Formulating a Long Term Strategy for Sustainable Palm Oil Biodiesel Development in Indonesia

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% b iodiesel b lend (B20) in 2016. This art icle exp lores the strategy formulat ion by accommodate the stakeholder perspective in the problems and the solutions. This research analyzes the informat ion 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 any improvement idea from other stakeholders.


Introduction
Since 2008, Indonesia is net importer of petroleu m.The national production capacity of petroleum cannot fulfil the national demand.In the 2013, the total consumption of petroleu m is 72 million kilo litre (d iesel fuel: 34 million kilolitre).In the supply, the import nu mber of petroleu m reach 32 million kilolit re (diesel fuel: 11 million kilolitre), then 44 % of the petroleu m supply in Indonesia is imported.
The government sees the opportunity to reduce petroleum import by utilize b iofuel.The govern ment pro motes 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 b ioethanol.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 Govern ment through National Biofuel Team formu lated a regulation on the biofuel mixing up to 5% (B5).The regulat ion is Presidential Regulation No.5/ 2006 on National En ergy Policy, calling for 5% biofuels in the energy mix by 2025.And then, government established by the National Team for Biofuels Develop ment to coordinate industry expansion in July 2006.On the biofuel, National Team for Biofuels p roposed development of Bioethanol fro m sugar cane or cassava and Biodiesel fro m palm oil or Jatropha Curcas.Until now, only palm oil b iodiesel has been developed on industrial scale.
of Energy and Natural Resources, there are 26 biodiesel co mpanies with the total national capacity about 5.6 Million kilo litre/year.Those regulations successfully got the attention from the investor.
In the demand side, the government regulated mandatory blending of b iodiesel, believ ing it will generate domestic demand for biodiesel that will encourage the growth of the b iod iesel industry.In 2006, the govern ment target of biodiesel mandatory blending is 5% (B5).So the total demand of biodiesel will reach 1.3 M illion Litre, Considering the target 5% biodiesel b lending and the national demand of diesel fuel (26 M illion Litre) .
In 2013, government increase the biodiesel mandatory blending to 10% because the government wants to save the petroleum import budget.Central Statistics Agency (Badan Pusat Statistic -BPS) recorded the Indonesian trade balance during January 2013 a deficit of 430.6 million U.S. dollars, which is derived fro m the value of exports 14.48 billion U.S. dollars and imports amounted to 14.92 b illion U.S. dollars, one reason is the increasing imported fuel oil by the government to meet do mestic demand.Based on BPS data, one of the triggers of the trade deficit in the early years due to high o il and gas imports to reach 3.55 billion U.S. dollars, while exports of oil and gas is only 2.49 billion U.S. dollars.To solve the trade deficit, the government is try ing to reduce the value of imports by substitution with goods produced in the country.Thus the government is try ing to reduce imports of diesel fuel by using biodiesel blends, wh ich Indonesia has a huge palm oil production as a raw material fo r biodiesel.One of government action was increase the biodiesel mandatory blending of 5% to 10%.

Indonesia Bi odiesel Policy
The aims of the biofuel development were to imp rove energy security, boost economic growth, create employ ment and reduce poverty in rural areas (Wirawan & Tambunan, 2006).The object ives have similarity with other developing countries in South East Asia like Malaysia, Thailand and Philippines.The main objective of the b iofuel development policy was to reduce the dependence on oil import as a socio -economic concern, but also to increase emp loyment and income generating opportunities in the rural areas.Climate change is currently not the primary motive of these countries to pursue biofuel development policies (Ku mar, Shrestha, & Salam, 2013).
Biodiesel is made fro m biological resources such as vegetable oils or animal fats.The main co mpound of biodiesel is a methyl ester co mpound.Biodiesel can be made fro m the trans esterification of fatty acids.Fatty acids, fro m vegetable oils, are mixed with fatty esters and alcohol to produce by products such as glycerin.In the market, glycerin 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 examp le canola oil in Germany and Austria, soybean oil in USA, palm o il in Malaysia and Indonesia, coconut oil in the Philippines (Abdullah et al., 2009) The national team of bio fuels provided a biodiesel development roadmap in 2006.They targeted to use 10% biodiesel fro m total consumption of Automotive Diesel Oil (ADO) in 2006 -2010 and then increased until 20% in 2016.The target of biodiesel usage from total usage is ambitious (Carokoet el al., 2009).Increasing mandatory blending is one of the policies to increase biodiesel usage (Handoko, 2012), but the problem of palm o il biodiesel continue from the plantation until distribution.The govern ment should provide a set of effective regulation in the biodiesel supply chain (Daryanto, 2010).
In 2014, the govern ment targeted to increase biodiesel mixing to 10% (B10) that was stated in M inister of Energy and Mineral Resources Regulation No: 20/ 2014.Th is regulation targeted to utilize the biodiesel in Transportation, Industry and Power Plant sector.

