Indonesia will increase palm oil export tax if it abandons its plan to introduce B50 Biodiesel in this year.

Indonesia has scrapped plans to introduce a mandatory B50 palm oil-based fuel this year, and will instead stick with B40 due to "funding and technical concerns", government officials announced on Wednesday. This eases concerns about strains on palm oil supplies globally.

Indonesia had planned to launch B50, a blend of palm oil-based 50% biodiesel with 50% conventional diesel in the second half this year. The B40 blend, which is 40% palm oil-based, will continue to be the standard.

Biodiesel mandates in Indonesia, which is the largest palm oil producer in the world, can have a significant impact on global palm oil prices, as the increased use of palm oil at home reduces exports.

On Wednesday, government officials met to discuss biodiesel and its funding.

Yuliot Tanjung, Deputy Minister of Energy and Mineral Resources, said that after the meeting: "This year it will remain at B40." The refinery in Balikpapan will increase its diesel production, so B40 should be sufficient.

Eniya Dewi, an official in the Energy Ministry, told reporters that the government was reviewing the timeline for completing trials of?B50, particularly for trains, heavy machinery and equipment.

After the news, benchmark palm oil prices in Malaysia fell 0.52%. It gained as much as 1.3% in earlier trading sessions.

Anilkumar Bagani, head of commodity research at Mumbai-based Sunvin Group, said that the scrapping of Indonesia's B50 plan by 2026 was bad for palm oil as the market expected more CPO to be consumed for the additional blend.

According to estimates by Indonesia Palm Oil Strategic Studies, a B50 blend in the second half this year will absorb an extra 2.2?million?tons of CPO compared to 13.6?million?tons of biodiesel mandate used last year.

Bagani said that the price buffer caused by B50 hopes will start to diminish now, and palm oil prices will drop against other oils because of higher carryovers in Malaysia.

After Malaysia reported that its palm oil stocks surged to a nearly seven-year-high in December, surpassing the psychologically significant 3 million metric ton threshold, the decision increased pressure on palm oil futures.

Airlangga Hartarto, the chief economist of Indonesia, said that the implementation of the B50 mandate in 2027 would depend on the difference between the prices for conventional diesel fuel and palm-oil-based fuel.

LEVY HIKE

Indonesia's biodiesel program is subsidised by Indonesia by using the proceeds of palm oil export levies collected from?the Indonesian Estate Crop Fund Agency.

The ever-expanding mix, which went from B15 in only a few sectors to B40 today for almost all diesel machines, has placed pressure on BPDP to be able to subsidise this programme.

Airlangga stated that the government would raise the tax rates to sustain the agency.

Eddy Abdurrachman, BPDP's chief, said that Indonesia will increase crude palm oil export taxes to 12.5% from March 1. The levy on refined products will be increased by 2.5 percentage points.

The crude palm oil is currently subject to a 10% tax, while the rates for refined products range between 4.5% and 9.5%.

Indonesian Palm Oil Farmers Association said that the increase in tax would reduce Indonesian palm oil's competitiveness on the global market, and force buyers to look for other suppliers like Malaysia.

The Indonesian?energy minister has allocated 15,65 million kilolitres (of which 7,45 million will be subsidised) of palm oil-based Biodiesel to this year's mandate.

GAPKI (Indonesian Palm Oil Association) said that the decision to use B40 as the standard was the best one, because it would balance CPO production with domestic needs and export volumes.

Hadi Sugeng, GAPKI's Secretary General, said that the policy was expected to maintain CPO price against competitive fossil fuel prices as well as sustain CPO export volume in order to maximize revenues from the levies. (Reporting and writing by Bernadette Cristina, Fransiska Naangoy, Neil Fullick, Frances Kerry and David Stanway)

(source: Reuters)