Indonesia's palm oil fund urges govt to rethink biodiesel funding plan

JAKARTA : Indonesia's palm oil fund agency urged the government to come up with a new funding policy for its biodiesel programme as use of the palm oil fuel blend is expected to widen, the fund's chief said on Thursday.

Through the agency, Indonesia subsidises the price gap between the cost of palm oil-based fuel and fossil fuel, financed by levies collected from exports of palm oil.

With the mandatory mix of bio-content expected to increase to 40 per cent next year, known as B40, from 35 per cent now, the BPDPKS, as the agency is known, expects subsidy spending to rise while its levy collection is expected to drop.

The expected fall in collections stems from projected lower exports as more palm oil will be needed to meet domestic energy demand, while the levy structure was also changed recently.

"How can BPDPKS fund the B40 programme if we don't change the policy?" its chief executive, Eddy Abdurrachman, asked the Indonesia Palm Oil Conference.

"If the BPDPKS still has to fully pay the gap between the biodiesel and the price of diesel fuel in 2025, I think it's hard."

The fund will require 47 trillion rupiah ($2.98 billion) for subsidies if implementation of the B40 mandate starts from January, while 2025 revenue is expected at around 20 trillion to 21 trillion rupiah, he added.

He did not disclose estimated spending on the biodiesel subsidy or 2024 revenue, but said the fund's balance was estimated at about 32 trillion rupiah by year-end.

The funding agency is reviewing collection of its levies and will discuss the funding policy with the government, Abdurrachman said.

However, leading palm oil analyst Dorab Mistry said raising the biodiesel mandate was not urgent at the moment as palm prices were already very high and farmers were doing well, while using fossil fuel would be cheaper by about $300 a ton.

He suggested that the government consider a delay in implementation until after the Islamic month of Ramadan, set to start late in February next year, a time when demand for palm oil demand typically increases.

"We are expecting that January will be a time of tightness in the market, so it may make sense for the government to allow the implementation to be delayed slightly," Mistry told Reuters on the conference sidelines.

Even a 30 per cent mix of biodiesel was sufficient to balance the market, he added.

The agency is also charged with funding other palm oil programmes, such as replanting for smallholders.

($1=15,770 rupiah)