Jakarta. Indonesia is preparing to increase its biodiesel blending to 35 percent next year and this plan will cause the crude palm oil price to average $970 per metric ton in mid-2023, according to the Oil Palm Plantation Fund Management Agency (BPDPKS).

"The B35 mandate will cause the baseline CPO price to average $970 per metric ton in mid-2023," the agency's president director Eddy Abdurrachman told reporters in a press briefing in Jakarta on Thursday.

The B30 mandate is currently in effect, meaning that the fuel sold within the country contains 30 percent palm-based biodiesel. Indonesia first introduced the mandate in 2015 —starting with 15 percent biodiesel content— and later gradually raised the blend rate over the years. 

According to Eddy, the Energy and Mineral Resources Ministry has given a signal that it would start implementing B35 in January 2023.

In 2022, biodiesel consumption stood at approximately 10.6 million kiloliters, up from 9.29 million kiloliters in the previous year. 

“Biodiesel consumption will likely reach 13.15 million kiloliters once the B35 program comes into effect next year,” Eddy said. 

BPDPKS collects palm oil export levies, which they would later allocate for biodiesel subsidies, among others. 

“The program mandates biodiesel producers to sell their biodiesel to fuel enterprises such as Pertamina. Biodiesel costs more than diesel. So BPDPKS would chip in [using the collected export levy] to cover for the price gap [between diesel and biodiesel], as defined by the market index price,” Eddy said.

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BPDPKS reported that it earned Rp 34.594 trillion (about $2.2 billion) in export levies in 2022 — a year that saw a temporary CPO export ban that vegetable oil market expert Dorab E Mistry frowned upon as it threatened supply in developing economies. 

Data also showed BPDPKS disbursed Rp 34.56 trillion in biodiesel subsidies in 2022. This was a huge drop from the Rp 51.86 trillion in disbursed biodiesel subsidies in 2021. Eddy attributed the huge subsidies in 2021 to the large price gap that it had to compensate for last year.

“The price gap [between diesel and biodiesel] narrowed this year. In the past three months, diesel price even rose above biodiesel so there wasn’t any price gap that we had to compensate,” Eddy said.

In total, BPDPKS has disbursed Rp 144.59 trillion in biodiesel subsidies since the mandate came into force in 2015. BPDPKS revealed that the biodiesel program has saved Indonesia Rp 299.65 trillion in foreign exchange over the years.

“Because it has helped Indonesia reduce its diesel imports,” Eddy added. 

The program also generated Rp 13.14 trillion in value-added tax during 2015-2022, BPDPKS data showed.

Indonesia had already begun conducting the B40 road test in July 2022.

When asked by the press about the government's plan for a B40 mandate, Eddy said there were still many things they had to take into account.

"For instance, the biodiesel producers' production capacity, currently stands at 16 million kiloliters. A B40 mandate would cause the [biodiesel consumption] to increase to 15 million kiloliters. So that would be very risky," Eddy told the conference.

"But there is still a chance for the B40 to be implemented since it has gone through valid research."