Indonesia to Expand Biofuel Mandate to Railways, Power Plants

(Bloomberg) -- Indonesia will widen a biofuel mandate to cover railways and power plants starting next month as the world’s largest palm oil producer seeks to trim stockpiles and save billions of dollars in fossil fuel imports.

The railways and electricity generators will need to use fuel blended with 20 percent palm biodiesel from Sept. 1, said Rida Mulyana, director-general of new and renewable energy at the Energy and Mineral Resources Ministry. The government had earlier said the expanded mandate will also include military and mining vehicles. The mandate will help the country cut crude oil imports worth about 50 trillion rupiah ($3.5 billion) annually, he said.

Indonesia is battling an emerging-market selloff and a deteriorating current-account deficit, prompting President Joko Widodo to consider options to boost foreign-exchange earnings and stem a rout in its currency. The push for increased use of biodiesel will also help cushion the impact of soaring costs for subsidizing fuel and electricity after Widodo pledged not to raise tariffs ahead of next year’s general election.

Southeast Asia’s largest economy may consume 4 million kiloliters of biodiesel this year with the expanded mandate and it may jump to as much as 6.2 million kiloliters next year, Mulyana told reporters in Jakarta on Wednesday. The government will directly appoint suppliers and distributors to boost availability of the blended fuel across the archipelago, instead of auctioning the quota to fuel retailers, he said.

Soaring Inventories

Indonesia has been promoting biodiesel to reduce carbon emissions and absorb excess supply and subsidizes the program through export levies on palm oil products collected by the Estate Crop Fund for Palmoil. Inventories in Indonesia unexpectedly increased to 4.85 million metric tons in June, the highest in more than two years, as domestic demand dropped, the Indonesian Palm Oil Association said last week.

Indonesia will spend an estimated 163.5 trillion rupiah in energy subsidy this year, up from 94.5 trillion rupiah estimated in the budget previously, according to the finance ministry. That would be the highest subsidy bill since 2014 and compares with 97.6 trillion rupiah last year, official data show.

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