Indonesia leaves Malaysia behind in biodiesel production

Indonesia’s vehicles will soon by running on a little more palm oil

Jakarta is committed to push for higher production and consumption of biodiesel, to help stabilise palm oil prices, Vice President Muhammad Jusuf Kalla told an industry conference in Bali.

He noted B20 trials, which blends 20 per cent palm methyl ester in regular diesel, had shown no problems for vehicles running on such higher blends. This clears the road for B20 to be used across the republic next year. There is talk of the blend rising to 30 per cent by 2020.

Jusuf made the announcement at the Indonesian Palm Oil Conference (IPOC) in Bali, which was also attended by Indonesia’s coordinating minister for political, legal and security affairs Luhut Panjaitan and Indonesia Estate Crop Fund chief executive Bayu Krisnamurthi.

This 11th IPOC has been entitled: “The fund and the future of the palm oil industry.”

The slowing global demand for palm oil has forced Indonesia to look for other uses for the product.

Krisnamurthi told the conference that biodiesel was due to consume 9 million tonnes of his product next year if the government boosted the mandated blend to 20 per cent from the current 15 per cent.

This reportedly amounts to a seven-fold increase from the 1.2 million tonnes for this year. Bayu told the event that the huge increase for 2016 was due to committed funds from palm oil levy.

“This year, we only started collecting from July. So, by the end of this year, we collect US$350 million from palm oil exporters. Those who sell in the domestic market are exempted. In 2016, we think we can collect US$700 million in palm oil levies,” Bayu said.

Indonesia and Malaysia, the world’s top two producers supplying some 50 million tonnes of palm oil per year, recently set up the Council of Palm Oil Producing Countries (CPOPC).

Jusuf said the CPOPC was similar to the Organisation of Petroleum Exporting Countries framework.

The CPOPC, based in Jakarta, is intended to streamline communication, collect global palm oil data and recommend biodiesel mandates in member states to stabilise stocks.

Jusuf said part of CPOPC’s work was to streamline sustainably produced palm oil initiatives and certifications.

Meanwhile, an industry body in Malaysia says its government should establish a palm oil export duty plan with Indonesia to support its refining sector, which risks losing market share following the introduction of more competitive levies in the larger neighbour.

“There is a real possibility of Malaysia losing market share to Indonesia because Indonesia’s differential palm oil duty structure is supporting its downstream industry,” said Mohammad Jaaffar Ahmad, chief executive of the Palm Oil Refiners’ Association of Malaysia.

Refiners in Indonesia have the advantage that their country’s levy on refined palm exports is lower than its US$50-a-tonne levy on crude palm oil (CPO) shipments. This should help keep more CPO at home, reducing prices and improving downstream margins.

Malaysia currently has a 27-million-tonne palm oil refining capacity. Mohammad expected another 5.8 million tonnes to be built, mostly in eastern Malaysia.

Indonesia had an estimated capacity of 47 million tonnes in 2014.

Meanwhile, palm oil stocks have risen, up 27 per cent year-on-year in October to 3 million tonnes in Indonesia and to a 15-month high of 2.8 million tonnes in Malaysia.

Malaysia needed a higher biodiesel mandate like Indonesia, Mohammad said.

Malaysia had planned to increase its mandate to 10 per cent by October, from 7 per cent, in contrast to Indonesia, which may push beyond 20 per cent in the future.

“It will be more effective if the biodiesel mandate is based on a minimal mandate … let the industry increase the blending mandate based on the economic viability of the biodiesel cost and demand structure,” Mohammad said.

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