Indonesia’s Pertamina reduces biodiesel blend to B1 as crude palm oil prices continue upward climb

April 30, 2008

In Indonesia, the state oil firm, Pertamina, has reduced its biodiesel blend ration from B2.5 to B1, owing to increase in the the price of crude palm oil. The biodiesel blend was previously reduced from B5 to B2.5 last year. Crude palm prices have increased by 45 percent in the past year.

The Indonesian National Biofuel Development Committee proposed a cut in the local VAT for biofuels in order to stimulate production in the face of the rising cost of palm oil. The Committee proposed a graduated tax cut based on the price of palm oil, an approach that has been used with the palm oil export tax. Palm oil exports are taxed at a 15 percent rate if crude palm oil prices are below $1200, but rise to 30 percent if the price for CPO exceeds $1,300.

In Indonesia, Sinar Mas and China National Offshore Oil have halted a $5.5 billion biodiesel project citing the high price of palm oil, saying that the price of crude palm oil was already higher than the biodiesel price. Crude palm oil futures reached a new high of $1,410 per tonne yesterday, driven by increased Chinese demand.

Biodiesel production is down 85 percent in Indonesia and producers have blamed failed government policies for their troubles. They pointed out that the state oil company Pertamina reduced its biofuels purchasing by half when government subsidies were dropped. Biofuel Producers Association chairman Purnardi Djojosudirdjo said that 17 biofuel companies has postponed projects, while the five companies producing were doing so at 15 percent of capacity.
Late last year, Pertamina said it was reducing biofuel blends from 5 percent to 2.5 percent in its biosolar and biopremium products owing to losses of $1.8 million resulting from high ethanol and crude palm oil prices. Indonesia saidÂ that it would return to a B5 standard by 2010, based on projected yields from new palm and jatropha cultivation. The state oil company, Pertamina, reduced blending from B5 to B2.5 owing to a 50 percent increase in palm oil prices. Indonesia will overtake Malaysia in 2007 as the largest producer of palm oil and expects to produce 20 million tonnes by 2010, up from 17 million tonnes in 2007.

In Indonesia, PTT will invest $28 million in palm oil production, including the acquisition of 95 percent of palm oil producer Mitra Aneka Rezeki for $14.75 million. The company will also construct a new palm oil refinery which will open by 2012.

Last month, PT Perkebunan Nusantara and five other state oil and gas firms annoucned that they will develop a palm oil biodiesel plant in Medan, North Sumatra, with construction slated to be completed in 2009. Capacity was not disclosed. The investors will also supply palm oil from their plantation operations.