Indonesia: Biodiesel mix program to stay on track despite calls for review

Khoirul Amin, The Jakarta Post 22 Jan 16;

The Indonesian Oil Palm Estate Fund (BPDP) has voiced support for the government’s mandatory biodiesel mix program to reduce the country’s carbon footprint and spur growth in the palm oil industry, despite calls to review the plan due to potential funding problems.

BPDP president director Bayu Krisnamurthi said his agency would push for the implementation of blending 20 percent palm oil-biodiesel into public diesel, known as the B20 program.

“We won’t scale it back to B15. We must not go backward for our renewable energy and to date, I’ve got commitments from all parties to continue with the B20 program,” he said Thursday.

Bayu explained that implementing B20 would significantly help the country stay on track with its commitment to reduce its greenhouse emissions by 29 percent by 2030, compared with business-as-usual projected emissions.

The implementation of B20 would reduce the emission of equivalent carbon dioxide (CO2) by 9 to 18 million tons per year, according to BPDP data.

In addition, widespread use of biofuel would help propel prices of crude palm oil (CPO), the main material for the fuel, amid concerns of a global glut of the commodity.

Local CPO prices increased from below Rp 5,500 (39 US cents) per kilogram prior to the use of the CPO fund to around Rp 7,000 per kg at present, according to BPDP data.

The Indonesian Palm Oil Producers Association (Gapki) previously called on the government to evaluate the B20 program due to funding issues deriving from the global slump in oil prices that would lead to higher biofuel subsidy costs for the government, as the gap between production costs and consumer prices widen.

While the mandatory biodiesel program in previous years was funded through the state budget, the government has used the CPO fund sourced from levies on CPO exports since July last year. The BPDP has been assigned to manage the fund.

BPDP estimates that Rp 9.5 trillion will be needed to fund the B20 program this year under the assumption that crude oil prices will hit US$40 per barrel and CPO prices $500 per ton.

Meanwhile, if crude oil prices stand at $20 per barrel and CPO prices remain at $500 per ton, the biodiesel program will require a total of Rp 16.5 trillion.

Bayu said that under the assumptions and a carryover of around Rp 6 trillion from last year, the CPO fund could support B20 implementation for the next eight to 10 months and other programs like replanting and plasma farmer training.

“We’ll consult the funding gap with the government and there are actually a number of alternatives,” he said.

Biofuel Producers Association (Aprobi) chairman Paulus Tjakrawan voiced preference for the funding gap being financed by the government.

The government’s mandatory B20 target hit 6.93 million kiloliters this year, with 107,000 Kl absorbed in the first two weeks of this year.

The government has ordered the blending of diesel fuel with a portion of biofuel in a move to reduce the country’s growing dependency on fossil fuel and its carbon footprint. The mandatory biofuel blend into diesel fuel has increased from 10 percent in 2013 to 15 percent in 2015 and to 20 percent this year.