Indonesia: Government raises CPO export levy to 10 percent for biodiesel subsidies

The government will raise the export levy on crude palm oil (CPO) from 7.5 percent to 10 percent, aimed at supporting the financing for biodiesel subsidies, which will increase with the launch of the 40 percent biodiesel blend (B40) program starting January 1, 2025.

“The levy increase will be enforced after the Finance Minister’s regulation is issued,” Coordinating Minister for the Economy, Airlangga Hartarto, said on Thursday, December 19, 2024.

Indonesia, the world’s largest palm oil producer, relies on CPO export levies to subsidize its mandatory biodiesel program. The Indonesian Palm Oil Plantation Fund Management Agency (BPDPKS) estimates that increasing the biodiesel blend from 35 percent (B35) to 40 percent (B40) will increase the need for subsidies by up to 68 percent.

Palm oil is currently traded at around US$400 per metric ton, more expensive than crude oil, so the subsidy needed to support B40 is greater.

“There will be funding from BPDPKS. First, we will increase the levy to 10 percent,” Airlangga said when asked about the funding mechanism for biodiesel subsidies.

Currently, Indonesia’s export levy for CPO is at 7.5 percent, while processed palm oil products are subject to levies ranging from 3 percent to 6 percent of the reference price. However, Airlangga has not detailed the new rates for processed products after the levy increase.

The levy increase has raised concerns among industry players. Chairman of the Indonesian Palm Oil Entrepreneurs Association (Gapki), Eddy Martono, said that the increase in levies could reduce the competitiveness of Indonesian palm oil exports.

“Compared to Malaysian palm oil, our products are already more expensive due to various levies, export taxes, and domestic obligations. All of this is burdensome,” Eddy said, as quoted by Reuters, on Thursday, December 19, 2024.

The statement came amid fluctuations in palm oil contract prices on the Kuala Lumpur Futures Exchange. After falling 3.58 percent on Thursday morning, palm oil prices recorded a slight decline of 0.33 percent at 4:37 pm following Airlangga’s announcement.

The increase in levies is in line with the government’s plan to increase the allocation of unmixed biodiesel to fuel retailers. The Ministry of Energy and Mineral Resources stated that the allocation for 2025 is targeted to reach 15.62 million kiloliters, a significant increase from 13.4 million kiloliters in this year’s B35 program.

Tags: export levy, Indonesia, Crude palm oil, biodiesel, CPO