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recent move to increase the proportion of palm oil-based derivatives in mandatory fuel blending will push up domestic biodiesel consumption this year significantly, an industry group says.

Biodiesel consumption in Indonesia, the world'€™s largest palm oil producer, may reach between 3 million and 4 million kiloliters from the second quarter to the end of the year, according to Biofuel Producers Association (Aprobi) secretary-general Togar Sitanggang.

Half of the figure will be absorbed by state-owned oil and gas firm Pertamina for its public service obligation, while the rest will be taken by private firms.

Both Pertamina and private firms are still in talks with biofuel makers, particularly on pricing schemes.

'€œFor now the program still cannot work because there'€™s no subsidy, without which biodiesel producers cannot supply,'€ Togar told reporters on Tuesday during the inauguration of the new Indonesian Palm Oil Producers Association (Gapki) organizational structure.

Effective this month, the government has raised the biofuel stipulation in the fuel mix from 10 percent to 15 percent as part of its measures to reduce dependence on oil imports, which have put heavy pressure on the nation'€™s trade balance and contributed to the weakening rupiah.

The government plans to charge levies of US$50 per metric ton of crude palm oil (CPO) shipments and $30 for processed palm oil products when prices dip below $750 per ton to subsidize biodiesel and incentivize oil palm growers. The funds will be collected and managed by a special public service agency within the Finance Ministry, to be
established later.

The Finance Ministry is finalizing the technical details of the regulations to implement this new arrangement, which will be passed soon, according to Presidential Chief of Staff Luhut Panjaitan.

'€œI think the President has agreed everything, so there'€™re no more problems. We hope the rules can take effect as soon as May,'€ said Luhut on the sidelines of the event.

The funds will support another measure, a new pricing scheme to push down the price of the mixed substance bought by distributors. Under this scheme, the biodiesel index price is based on the CPO price plus $125 each ton, which is to compensate the cost of converting CPO into biodiesel. The production cost is much lower than the $188 per ton used in the prior formula.

Newly appointed Gapki chairman Joko Supriyono said that the set of measures would be expected to boost price to $750 each ton. Average CPO prices in the global market have dropped by 26 percent to $660 per ton.

'€œIn the first phase, the goal is to build positive sentiment, which helps push up prices. If the biofuel program is adopted consistently by the government, I'€™m sure the impact will remain positive ahead,'€ he said.

Higher local biodiesel consumption will effectively remove supply to overseas markets and as the global supply falls, it will help increase price.

Exports of palm oil from Indonesia climbed unexpectedly by 13.7 percent to 5.6 million tons in the first quarter of this year, driven largely by surging demand from top buyer India and new markets, such as Pakistan and the Middle East, according to statistics from Gapki.