T

he government has said it is still working to formulate new biodiesel price caps for companies distributing the product in an effort to extend the outreach of subsidies to those operating outside the public service obligation (PSO) program.

The government and industry players are currently discussing proposed price caps for biodiesel distributed under PSO and non-PSO programs, which are expected to stand at a maximum of Rp 4,000 (30 US cents) and Rp 2,000 per liter, respectively.

“We need to discuss the figures further because we must follow the rules. As we revise the presidential regulation [for the new formula], we’ll stay with the existing scheme until the new one is ready,” said Musdhalifah Machmud, deputy for food and agricultural coordination at the Office of the Coordinating Economic Minister, on Tuesday.

The government expects to impose a new formula for the so-called biodiesel index price, which is currently calculated based on the crude palm oil (CPO) base price with the additional conversion cost of $125 per ton.

The Energy and Mineral Resources Ministry’s new and renewable energy director general, Rida Mulyana, said recently that it would have to carry out a simulation for the new formula amid the process of revising a presidential regulation to impose the scheme.

Under the new formula, the government will reduce the cost of converting CPO into fatty acid methyl ester (FAME) — which is used to produce biodiesel — to $100 per ton from the current $125 per ton. With the proposed $25 cut, it is estimated that the government will save $38.25 million.

The government expects the new formula to boost its subsidy funds, which will help biodiesel distributors to continue purchasing FAME from various producers and support the government’s mandatory biodiesel blending policy. “The [special] team for the tariff will analyze the overall [calculations],” Musdhalifah said.

Indonesia started implementing the 15 percent biodiesel blending (B15) policy in 2015 and the 20 percent blending (B20) policy last year to boost domestic biodiesel consumption.

The Indonesian Oil Palm Estate Fund (BPDP-KS) has allocated Rp 9.6 trillion to support the implementation of the B20 policy this year as the average crude oil price is expected to stand at $50 to $60 per barrel, and that of CPO at around $650 to $750 per ton. The allocation is lower than the Rp 10.6 trillion set aside last year.

Two companies — state-owned energy giant Pertamina and publicly listed petroleum and chemical distributor PT AKR Corporindo — have been assigned to absorb local biodiesel supply with support from the government’s PSO funds. Last year both firms saw subsidy rates hover at an average of Rp 4,500 to Rp 5,500 per liter.

Sixteen companies have been assigned to supply 1.53 million kiloliters of biodiesel to Pertamina and AKR Corporindo for the period of November 2016 to April 2017. The government currently reviews the biodiesel quota on a six-monthly basis, from May to October and from November to April.

It has also been formulating a new progressive levy scheme for all exporters, in which the levy would soar by 20 percent every time the CPO price increases by $50 per ton.