President Joko Widodo’s government plans to introduce a more than threefold increase in its biodiesel subsidies, an energy ministry official said on Tuesday, a move aimed at protecting Indonesia’s fledgling biofuel industry against lower crude prices.
An increase in subsidies could potentially boost demand for palm oil, although the government plan still has to get parliamentary backing before becoming law.
If passed, such a law would be a timely fillip for crude palm oil prices that have lost more than a quarter from their 2014 peak in March last year.
Southeast Asia’s biggest economy and the top producer of tropical palm oil introduced an ambitious regulation in August 2013 to boost the use of palm-based biodiesel and cut its oil import bill.
Logistical and infrastructure problems have hindered the implementation of the regulation, and global crude oil prices that have tumbled up to 60 per cent since last June are a further impediment to biofuel development.
The government has proposed an increase of the biodiesel subsidy to Rp 5,000 (40 cents) per liter, from Rp 1,500 per liter presently, said Dadan Kusdiana, director of bioenergy at the Energy and Mineral Resources Ministry.
“We give biodiesel subsidies to show government support for the development of renewable energy,” Kusdiana said. “We expect consumption of renewable energy to increase.”
On Jan. 1, fuel subsidies ended altogether and moved to setting prices according to global oil markets — creating a fiscal windfall for social services and infrastructure.
Indonesia’s biodiesel demand was about 1.7 million tons last year and that’s set to climb to 2.8 million tons in 2015, according to industry estimates.
A recovery in palm oil futures this year will hinge on Indonesia’s biodiesel mandate, leading vegetable oil analyst Dorab Mistry said late in 2014.
