POINTERS: Indonesia Palm Oil Biodiesel Reform

By: Mr. Arif P Rachmat

Co-Founder & CEO of Triputra Agro Persada (TAP) Group, a palm oil plantation of over 170,000Ha and over 30,000 employees. Board of Director of Triputra Investindo Arya, a holding company with significant investment in various businesses such as Adaro Group (coal energy), DSN group (palm oil and wood), Kirana Megatara (crumb rubber processor and exporter) amongst others. Board of Advisor at TNC (The Nature Conservancy)- Indonesia, Rabobank Food Agri in Asia, GAPKI (Indonesian Palm Oil Association), and CSIS (Centre for Strategic and International Studies). Head of Permanent Committee on Food-Agri and Forestry on Indonesian Chamber of Commerce and Industry (KADIN Indonesia), and GK Indonesia foundation. Member of Young Global Leaders of the World Economic Forum, Young Presidents Organization, and Indonesia Business Association (APINDO). Master and B.S. in Operations Research and Industrial Engineering from Cornell University, Ithaca, NY. Upon graduation, worked for General Electric Company in the U.S. and globally for 7 years in various leadership roles.

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In 2013 I have thought that biodiesel is one of the most important factor in maintaining CPO price stability. This is evidenced by the weakening of prices in 2015. The Government of Indonesia initiative to implement mandatory biodiesel program for Public Service Obligation (PSO) through the establishment of CPO Fund and its supporting regulations resulted in a rise in CPO price throughout 2016. The fund was obtained from the palm oil industry through the palm oil export levy. It is collected for the benefit of the oil industry itself.

In the early year of 2017 there was a slight decrease in price due to the increasing supply of CPO more rapidly than market demand. Efforts are needed to increase demand further. The potential way is going through mandatory biodiesel in the Non-Public Service Obligation (Non-PSO) market sector.

It should be ensured that biodiesel raw material, the CPO, are sustainable. This is required to support market expectations for environmentally friendly renewable energy and reductions in greenhouse gas emissions. In this case, intensification is the key to increasing Indonesian CPO production.

In this presentation, it will be discussed how the process occurs, the challenges and strategies for the future to ensure that this mechanism works well.

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Questions & Answers (5) :

Yudha Gautama

6 years ago

Dear Pak Arif, thank you for your presentation material. The reduction in production cost from USD125/ton to USD100/ton in the formula a few months ago will definitely allow more biodiesel volumes to be subsidized with the availability of the CPO fund, but I believe this is at the expense of the profitability of the biodiesel producers. 1) With the reduction from USD125/ton to USD100/ton, are most Indonesian biodiesel producers still able to book some margins or break-even? 2) Do you know what is the typical range for production cost/ton of Indonesian biodiesel producers? Thank you.

Yudha Gautama

6 years ago

POINTERS SECRETARIAT:
Production cost of biodiesel varies across producers and the variance depends on producers technology efficiency, vertical integration of its value chain, access to feedstock, depreciation of their plans and so forth. Having said that, I believe the price level of 100 USD Ton still reflects fair and feasible level of pricing considering that the oil price has came down quite a bit, which reflects in lower chemicals costs such as methanol.
6 years ago

Cai Qiang

6 years ago

Dear Mr Arif, according to your slide 20, it is stated that China has the potential of 8.3 million KL demand of biodiesel if based on the 5% inclusion of biodiesel in the diesel fuel usage in the country. I understand that China currently has no policy on encouraging the use of biodiesel and hence, how optimistic and how soon do you think China will take the step to mandate the use of biodiesel and why? TQ

Arif Rachmat:
We understand that China’s NDC’s targets, if reached, would result in GHG emission levels of roughly 12.8–14.3 GtCO2e in 2030, a 64%–70% reduction of emissions intensity below 2005 levels (IEA World Energy Outlook 2016 & climateactiontracker.org). Biodiesel would potentially be an alternative biofuel in addition of current china’s effort to expand the use of ethanol. This effort may take some times. As reported in the paper, the Government of Indonesia is in close communication to the Government of China in this subject.
6 years ago

HCLeow

6 years ago

Dear Pak Arif, since there is enough fund to subsidize 20% biodiesel blending (B20) for both PSO and non-PSO, what are the factors holding that back? And what else need to be done to enforce this? Thank you.

Arif Rachmat:
BPDPKS, the Indonesia CPO Fund Agency, assures there are no holding back factors, but administrative and technical errands in nature. The Government of Indonesia has already provided set of regulations as the foundation for implementation of mandatory B20. Moreover, Pertamina expanding biodiesel blending logistic facility in almost all delivery points in Indonesia.
6 years ago

POINTERS SECRETARIAT

6 years ago

Posted on behalf of a participant : It is said that Indonesia’s CPO export tax and levy gives the Indonesian refiners the power to provide discounts to your importers. Is a true? Is there any action taken by Indonesia on the possibility of EU’s ban on the usage of palm oil in biofuel in Europe in 2020.

Arif Rachmat:
It is said that Indonesia’s CPO export tax and levy gives the Indonesian refiners the power to provide discounts to your importers. Is it true? No, it is not true. Benefit of levy collected by CPO fund is directly given to support biodiesel domestic consumption only. Is there any action taken by Indonesia on the possibility of EU’s ban on the usage of palm oil in biofuel in Europe in 2020? Palm oil is green energy (see our explanation: “Utilization of Biodiesel Reduce GHG Emission”) Why it should be banned by EU? We believe the Government of Indonesia takes appropriate actions in regard to the possibility of EU’s ban, including potential market such as China and India. Question should be directly addressed to the Government of Indonesia.
6 years ago