Indonesia looks at policy revamp to keep biodiesel program alive

JAKARTA/ SINGAPORE, Dec 2 (Reuters) - Indonesia must make policy changes to ensure it can keep subsidizing its ambitious biodiesel program, the head of a government agency in charge of collecting and managing palm oil export levies, told a virtual conference on Wednesday.

The world's biggest producer of palm oil makes it mandatory for diesel to be blended with 30% bio content (B30), but plans to increase this to 40% have been delayed due to funding issues.

"The price gap between crude palm oil and diesel widened in 2020, posing a challenge to the sustainability of the support program.. especially the mandatory biodiesel program," Eddy Abdurrachman, president director of the Estate Crop Fund Agency (BPDP), told the Indonesian Palm Oil Conference.

It was projected that in 2021 there would be a significant increase in funds needed, Eddy said, estimating that Indonesia will consume 9.59 million kilolitres of biodiesel next year.

Indonesia's biofuel program aims to maximize domestic use of palm oil and cut imports of oil, but a slump in crude prices this year has made it less economical.

"Policy adjustments are required," Eddy said.

Paulus Tjakrawan of the Indonesian Biofuel Producer Association told the conference that the price gap between the bio component in biodiesel, fatty acid methyl esters (FAME) made from palm oil, and diesel rose to around $400 per tonne in 2020 from around $100 last year.

WEIGHING OPTIONS

Indonesia needed to either increase palm levies, impose an excise tax on fuel or make palm companies contribute to subsidies to sustain the program, Bustanul Ariffin, an economist at the Institute for Development of Economics and Finance, told the conference, adding the program may suffer a 12.2 trillion rupiah ($865.25 million) deficit next year.

Since June this year, Indonesia has collected a maximum $55 levy per tonne on palm oil exports, regardless of the price.

Indonesia's chief economic minister, Airlangga Hartarto, told Reuters in September there were plans to revise its palm oil export levy rules to allow higher collection when prices increase, but no regulation has been issued yet.

Energy ministry official Dadan Kusdiana told the conference Indonesia's 2020 biodiesel consumption was equivalent to 165,250 barrels of oil per day and saved the country $3.09 bln in foreign exchange and 25.6 million tonnes of carbon.

Although biodiesel promises lower emissions, land clearance to grow palm oil has raised concern about deforestation. 

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