Indonesia may scale back its 30pc biodiesel mandate (B30) for transport as it struggles to amass funding, according to the US Department of Agriculture.
Jakarta has been resolute in its desire to maintain the B30, which was introduced in January, though it faces headwinds from low crude prices and reduced biodiesel demand amid Covid-19 closures.
Indonesia's oil palm plantation fund management agency (BPDPKS) supports the mandate by bridging the gap between prices of diesel and locally produced palm-based biodiesel. But the price difference between these two products has grown exponentially to nearly 4,000 rupiah/litre ($300/t) in April, from an average of Rs444/l in 2019.
BPDPKS distributed around $157mn last year but at the current rate will require more than $2bn to fulfil its requirement, according to the USDA.
Money for the subsidies comes from a crude palm oil (CPO) export levy of $25/t when prices are between $570-619/t. The levy rises to $50/t when prices exceed $619/t. But prices fell to just Rp8,153/kg ($548/t) between 15 March-14 April as the pandemic curbed demand for CPO, so funds are increasing.
Coffers are swiftly being depleted as a result and will be drained completely before the end of the year.
The government is left with either scaling back the higher mandate, revising the calculation on how subsidies are paid or finding additional reserves, but the last option will be difficult while CPO export demand and prices remain low.
The Indonesian biodiesel association pegged biodiesel use at 2.23mn kilolitres (2mn t) during the first quarter of 2020, down by 13pc on forecasts because of lower diesel consumption amid the pandemic. The government has already canned plans to increase the mandate to B40 next year.
