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Indonesia to extend biodiesel subsidy into non-Public Sector Obligation sector

The Indonesian government is set to extend the B-20 biodiesel subsidy to the non-Public Service Obligation sector, an energy ministry official said Tuesday, according to local media reports.

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"We might be able to start expanding the scope of the subsidy to non-PSO players starting in the period of May to October 2018," said Rida Mulyana, Director General of Energy Conservation and Renewable Energy at the Energy and Mineral Resources Ministry, according to the reports.

The ministry could not be reached for comment.

The Indonesian government had been under pressure to increase the biodiesel blending mandate into the non-PSO sector, Southeast Asian market sources said, but actual implementation could take some time.

Indonesian domestic biodiesel demand could double because of the extension of the mandate into the non-PSO sector, because currently PSO and non-PSO demand are at similar levels, said Togar Sittangang, Secretary-General of the Indonesian Biofuel Producers Association.

The PSO sector blends around 2.5 million-3 million kl of biodiesel/year, he said. The addition of non-PSO demand could increase that to a maximum of 5 million-6 million kl/year.

No mechanism for non-PSO blending has been announced as yet and, while he was part of the discussions on whether to create additional demand in the non-PSO sector, Sittangang was not privy to the final decision or the announcement.

Indonesian media reports say that since 2016, the Indonesian Oil Palm Estate Fund (BPDP-KS) has managed the implementation of the B-15 and B-20 blending mandates.

In 2017, the allocated subsidies, which cover the price gap between the biodiesel price and the gasoil price, amounted to IDR 9.6 trillion ($712.3 million), down slightly from IDR 10.6 trillion in 2016.

The government may now have enough funds to subsidize non-PSO sector blending, especially in view of falling CPO prices in Southeast Asia, market sources said.

"We have discussed this matter with the BPDP-KS and decided to cap the subsidy for non-PSO players at a maximum IDR 4,000/liter," Rida said, according to press reports. "Meanwhile, the subsidy for PSO distributors will remain unchanged, which means we will still fully cover the gap [between the biodiesel price and the conventional diesel price]."

--Samar Niazi,
--Edited by Jonathan Loades-Carter,