Govt levies palm oil exports to fund biodiesel push

Indonesia, the world’s top palm oil producer, will impose a levy on exports of crude palm oil to help pay for biodiesel subsidies, replanting, research and development of oil palm farmers to boost their production.

Palm oil exporters would be levied US$50 per metric ton for crude palm oil (CPO) shipments and $30 for processed palm oil products — when CPO prices stand at below $750 a ton — said Coordinating Economic Minister Sofyan Djalil. CPO prices hovered around $590 a ton recently, he added.

“The funds will be used to compensate the price differences between the regular diesel and biodiesel […] I hope the President will sign [a policy] on Monday or Tuesday,” Sofyan told reporters on Saturday, adding that the policy would become effective this month. 

The government is pushing efforts to boost domestic use of biodiesel to reduce dependence on fossil fuels that are largely imported and have added pressure on Indonesia’s current account deficit — the broadest measure of international trade that has made investors jittery about the country’s assets.

The government will keep imposing other tax charges on CPO shipments when prices exceed $750 a ton with rates ranging between 7.5 per cent and 22.5 per cent for higher prices. It sets the tax monthly, based on monthly average prices in Jakarta, Rotterdam and Kuala Lumpur. But since October last year, duties were cut to zero as CPO prices dipped below the reference price.

Indonesian Palm Oil Producers Association (Gapki) chairman Fadhil Hasan said the policy would add to the burdens of shippers in the short term, but the long-term benefits for the country were greater.

“The short-term effect would be burdensome [for exporters], but we should also look at the policy impact for the longer term. This levy will be used to fund biodiesel subsidies that in turn will reduce oil imports,” Fadhil told The Jakarta Post on Sunday.

Ivy Ng, an analyst at CIMB Investment Bank Bhd. in Kuala Lumpur, said the export levy policy on palm oil might hurt Indonesian producers in the short term as domestic prices could decline.

“Local prices of crude palm oil will fall by close to $50 per ton while processed palm oil in local markets will fall by $30 per ton,” Ng said, as quoted by Bloomberg. “In three to six months, if the biodiesel program becomes really successful, then prices may recover.”

Implementation of the new export levy on palm oil would be handled by a steering committee and supervised by a board comprising the government and the private sector.

Indonesia has in recent years been boosting domestic use of the more environmentally friendly biodiesel, which is made out of palm oil, to cut carbon emissions and help absorb the increasing supply of the world’s most-traded cooking oil.

President Joko “Jokowi” Widodo’s administration has also increased the mandatory mix of biofuel in diesel fuel from 10 per cent to 15 per cent as part of its solution to tame the volatility of the rupiah, as reduced oil imports would improve the country’s current account situation and in turn improve the economic fundamentals of Southeast Asia’s largest economy.

The administration has also raised biodiesel subsidies to Rp 4,000 (31 US cents) per liter from the previous Rp 1,500 to make the fuel more appealing for consumers. 

The abundance of palm oil has knocked out prices in the past year since the decline in petroleum costs is making biofuel less appealing. Palm oil futures in Kuala Lumpur, the second largest palm oil exporter after Indonesia, have fallen 18 per cent in the past year.

Did you find this article useful? Join the EB Circle!

Your support helps keep our journalism independent and our content free for everyone to read. Join our community here.

Most popular

Featured Events

Publish your event
leaf background pattern

Transforming Innovation for Sustainability Join the Ecosystem →