The government's biodiesel program was designed to reduce consumption of oil and fuel in Indonesia (which put severe pressure on Indonesia's budget deficit as well as on the country's trade balance and current account balance). Moreover, higher domestic consumption of crude palm oil (CPO) would support global CPO prices (by curtailing the supply side) hence improving Indonesia's foreign exchange earnings from exports of CPO.

Indonesia's biodiesel program is a government-aided program. Palm oil export levies - collected from domestic companies - are used to finance the program (Indonesia's reference palm oil price is still below the USD $750 per ton threshold, implying a zero percent export tariff remains in place).

However, voices are heard to temporarily stop the government's CPO Fund (the fund that consists of the palm oil export levies) as this fund will become depleted amid an unprofitable biodiesel industry. Economist Bustanil Arifin said subsidy costs are to balloon if crude oil weakens further toward USD $25 per barrel, while the CPO price remains around USD $555 per ton. Matters become worse if the rupiah exchange rate weakens further. Other voices are heard saying the government may need to postpone implementation of the B20 biodiesel program this year.

Development of Indonesia's Biodiesel Industry:

Year Installed Production
  (in million kiloliter)
(in million kiloliter)
(in million kiloliter)
(in million kiloliter)
2015¹               6.55            5.75            0.18            0.10
2014               5.66            5.20            2.20            1.85
2013               5.66            2.80            1.75            1.05
2012               4.28            2.11            1.44            0.67
2011               3.94            1.45            1.09            0.36
2010               3.94            0.46            0.24            0.22
2009               3.53            0.04            0.20            0.15
2008               3.14            0.11            0.08            0.04
2007               1.71            0.06            0.04            0.02
2006               0.21            0.04            0.04            0.01

¹ up to July
Source: Aprobi

Paulus Tjakrawan, General Chairman of the Association of Indonesian Biodiesel Producers (Aprobi), said the current environment is indeed challenging but his institution will continue to focus on the development of more biofuel plants in Indonesia. He added that the biodiesel sector needs more financial support given the low petroleum prices but this is the task and responsibility of the government.

Fadhil Hasan, Executive Director at the Indonesian Palm Oil Producers Association (Gapki), said Indonesia may miss its target to step up the biodiesel program this year if petroleum prices remain below the USD $30 per barrel level. The biodiesel subsidy costs could grow to IDR 5,000 (approx. USD $0.36) per liter from IDR 2,230 per liter currently. Similarly, implementation of Malaysia's biodiesel program is disturbed by low oil prices due to the widening price premium of biodiesel over fossil fuels, Malaysian Minister for Plantation Industries and Commodities Douglas Uggah Embas said.

Indonesian Palm Oil Production and Export Statistics:

    2008   2009   2010   2011   2012   2013   2014   2015¹
(million metric tons)
  19.2   19.4   21.8   23.5   26.5    30.0    31.5    33.1
(million metric tons)
  15.1   17.1   17.1   17.6   18.2    22.4    21.7    23.0
(in USD billion)
  15.6   10.0   16.4   20.2   21.6    20.6    21.0    20.0

¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture