Indonesia Oil Palm Estate Fund Adequate to Support B20 Biodiesel Policy

The Indonesia Oil Palm Estate Fund is confident that it can shoulder additional subsidies paid out to producers under the government's new biodiesel policy for the rest of the year. (Antara Photo/Budi Candra Setya)

By : Adinda Normala | on 1:49 PM August 21, 2018
Category : Business, Commodities

Jakarta. The Indonesia Oil Palm Estate Fund is confident that it can shoulder additional subsidies paid out to producers under the government's new biodiesel policy for the rest of the year.

The government will require all diesel engines in the country to run on B20, or diesel containing 20 percent biofuel derived from palm oil, from next month to reduce imports. It implemented the policy to reduce the country's current-account deficit, which grew to 3 percent of gross domestic product in the second quarter of this year – a level the central bank believes is undermining economic stability.

But the policy will also swell the subsidies paid to 19 biofuel producers, including Wilmar and the Sinar Mas Group. The fund, also known as BPDPKS, estimates that the policy would double biofuel demand in the second half of this year to 2.1 million kiloliters.

The fund will need around Rp 9.8 trillion ($672 million) in total to subsidize the production of 3.2 million kiloliters of biofuel for the entire year.

"[The fund] should be enough," BPDPKS president director Dono Boestami said on Monday (20/08).

He said the fund has collected Rp 6.4 trillion from the palm oil export levy in the first half of 2018, which is nearly 60 percent of this year's Rp 10.9 trillion target, most of which is used as incentives to support renewable energy production.

"We have prepared funds to expand B20 mandatory biodiesel [production], which is expected to absorb the excess supply of palm products in the market," Dono said.

Palm oil production has been on the rise over the past few years, and reached a record 42 million metric tons last year, representing a 115 percent increase from 2010. Palm oil production in the first half of 2018 rose to 22.3 million tons from 18.5 million tons last year.

But palm oil exports have declined 6 percent to 14.16 million tons in the first half of 2018 due to the imposition of higher import tariffs by some of the biggest importers, such as India and the European Union.

The fund was established in July 2015 to manage the income derived from levies on companies that export palm oil commodities to ensure the industry remains sustainable. Some of the funds are used to subsidize biodiesel, which currently costs more to produce than petroleum diesel. Biodiesel must be sold at more than Rp 9,000 a liter to cover production costs, while petroleum diesel currently costs Rp 5,150 a liter.

The BPDPKS has disbursed Rp 4.4 trillion in the first six months of this year, most which was used to subsidize biodiesel production. The remainder was used for the development of the country's palm oil industry, such as plantation rejuvenation, farmer training, research and promotion.

Rp 288 billion was spent on the rejuvenation of 5,384 plantations covering a total area of 12,063 hectares as of June, much less than the government's full-year target of 180,000 hectares.

Dono said the main obstacles involve getting recommendations from the Ministry of Agriculture to restore plantations and legal verification of business licenses and land ownership.

The BPDPKS has also funded 118 studies by 37 universities and institutions, which resulted in 101 scientific publications and three books.

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