Indonesian producers struggle to meet biodiesel blend mandate

The Indonesian government’s mandatory ruling on the mix of biofuel into fossil diesel has hit a snag amid lingering pressure from low commodity prices.

The Indonesian Oil Palm Estate Fund (BPDP) director, Dadan Kusdiana, told The Jakarta Post that the realisation of subsidised diesel fuel getting mixed with 20% biodiesel reached approximately 404,000 kilolitres during the first two months of the year.

The volume, he said, was only about 80% of the more than 500,000-kilolitre target set for the period.

“The realisation was low because some biofuel producers have been facing problems with their production facilities, while Pertamina has similar problems with its distribution facilities in certain areas,” Dadan said.

Despite the low realisation, the BPDP continues to expect to reach the target of having 3 million kilolitres of diesel contain 20% biofuel by the end of the year.

The mandatory biodiesel mix is part of the Indonesian government’s policy to encourage the use of non-fossil fuels.

Under the programme, biodiesel – mostly made from palm oil – is expected to replace diesel fuel as part of the effort to reduce the country’s dependency on petroleum-based fuels and their carbon emissions.

The programme also aims to jack up the commodity’s price, which has been under pressure amid a global economic slowdown. 

The mandatory diesel/biofuel blend increased from 10% in 2013 to 15% in 2015 and to 20% this year. 

“We are expecting to meet the target. However, as I understand it, the realisation of the mandatory blend of non-subsidised diesel fuel is very low to date,” Dadan said.

Businesses have earlier complained about the burden of the ruling, particularly amid the current low commodity prices.

They said the declining oil prices might widen the gap between production costs and consumer prices that must be shouldered by the government in addition to the estimated total subsidy for the programme, which might reach 18 trillion rupiahs (€1.23bn) this year. 

For subsidised diesel fuel, the gap is filled by levies collected by the BPDP from crude palm oil producers, which have been imposed since last year as part of the government’s attempt to develop value-added processes in the local palm oil industry and encourage biofuel producers to continue production.

Similar schemes, however, do not apply for non-subsidised diesel fuel. 

Figures from the Indonesian Palm Oil Producers Association showed that Indonesia’s CPO production, along with its derivatives, reached 32.5 million tonnes in 2015, an increase of 3% from 31.5 million tonnes a year earlier.