The Jakarta Post
The government's mandatory biodiesel mix policy is at risk of not being fully implemented this year as it may face funding issues against the backdrop of low-commodity prices, according to an industry group.
The Indonesian Palm Oil Producers Association (Gapki) urged the government to review its target of blending 20 percent biodiesel into public diesel because the Indonesian Oil Palm Estate Fund (BPDP) may see difficulties in collecting funds from palm oil companies already suffering from low prices.
Crude palm oil (CPO) prices may be dragged by a drop in global oil prices, which have dropped about 21 percent this year amid volatility in Chinese markets and speculation the removal of restrictions that capped Iran's crude sales would help prolong a global glut, Bloomberg reported.
'If global oil prices remain low, then the BPDP fund will no longer be sustainable. It may not be enough [to cover biodiesel subsidies]. This is a problem,' said Gapki executive director Fadhil Hasan.
The BPDP is estimated to pocket Rp 16 trillion (US$1.15 billion) from levies on palm oil exports to subsidize the so-called B-20 program this year that requires a minimum of 20 percent palm oil content in diesel for the public ' a policy aimed at reducing the country's carbon footprint and dependence on oil imports.
However, the total subsidy for the program is forecast to hit Rp 18 trillion this year, creating an Rp 2 trillion gap. Furthermore, decreasing oil price may widen gap between production cost and consumer prices, enlarging the subsidies that must be paid by the government.
Fadhil suggested that the government scale back its program or use part of the state budget to provide additional funds for the CPO fund.
'On the other hand, the CPO fund should also be used for other purposes like replanting and plasma farmer training,' he added, in reference to the government's initial plan for the palm oil fund to support replanting and training of farmers, on top of for biodiesel subsidies.
The government started collecting levies from palm oil exports in July last year to develop the palm oil industry and pay for biodiesel subsidies, having appointed the BPDP to manage the CPO funds.
According to the BPDP advisory board's guidance, around 90 percent of the total CPO funds should be used for eco-friendly biofuel subsidy, said BPDP partnership director Antonius Agustinus.
The government expects to subsidize more than 4 million kiloliters of fatty acid methyl ester (FAME) for the program this year alone, according to him.
The government has ordered the blending of diesel fuel with a portion of biofuel in a move to reduce the country's growing dependency on petroleum-based fuel and carbon footprint. The mandatory biofuel blend into diesel fuel has increased from around 10 percent in 2013 to 15 percent in 2015 and 20 percent this year.
Fadhil said that while his association supported the government's attempt to reduce its carbon footprint, it hoped that the government would also considered other uses of the CPO fund, particularly amid a challenging business environment for the country's palm oil industry.
Gapki chairman Joko Supriyono said that the association projected palm oil prices would remain flat this year and that production would likely remain the same or increase slightly.
The output of Indonesia's CPO and its derivative products hit 32.5 million tons last year, or a 3 percent increase from 31.5 million tons in 2014, according to Gapki data.
The country's palm oil exports increased 21 percent to 26.4 million tons last year from 21.76 million tons in 2014. The export value, meanwhile, slumped 11.67 percent to $18.64 billion last year.
A number of analysts have previously estimated, meanwhile, that CPO prices would rise this year as it is forecast that there will be a lack of supply due to a prolonged El Nino.