Indonesia’s biodiesel mandate—the long road ahead: Fuel for Thought
Monday November 28, 2016
The Indonesian government should be congratulated for keeping its biodiesel blending mandate afloat despite a prolonged period of low oil prices. But the road to full B20 implementation is a long one and several factors including a recovery in oil prices, biodiesel exports and logistics will play an important role.
Indonesia in late 2013 mandated that by 2016, the proportion of biodiesel blending in gasoil is to be 20% for subsidized and non-subsidized gasoil sold to transport, industries, and commercial sectors and 30% for gasoil sold to power plants.
The mandate serves two purposes—lower gasoil demand and hence lower reliance on imports; and support for the biodiesel industry reeling from the effects of low oil prices and Europe’s anti-dumping duties.
Since the government was implementing B20 at a time of low oil prices, industry observers were convinced that Indonesia will not be able to foot the bill of a mandate that looked expensive—in the billions of dollars for a full B20 implementation—to fulfill.
Despite skepticism, the government seems to have, at least partially, overcome the key hurdle of a rising price tag for biodiesel blending in the face of low oil prices.
The Indonesian government has financed the mandate with a $50/mt levy imposed on crude palm oil exports. Funds collected through this levy are used to subsidize state-owned biodiesel buyers Pertamina and AKR Corporindo so they do not need to pass on the blending cost to the end user.
The export levy generated an income of Rupiah 1.72 trillion ($130 million) collected by the Indonesia Estate Crop Fund, or IECF from January to September 2016, according to an estimate by Rabobank.
But the funds collected depends on export volumes, which in turn depends on weather and policies in Europe and the US. For example, recent EU court rulings could kick anti-dumping duties out the door, resulting in the EU market opening widely to imports from Indonesia.
Meanwhile in 2017, palm oil production from Indonesia is projected to bounce back after a production crippling El Nino in 2016. This could mean a jump in exports and levy collection, which can be used to finance a much larger biodiesel blending program, said Caroline Midgley, Head of Biofuels Research at LMC International.
