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Jakarta Post

Port infrastructure, replanting issues challenge govt'€™s CPO push

  • Grace D. Amianti

    The Jakarta Post

  /   Wed, June 24, 2015   /  09:17 am

Indonesia, the world'€™s top palm oil producer, still needs to improve its port infrastructure and boost replanting to increase competitiveness amidst a government push on the major industry, a business group says.

The two issues are expected to be addressed by the government'€™s recent establishment of the crude palm oil supporting fund (CPO Fund), which will collect levies from CPO exporters to be channeled into the development of the industry, as well as biodiesel subsidies, according to the Indonesian Palm Oil Producers Association (Gapki).

The business group, acknowledging that the levy will create additional short-term costs, welcomed the government'€™s funding initiative, as it is expected to develop and improve competitiveness of the industry in the international market.

'€œInfrastructure problems, including industrial cluster ports, have been one of our main concerns regarding our palm oil competitiveness,'€ Gapki chairman Joko Supriyono said after discussing a road map of the country'€™s palm oil industry with the Industry Ministry.

'€œWe expect that the levy will create positive effects in one year, but on top of that, we also hope that the fund will support replanting efforts, which are currently urgent,'€ he added.

The Industry Ministry'€™s director general for agro-based industry, Panggah Susanto, acknowledged these issues, adding that a lack of adequate infrastructure has become the main hindrance to the competitiveness of domestic CPO products in the market, especially as producers are now faced with issues of short-term oversupply.

'€œFor instance, our public ports, especially in Medan and Dumai, North Sumatra, are currently still inadequate to support the smooth running of export activities, including during loading. The situation has forced many companies to build their own ports,'€ Panggah explained.

Infrastructure bottlenecks have been the classic hindrance for Southeast Asia'€™s largest economy in reaching its growth potential. President Joko '€œJokowi'€ Widodo has redirected billions of dollars from energy subsidies in this year'€™s state budget into capital expenditures for infrastructure projects as he aspires to reach 7 percent economic growth '€” from 4.7 percent now '€” before his term ends in 2019.

The government recently launched a special public service agency (BLU) in charge of the new levy on exports of palm oil that will act as a collector and manager of the tax. It is to start operating on July 1 under the management of six directors.

The new body would have a mechanism similar to an asset management company, managing the CPO Fund through a custody bank in order to seek a return on investment based on good corporate governance principals, including through the appointment of a surveyor to monitor the practice.

The levies imposed on palm oil exporters will consist of a US$30 per ton charge on processed palm oil and $50 per ton on crude palm oil, if prices fall below $750 per ton, according to a Finance Ministry regulation.

If prices exceed $750 per ton, palm oil producers will continue to pay export taxes of between 7.5 and 22.5 percent, as required by existing regulations. Currently, CPO trades above $670 per ton and its benchmark price fell nearly 15 percent last year.

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