No Losses from Bioenergy
For the sake of B30 project, the government is to inject Rp2.78 trillion into the Oil Palm Plantation Fund Management Agency. Most of these management funds will go to large companies.
THE Covid-19 pandemic has turned out to be a magical mantra for any every possible need. As part of the National Economic Recovery program, the government is injecting Rp2.78 trillion into the Oil Palm Plantation Fund Management Agency (BPDPKS). These funds are to cover the deficits of companies producing fatty acid methyl esters (FAME) for the production of B30 diesel fuel. B30 biodiesel is produced using a combination of 70 percent diesel fuel and 30 percent FAME.
This cash injection from state budget funds is simply an easy way out because the government lacks the courage to use other methods that make more sense. The deficit arose because the price of diesel fuel continues to fall, while the price of palm oil has remained stable. Because the price of B30 is set at Rp5,150, the biofuel producers have suffered losses. The difference between the market selling price for crude palm oil and the price set for B30 is widening.
So far, the difference has been covered by the BPDPKS. Based on an audit carried out by the Supreme Audit Agency for a particular purpose, from 2015 to 2017 the BPDPKS subsidized the B30 biodiesel program to the tune of Rp21.7 trillion or 96.8 percent of the total funds it paid out. The remainder was for the replanting of smallholders’ plantations. However, the B30 program is not on the list of recipients of funds from the BPDPKS.
Established by President Joko Widodo five years ago, the BPDPKS is a public service body under the coordinating ministry for the economy. It manages the funds resulting from the US$50-per-ton levy on exports of crude palm oil. Its main aim is to promote sustainable oil palm plantations. In 2016, the Corruption Eradication Commission stated that there was no legal basis for the using of these plantation funds for subsidies.
Recently, the BPDPKS has been thrown into confusion because the collapse of oil prices triggered a fall in the diesel fuel market index price. Since the gap between diesel fuel price and the biodiesel price has increased significantly, the payments to BBN producers have grown enormously. The problems of the BPDKS have been made worse because for almost half a year, it has not received any income because the price of crude palm oil has fallen below the threshold at which export levies are collected.
Previously, the government targeted BBN production at 9.59 million kiloliters. But the Covid-19 pandemic led to major problems for many industry sectors and the impact was a decline in fuel consumption. This is why the government reduced the target to 7.83 million kiloliters. This was then used as the reason for the injection to the BPDPKS. Even this is not enough to cover the Rp3.54 trillion BPDPKS deficit.
At first glance, this reasoning seems to make sense. But the provision of subsidies seems ridiculous because the government’s coffers are in a perilous state. The funding to deal with the Covid-19 crisis has already reached Rp405 trillion—which was not included in the 2020 state budget. On top of this, there is something wrong with the payment of these funds. These funds were levied from oil palm companies and are now being returned to them through their subsidiaries that produce BBN. Meanwhile smallholders continue to suffer.
The government does have another option, namely increasing the price of biodiesel, which has remained at Rp5,150 per liter since 2016. It is certain that this option has been avoided because it would be unpopular. Another option is to put the brakes on the biodiesel program. What is the point in continuing this program if in the end it only burden state finances? Furthermore, has the government considered whether the savings from the fall in imports of diesel fuel are as large as the subsidies for BBN producers? It looks as if the government has been outsmarted by a small number of oil palm moguls.