercial Newsletter , Monthly Report , May 2006 V . THE MARKET POTENCY OF BIO FUEL Refer to the target of bio fuel utilization stated Presidential Regulation No . 5 / 2006 about the National Energy Policy , 5 % of energy consumed is bio fuel . If we use energy consumption data at 2005 , the total consumption of petroleum fuel and solar is 44 , 996 , 502 kilo liter . Thus the market value of bio fuel is around 2 , 249 , 825 kilo liter . The Profitability of Bio Ethanol and Bio Diesel ProductionThe calculation below uses molasses and cassava to be processed as bio ethanol . With the assumption that the price of bio ethanol is Rp . 5 , 000 per liter , the profit generated from bio ethanol production uses molasses and cassava is around Rp . 725 - 800 per liter . Profit gained from bio diesel is less than bio ethanol . For each liter bio diesel , the margin between the revenue and cost is around Rp . 450 . BIO ETHANOLAssumptionPer liter Bio EthanolMolassesCassavaTo produce 1 liter Bio EthanolRequired 4 kg molasses Required 6 . 5 kg cassava Price of sugar cane / cassavaRp . 750 / kg Rp . 350 / kg Production CostRp . 1 , 200 / kg Rp . 2 , 000 / kg Bio Ethanol PriceRp . 5 , 000 / liter Rp . 5 , 000 / liter REVENUE / Liter Rp . 5 , 000 Rp . 5 , 000 COSTProviding Raw MaterialProduction CostTOTAL COST / Liter 4 kg * Rp . 750 Rp . 3 , 000 Rp . 1 , 200 Rp . 4 , 200 6 . 5 kg * Rp . 350 Rp . 2 , 275 Rp . 2 , 000 Rp . 4 , 275 MARGIN / Liter Rp . 800 Rp . 725 BIO DIESELAssumption Per liter Bio DieselCastor Oil / Jatropha PlantsTo produce 1 liter Bio EthanolRequired 3 . 5 kg seeds Price of Seeds of Jatropha PlantsRp . 900 / kg Production CostRp . 400 / kg Bio Diesel Price = CPO PriceRp . 4 , 000 / liter REVENUE / Liter Rp . 4 , 000 COSTProviding Raw MaterialProduction CostTOTAL COST / Liter 3 . 5 kg * Rp . 900 Rp . 3 , 150 Rp . 400 Rp . 3 , 550 MARGIN / Liter Rp . 450 VI . POINTS TO PONDERBio energy development policy is very relevant to be applied in Indonesia . It will reduce the country dependency on fossil fuel that will be depleted in near future . The increasing of world oil price also gives a burden to Indonesia state budget since government allocated oil subsidy in the state budget . Government suffers Rp . 0 . 1 - 0 . 15 trillion for every $ 1 / barrel increasing on oil price . From the environmental side , bio energy is very environment friendly because it will reduce the gas emission . The development of bio energy will absorb a lot of employments since it will be started with plantation that involves large people participation . As it will absorb large people to be employed in the plantation and production stage , bio energy development will reduce poverty and unemployment . Government will start the development from the smallest scale . Each village will be encouraged to produce bio energy for their own needs . If they already able to produce more that their level of consumption , they can sell it . Bio solar , bio ethanol and bio oil are three products developed for bio fuel . The national team has been formed to accelerate the development of bio fuel . This year , the national team targets to finish the regulation set up and start the jatropha plantation . Started 2007 , government will encourage the development of fabric and infrastructure for supporting the bio fuel production . Even though bio fuel production is profitable , there are some barriers used to face by government and investors . There will be competition between energy and food industries on land utilization and access on raw materials . The bio fuel cost of production also relatively higher than fossil based energy , thus the development of bio fuel will only profitable if the oil price is in the level of US $ 50 and above . Otherwise , it will not be profitable to produce bio fuel . The raw materials price fluctuation is also another problem that should be put as a consideration . Sugarcane , for example , this product is also used for food product . The biggest obstacle is come from legal uncertainty . The overlapping regulation between different sector and inconsistency regulations among central and local government create not conducive investment climate that reduce the bio fuel attractiveness .