Indonesia has decided to abandon its plans to implement a B50 biodiesel standard this year, opting instead to continue with the existing B40 blend. This decision stems from various technical and financial challenges, according to government officials. The move is seen as a relief for those concerned about potential strains on global palm oil supplies.
Originally, Indonesia aimed to roll out the B50 biodiesel, which consists of 50% palm oil-based biodiesel mixed with 50% traditional diesel, in the latter half of this year. However, the current B40 standard, which utilizes a 40% palm oil biodiesel mix, will remain in effect.
This biodiesel initiative in Indonesia, recognized as the leading producer of palm oil worldwide, significantly influences global palm oil market prices. Increased domestic consumption often leads to reduced export availability of this versatile vegetable oil.
During a meeting on Wednesday, government officials discussed the biodiesel program along with its funding. "This year, we will maintain the B40 standard," stated Yuliot Tanjung, the Deputy Minister of Energy and Mineral Resources, following the discussions. He also mentioned that the Balikpapan refinery would boost diesel production, making the B40 standard sufficient for the country's needs.
The timeline for completing trials of the B50 fuel, particularly for transportation like trains and heavy machinery, is currently under review by Eniya Listiani Dewi, an official from the energy ministry.
Following the announcement, Malaysia's benchmark palm oil prices dipped by 0.52%, although they had previously risen by as much as 1.33% earlier in the trading day. Anilkumar Bagani, head of commodity research at Mumbai's Sunvin Group, noted that Indonesia's cancellation of the B50 plan would likely put downward pressure on palm oil prices, as the market had anticipated a greater demand for crude palm oil (CPO) due to the additional blending requirement.
Previous expectations indicated that the B50 implementation could absorb an extra 2.2 million tons of CPO, increasing from approximately 13.6 million tons utilized last year for the biodiesel mandate, as estimated by the Indonesia Palm Oil Strategic Studies think tank.
Bagani further explained that the absence of the B50-related price support would lead to palm oil being sold at a discount compared to competing oils, particularly given the higher inventory levels reported in Malaysia, which reached their highest in nearly seven years, exceeding the crucial threshold of 3 million metric tons in December.
When asked if the B50 mandate would be revisited for 2027, chief economic minister Airlangga Hartarto indicated that the decision would rely on the price disparity between conventional diesel and palm oil-based fuels.
In terms of levies, Indonesia subsidizes its biodiesel program to close the price gap between crude oil-derived fuels and those made from palm oil, using funds raised through palm oil export levies managed by the Indonesian Estate Crop Fund Agency (BPDP). The expansion of the biodiesel mix—from a mere B15 in 2015 to the B40 standard now—has posed challenges to BPDP's capacity to maintain these subsidies.
To support this initiative, the government announced it would increase export levies on crude palm oil to 12.5%, effective March 1. Additionally, levies on refined products will see a rise of 2.5 percentage points. Currently, the levy rate on crude palm oil stands at 10%, while those for more refined products vary between 4.75% and 9.5%.
This increase in levies could potentially undermine Indonesia's competitiveness in the global palm oil market, prompting buyers to consider alternatives from countries like Malaysia, as highlighted by the Indonesian Palm Oil Farmers Association (POPSI).
For the current year, Indonesia's energy ministry has allocated 15.65 million kiloliters of palm oil-based biodiesel under its mandate, with approximately 7.45 million kiloliters expected to receive subsidies.
