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CPO levy collector mulls endowment fund for sustainability
The Indonesian Oil Palm Estate Fund (BPDP-KS) plans to set up an endowment fund managed by investment managers for the next 25 years to help maintain the fund’s sustainability in the long run
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he Indonesian Oil Palm Estate Fund (BPDP-KS) plans to set up an endowment fund managed by investment managers for the next 25 years to help maintain the fund’s sustainability in the long run.
Since its establishment in mid-2015, the special public service agency has been using export levies from palm oil products to finance its operations, including to help pay for biodiesel incentives, replanting and research and development for oil palm farmers to boost their production.
However, BPDP-KS supervisory board chairman Rusman Heriawan said there had been concerns that the revenue from export levies would gradually decrease in years to come given the possible hike in global oil prices.
“If the oil price reaches US$100 a barrel, local players will prefer to use biodiesel in the domestic market instead of importing the expensive fossil fuel. As a result, our export value of biodiesel will also decrease and the BPDP-KS income will get smaller and smaller,” Rusman said recently.
“That’s why we will need an endowment fund to ensure that the agency can still run its operations as an estate fund.”
Data from the BPDP-KS show that exports of palm oil products decreased by 2 percent year-on-year (yoy) to 25.7 million tons in 2016. However, at the same time, the total export value soared by 8 percent to $17.8 billion, paving the way for the government to collect export levies worth around Rp 11.7 trillion ($878.5 million).
Such a positive trend was attributed to the rise in crude palm oil (CPO) prices, which saw a 41.4 percent increase to $789 per ton in the period of January to December last year.
For this year, the government predicts it will only be able to collect export levies worth around Rp 10.5 trillion in 2017 following its goal to boost the domestic use of biodiesel. Within the first three months of this year, the BPDP-KS managed to collect Rp 3.3 trillion in export levies of biodiesel.
Therefore, the BPDP-KS aims to use some of its idle cash carried over from last year’s budget to support its long-term investment plan. Of its total idle cash of Rp 5.7 trillion, the agency plans to allocate between Rp 2 trillion and Rp 4 trillion to be managed by investment managers, in the form of deposits, bonds or stocks.
“Let’s say if we inject Rp 1 trillion each year with an interest rate of around 7 to 8 percent, we can have more than Rp 100 trillion within the next 25 years,” BPDP-KS fund management director Agustinus Antonius said.
“We just need approval from the finance minister to realize this plan as normally we are only allowed to invest our idle cash for a period of less than a year.”
The BPDP-KS expects to open a tender to pick investment managers by the final quarter of 2017.
Meanwhile, the plan to establish the endowment fund is designed to anticipate the growing demand for biodiesel in the country.
Since mid-2015, the government has been imposing a levy of $50 per ton for CPO shipments and $30 for processed palm oil products when CPO prices stand at below $750, in an effort to strengthen the country’s downstream sector.
In the first quarter of 2017, total exports of CPO and its downstream products stood at 6.34 million tons, down 13.7 percent yoy.
“It’s positive because we can support the downstream sector, but on the other hand, our income has kept decreasing. That’s why we’ve been formulating the new formulas for biodiesel,” Rusman said.