Policy Anal ysis in Mul ti Actors
In Indonesia, biodiesel development was conducted by government with the support fro m industry, academics, research center and palm o il grower.Th is means the biodiesel development policy is mu lti actor policy.In this condition, every problem in the formulat ing and the implementation of the policy is become comp licated.Different actor has their own v iew on the problems and also on the solutions.
The model of policy analysis in mu lti actor organizes the stakeholder in the network rat her than classic hierarchy.This means the desired solutions is products of cooperation among the actors (Enserink et al., 2010).
The policy analysis in mu lti actors system starts with problem formu lation.Every actor provides problem and solutions according their perspective.And then the analysis divided into three methods:

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) Actor Analysis
Identifying the problems o f b iodiesel could start by analyzing th e ro le o f the stakeholders.The stakeholder definit ions 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 (Sch meer, 1999).Furthermore, 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 (Bryson, 2004).
Understanding the stakeholder will provide a firm base to develop the strategy.In case of b iodiesel develop ment in Indonesia, how far the government understands the issues and shows concerns for the stakeholder interest is questionable.The blueprint of b iodiesel develop ment was developed with limited involvement fro m stakeholders such as the uncertainty (Caroko et al., 2011).
Stakeholder input was sought only when the final draft was released.In this stage, the government of Indonesia was unable to involve the key stakeholders in the biodiesel develop ment and this condition generated many problem and obstacles in the policy imp lementation.

3) Scenario Analysis
Scenario analysis provides the alternative of the future according to the present issue.The future is hard to predict but the scenario analysis of alternative can be used to predict the future.The main act ivity is determin ing the contextual factors in the present and then finds the driving forces.According to the driving fo rces impact and the scenario of the policy in the future can be predicted Multi actor analysis utilizes the above analysis to provide recommendation to improve the policy and also provide alternative strategy in the implementation of the policy.

Bioenergy Sustainable Development
Sustainable development has caught the researcher spotlight lately.Many organizations like profit, non -profit, public, govern ment and NGO have pro moted the lab el 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 co mbine growin g concerns about a range of environmental issues with socio-economic issues (Hopwood, Mello r, & 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 marg inalized, in particu lar the sustainability of co mmunities and the maintenance of cultural d iversity ( Giddings, Hopwood, & O'brien, 2002).
Sustainable development analysis of palm oil biodiesel is sequenced steps started with defining the system boundary biodiesel and then fo llowed by identify ing the kinds of impacts (economic, environmental, and societal).This impact would accrue as a result of the biodiesel development, then iden tifying, selecting, and priorit izing the indicators to be used to evaluate the alternative routes for sustainability evaluation.Co mparison of the indicators data will lead to a decision on wh ich of the alternatives is more sustainable (Mata et al., 2011).
In term of sustainability of bioenergy, there are some approaches to guarantee the sustainability of biod iesel in Indonesia.In the supply side, the palm o il 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 pro mote sustainable production and use of bioenergy.GBEP members are 27 countries (include Ind onesia) and 12 International Organizations and institutions and further GBEP partners reach 23 countries and 14 international organizat ions and institutions.
The 24 indicators of sustainable bioenergy development were grouped in three pillars, i.e.: enviro n mental, social and economic (GBEP, 2012).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.
In the future, all the strategy of biodiesel develop ment 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 b iodiesel must be environmental friendly, accepted socially and feasible economically.
The connection between sustainable development and entrepreneurship depend on many factor, for example : business sector, industry structure and the dynamics of its interp lay, and also depend on trade off among co mpeting economic, social and environ mental aspects (Hall, Danneke, & Leno x, 2010).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 initiat ive to increase the value added of palm oil p roduct 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 b iodiesel industry, but the government did not give the attention to the problems and solutions of the stakeholder.This condition made the imp lementation of b iodies el develop ment policy d id not effective.Th is research is approaching the stakeholder's perspective to formulate the problem, provide the scenario of future, and reco mmend the long term strategy to sustain the biodiesel development in Indonesia.

Research Method
The research was conducted through a case study methodology with the qualitative approach.The research is conducted by using data from Indonesia palm o il b iodiesel experts.The criteria of expert co me fro m their activities in the b iodiesel develop ment in Indonesia.The supply chain of biodiesel p roduct in Indonesia starts with palm oil p lantation then continues through to distribution at the gas station.The research framework is illustrated in figure 1.
An interview script that had open-ended questions was used.The semi-structured interviews were conducted and recorded, mostly about 30-60 minutes for each respondent; a series of notes was made during the interviews.The respondents were the head of div isions and directors of each co mpany.Data of field observation were also collected.
Thematic analysis was used to analyze the result of the interviews.Firstly, all interviews were audio recorded on tape, then listen repeatedly, transcript and coded as proposed by Creswell (Creswell, 2013).After the coding of the material, so me nodes were created and categorized following the already established framework fro m the literature rev iews (Yin, 2013).Problem formu lation is the early step in mult i actor policy analysis, continued by scenario analysis and actor analysis by using stakeholder analysis.The stakeholder analysis is conducted to analyze the interest, power and relation among the stakeholders.
SWOT is an acronym for Strength, Weaknesses, Opportunities, and Threats.As the name imp lies, 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).

