YOGYAKARTA. The government is currently conducting a feasibility study to see if crude palm oil (CPO) could be used as an alternative raw material source for the plastics industry in a move that could cut costs and use more renewable materials, according to a government official.

The director for basic chemical industries at the Industry Ministry, M. Khayam, said the country was looking to substitute the use of naphtha-based propylene with CPO-based propylene, a building block for engineering plastic polypropylene.

“We’re working on a pilot project to turn CPO into propane, which will be further processed into propylene. Most of the current propylene is made from naphtha, and it’s expensive,” Khayam told reporters on the sidelines of an annual workshop in Yogyakarta on Monday.

Khayam said the Industry Ministry in cooperation with the Agency for the Assessment and Application of Technology (BPPT), was trying to catch up with the most recent technological advances in the industry, allowing it to cut back on costs by sourcing cheaper and renewable materials like CPO.

Soaring production costs have become the bane of the petrochemical industry, due to the country’s dependency on raw material imports and the rupiah’s recent volatility.

According to ministry data, raw materials make up 80 percent of production costs in the upstream petrochemicals industry, while contributing around 60 percent to costs in the downstream sector.

In an effort to reduce the country’s reliance on naphtha as a source material, the director said Rp 25 billion from the 2015 revised state budget was allocated to fund the studies, including for the construction of small test production facilities.

Wider implementation of the project is expected to commence in 2016, he added.

Furthermore, Khayam revealed that the government was considering whether to appoint state-owned plantation firm PT Perkebunan Nusantara as the project’s sole operator, or whether to have the firm cooperate with Jakarta-listed petrochemical producer Chandra Asri Petrochemical (CAP), currently the only producer operating a naphtha cracker in the country.

CAP’s representatives were unwilling to comment on the issue.

The firm recently announced plans to construct a condensate splitter refinery in Banten with oil and gas firm BP Singapore Pte Ltd., to boost its naphtha production. The refinery is slated for operation in 2019.

Contacted separately, the Indonesian Olefin, Aromatic and Plastic Industry Association’s (INAplas) deputy chairman, Budi Sadiman, said Indonesia would benefit from this plan, as it gave the nation an edge in the industry.

As the world’s largest CPO producer at a production rate of 31 million tons per year, Budi said using the cash crop to produce raw materials for the domestic plastics industry could prove more efficient than sourcing naphtha from abroad.

“This project will ensure that Indonesia gains a competitive advantage because we produce a large amount of CPO,” Budi said over the phone on Tuesday. “Commodity prices are currently low and there’s a chance to add value.”

Budi said a production facility could be built in Sumatra, where most large-scale palm oil plantations are situated, or in Cilegon, Banten, where CAP resides. “Unless the government decides to build a factory,” he added.

According to the Industry Ministry, 20 percent of the country’s CPO production was geared toward engineering propane, a “raw material” for producing olefins and liquid petroleum gas.

Meanwhile, 2014 INAplas data show that the demand of petrochemical raw materials for plastics stands at 4.3 million tons, whereas Indonesia’s production capacity for resin, an intermediary product for plastic production, stands at 2.2 to 2.5 million tons per year.  (Tama Salim)

Editor: Yudho Winarto