The government, which has already made some adjustment to face the COVID-19 Pandemic, still needed more policy adjustment to safeguard the continuity of its B30 program, on which it relies to reduce dependence on exports by boosting domestic consumption of palm oil, Indeks Komoditas Indonesia (IKI) said.
“The current COVID-19 pandemic that is experienced by businesses is out of control. It would take a role of the government to maintain the sustainability of the palm oil business and the B30 program,” IKI said in its latest IKI Indonesia Palm Oil Report.
The report, a copy of which was sent to The Palm Scribe on Monday (6/7) said that the government’s B30 program was currently facing two problems.
Decision of the Minister of Energy and Mineral Resources Number 105K/12/MEM/2020 on the Market Price Index (MPI) of Vegetable fuel of the Biodiesel Type Mixed into fuel during the Health Emergency Period and the Non-Natural National Disaster of the Corona Virus Disease 2019 (COVID-19) among others reduced the amount of the subsidy for the conversion of Crude Palm Oil 9CPO) into biodiesel from $100/ton to $80/ton.
With the COVID-19, the difference between the MPI for diesel oil and biodiesel had steepened, leading to a rise in expenditure and therefore the subsidy cut was decided considering the limited financial capability of the Palm Oil Plantation Fund Management Agency (BPDPKS) to continue the B30 program.
The burden of the agency had already risen following its decision to raise its assistance for the Replanting of People’s Plantations from Rp 25 million per hectare to Rp 30 million per hectare as of June 1, 2020. Considering the government’s target of replanting 200,000 hectares of people’s oil palm plantation this year, this would mean a funding of Rp 6 trillion would be needed.
Data from the Energy and Mineral Resources Ministry and its Directorate General for Renewed Energy and Energy Conversion, showed that the MPI difference between diesel oil and biodiesel for the month of May reached Rp 5,410/liter excluding its transportation cost. The figure for January 2020 was less than half that of May, at Rp 2,086/liter.
Palm oil businesses, according to IKI, especially those in the biodiesel industry have already said that $100 per ton was an ideal level of subsidy and it would be hard to produce good quality B30 if it was lowered.
“With this policy, biodiesel businesses will certainly readjust to the conditions and this will of course, not be easy,” IKI said, adding that “The reduction in funding can have an impact on the quality of the biodiesel produced.”
At present, B30 has a better quality in a number of category, mainly in water content which stood at 350 mm/kg for B30 compared to 500 mm/kg for B20.
“If the quality is lowered, public trust on the B30 may also weaken,” IKI said, adding that “The thing is, the B30 program is a mainstay of the government and can become a positive campaign for palm oil.”
The program is also aimed at reducing dependency on fuel imports, boosting foreign exchange earnings, supporting the down-streaming of the palm oil industry and improving the trade balance as well as being part of the government’s climate change commitment.
The reduced government subsidy for CPO conversion compounded by weak market demands amidst the COVID-19 pandemic would also led to the failure of many biodiesel producer to meet their government-set production quota.
Regulation of the Minister of Energy and Mineral Resources Number 41 of 2018 on Hydrocarbon Fuel Businesses and Vegetable Fuel Businesses, sets down production quotas that have to be met by these businesses and the fines they incurred for failure to meet them.
To assure the required B30 quality and the sustainability of this national program, IKI is suggesting that the government eases the fines.
“The government can issue regulations that reduce the fines so that the loss incurred by the businesses would not be huge,” the IKI report said.
The ministerial regulation currently sets the fine at Rp6,000 per liter.
IKI said that demand for biodiesel for the January 2020 – April 2020 period fluctuated, going up in February and March but down again in April following the social restriction imposed by the government to prevent the spread of COVID-19.
The domestic absorption of B30 up until April reached 9.6 million kilo liters, or 26 percent of the quota for the whole of 2020.
IKI also predicted that in June 2020, demand for biodiesel was expected to rise from the previous month because that month, the government declared a “New Normal” that eased the social restriction while still respecting health protocols. This gave greater room and freedom for biodiesel-fueled transportation as their operations would return to close to normal and thus increase demand for and consumption of biodiesel.