Problem of Biodiesel Development
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 d istribution of goods in Indonesian infrastructure.A Study cases in Du mai, as a city that has the largest biodiesel industry in Indonesia.Du mai sea port has a small capa city for handling CPO and b iodiesel.Th is resulted in the duration of loading and unloading at the port that increased cost of the port.
Furthermore, in terms of raw material, b iodiesel in Indonesia relies heavily on palm oil, as palm o il 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 o il gro wing up at industrial scale.For biodiesel industry which has an oil palm p lantation, availability of raw materials not crucial problem, but for industries that do not have oil palm p lantation, 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 marg in than the biodiesel industry.Large scale Biodiesel co mpanies also produce many palm o il product for food, cosmetic, pharmaceutical and biodiesel.If b iodiesel 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 b iodiesel is 1) M OPS (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 production costs.
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 mediu m-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.
Overall, the problems in biodiesel develop ment in Indonesia are: 1) High cost production due to price of CPO, production technology and infrastructure of distribut ion 2) Different pricing standards 3) Biodiesel Standardization: low quality control 4) Environment issue: deforestation, fire, GHG Emission and social problem

5) Biodiesel depends on palm o il supply
The biodiesel development faced obstacles in Technical, Financial, Regulat ion, Social and Market (Daryanto, 2010).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.

Dri ven Factors on Biodiesel Devel opment
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 fro m Indonesia Bio fuel Producers Association (APROBI), p ricing 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.Th is is the driving factor for the development and utilization of b iofuel for do mestic interest.
During its development, the use of b iofuels as mandated in the M inister of Energy and Natural Resource did not run consistently.Based on existing data, almost 100% biodiesel usage is made by the transport sector.However, the policy also mandates that the biodiesel has to be utilized by the industrial sector, commercial, and power plants.However, after eight (8) years after the implementation of these regulations, there is still no b iodiesel use by non-transport sector like industry and power plant.
According to the contextual condition belo w, each of contextual factors will be analyze to determine the d riv ing forces of each contextual factor.The detail contextual factors and driving forces provide in table 1.
The driving factors of biodiesel develop ment in Indonesia are government policies, technology development, raw material supply, infrastructure, international factors and eco nomic feasibility.In recent condition, government policies and raw material supply is the main driving forces.In the future, technology development and economic feasibility can be the main driving forces.

SWOT Strategy Analysis
• Strength: adequate supply of raw material and support from the governments.
• Weakness: low support in technology, quality issue, and the resources depend on CPO.
• Opportunity: economic growth, Industrial collaborative issue, Increasing demand in industrial and power plan sector.
• Threat: food vs fuel issue of CPO p roduct, environment issue, and public acceptance of h igh biodiesel blending (B20).
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, Govern ment is the main actor of the Biodiesel Develop ment, 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 mach in ery and power plant.

Conclusion and Recommendation
Developing of sustainable raw material of biodiesel is the first key of sustainable biodiesel develop ment in Indonesia.The criteria of raw material are environ mental 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 b iolo gical diversity.The GHG emission coming fro m forest fire, peat decomposition and fermentation of palm o il mill effluent (POM E), 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 b iodiesel by providing sustainable palm oil p lantation 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 to develop continous system of biodiesel processing without catalyst .The bioprocess technology will reduce the production cost and infestation cost.The technology in the biodiesel utilizations also should be developed.Until now, the maximu m biodiesel b lending on the standard engine is 20%, h igher biodiesel b lending will make so me problem to the engine and fuel pump.The others technology that has been developed is Catalytic Hydrocracking Technology.This technology claimed that able to use 100% of b iodiesel.So me automotive manufacture company has started the development of this technology.
In formu lating long term biodiesel strategy, government shou ld accommodate the idea fro m other stakeholders like Academics and Association.In the stakeholder relat ionship, the biodiesel experts including academics, researcher, and industrial consultant should has more knowledge power to influence the government in the formulat ing 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 This research was conducted in small nu mber of s takeholders and the interview question cannot explore the stakeholder perspective in detail.The b igger sample will provide better identificat ion of motivation, interest and connection to all the biodiesel stakeholders.The next research should identify th e supply and demand of the biodiesel in detail.Further research should exp lore the cost and benefit analysis of biodiesel in the future.

Term Strateg y of Bi odiesel Development
Fro m 2006 until 2015, biodiesel p rogram has developed to supply the domestic market and global market.The focus of formulated strategy is on the domestic market.Govern ment has targeted to use 20% biodiesel blending in 2016.SW OT analysis will provide the current position of the biodiesel program imp lementation and then draw the strategy to sustain the development of biodiesel program.