POINTERS: Indonesia Biodiesel Mandate: Impact on Palm Oil Prices

By: Mr. Togar Sitanggang

Mr Togar Sitanggang is the Vice Chairman of Indonesian Palm Oil Association/ GAPKI Since April 2018, Previously He served as Secretary General from April 2015 to April 2018. Currently, Mr Sitanggang works for PT Musim Mas as General Manager base in Jakarta. He has been in palm oil industries for almost 30 years with national and multinational companies including PT SMART Tbk, Cargill, Bunge, ED & F Man, Darmex in many positions ranging from research, logistics, trading and now corporate affairs. Mr Sitanggang is also active in palm oil related associations in Indonesia such as APROBI (Association of Biofuels Producers Indonesia), APOLIN (Association of Oleochemicals Manufacturer) and DMSI (Dewan Minyak Sawit Indonesia – Indonesia Palm Oil Board). Mr. Togar Sitanggang, was born in North Sumatera in 1966, graduated from University of Southern California, Los Angeles, USA, in Computer Science degree and obtained his Master Degree from North Sumatra University in Medan.

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In 2012 we saw Crude Palm Oil prices climbed to over USD 1100 per mt and on the other side of the market, Crude Oil prices also climbed to over USD 120 per barrel. Both high prices that we have not seen happened until today. In fact, both commodities went down to their lowest level since 2012, Crude Palm Oil around USD 480 per mt, in September 2015, and Crude Oil price around USD 30 per mt in January 2016.

Since early 2014, Government of Indonesia has started seen the Trade Balance diminishing and went negative territory in around July-August 2014. The event created a panic within the government officials and they tried to find ways to solve it. Indonesia imported majority of their fuel consumption, both Gasoil and Gasoline. And since Indonesia already have mandatory blending of Biodiesel, Government then turn to the Biodiesel industry for more blending and in order to reduce import of Gasoil.

On this period, the Biodiesel industry was asked to sell Biodiesel to Pertamina based on Gasoil prices, not Palm-based Biodiesel prices (ICIS benchmark). The industry was still able to sell with this scheme only for first few months. Since Oct 2014, the industry started to suffer losses and the worst happened in January 2015 where the industry had to stop all Biodiesel deliveries to Pertamina. The estimated loss for January 2015 was minimum USD 300 per mt.

In early 2015 the Indonesia palm oil industry started the discussion to find ways to stop price decline of Palm Oil and concluded that Biodiesel program can stop the price decline since it will create new demand and this demand was inside Indonesia. The industry also concluded that the only way to support the program is by self-subsidy, from the industry to the industry with collection of levy from the industry to be used to support the palm-based Biodiesel program.

After long months of discussions for creating new regulations on CPO Fund (now called Indonesia Estate-Crop Fund), and regulations that follows for reimbursement of the fund, the first drop of Biodiesel delivered to Pertamina end of September 2015 and price of palm oil has improved since then and highest CPO price we have seen was over USD 700 per mt last December.

Palm Oil has entered new era of demand, Biodiesel!

Currently, the blending rate in Indonesia is 20% and is going very smooth in Transportation sector, creating new demand of around 3 million mt of CPO equivalent per year. Industrial sector is yet to move as planned and when this happened, there would be another 3 million mt of CPO equivalent demand domestically in Indonesia.

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Questions & Answers (2) :

Muhamad Hafiz Abd Aziz

6 years ago

Currently, the blending rate in Indonesia is 20% and is going very smooth in Transportation sector. Any chances that the blending rate could be reduced below 20%?

Togar Sitanggang:
As far as all information received as of now, there is no intention from Government to reduce the blending below 20%. Government is confident that the fund is enough to support all programs under Indonesia Estate-Crop Fund which include replanting, promotion, human resources development, research, biodiesel and others.
6 years ago

Yudha Gautama

6 years ago

Dear Mr. Togar, Thank you for the presentation materials. The Indonesian government is targeting to achieve biodiesel production of 4.6mn KL (in which more will be pushed from the Non-PSO sector), up from 2016 realization of 2.7mn KL. I noticed that under ESDM regulation No 26/2016, Non-PSO will now be eligible to obtain subsidy from the Indonesia Estate Crop Fund. A couple of questions for you: 1) Do you think that government target of 4.6mn KL will be achievable? 2) Since the issuance of ESDM regulation No 26/2016, has there been any improvement in the participation of the Non-PSO sectors in the B20 program? I don't think mechanism for the subsidy disbursement for Non-PSO has been regulated yet. Kindly assist with my inquiries. Thank you very much in advance.

Togar Sitanggang:
Dear pak Yudha, thank you for your comments and questions. Apologize for a bit of delay due to Im currently travelling. To answer your questions: 1. the target of 4.6mio KL might not be achieved due to non-PSO program is yet to pick up in full speed. My guesstimate would be almost the same as 2016, around 3mio KL. 2. Yes, the regulation is there and you are correct the regulation to disbursement of fund for non-PSO is still far from the horizon. There have been a lot of discussions back and forward between industry and government on this issue but still no clear directions yet. I am afraid we have to wait and see the outcome for this moment.
6 years ago

Yudha Gautama:
Thanks for the response Pak. If I may ask a follow-up question, what are some of the major concerns/issues that industry/government have that may held back the establishment of fund disbursement mechanism for non-PSO?
6 years ago

Togar Sitanggang:
The fund was originally designed for PSO support. Since the program begins price difference between CPO and Gas Oil widened. The fund still enough for the PSO but will not be enough to support non-PSO. Also, there was a small 'mistake' on wording of revised Perpres, it was actually intended for electricity support but it did not stated specifically. Hence, it become for all Gas Oil usage as we read on Permen 26/2016.
6 years ago