Based on price threshold
November, 2015 in Issue 3 - 2015, Markets
Malaysian oil palm planters with estates in Indonesia are among investors who will pay an export levy on palm oil that will go toward funding the domestic biodiesel subsidy. The levy was created as a result of Indonesian Regulations 24/2015 and 61/2015.
With effect from July 16, Indonesia has started collecting a levy ranging from US$10 to US$50 per tonne if the palm oil price falls below US$750 per tonne. The levy will be scrapped when the price exceeds this threshold.
When the palm oil price exceeds US$750 per tonne, planters will pay a separate export tax of between 7.5% and 22.5%, if they choose to ship out the CPO. If they sell their CPO to local refiners, they are not subjected to the export tax.
The levy requires exporters to pay US$50 per tonne for crude palm oil shipments and US$30 for shipments of processed palm oil products. It only kicks in when an existing export tax is cut to zero – which happens when a reference price drops below US$750 a tonne.
The Business Times reported that Indonesia expects the levy to generate up to 10 trillion rupiah of revenue on an annual basis.
This year, the aim is to add up to 4.5 trillion rupiah to state coffers. The government received about 21 billion rupiah in payments on the first day of collection, Indonesia Estate Crop Fund Agency Director Dadan Kusdiana told reporters.
Part of the proceeds will go towards fund biodiesel subsidies that were introduced to cut the country’s oil import bill and to soak up excess palm oil. The agency expects to provide a subsidy of between 600-700 rupiah per litre for biodiesel.
“We have agreed we need some capital for the subsidy, so we’ll collect the levy first for a month and then we’ll start the biodiesel subsidy,” Kusdiana said, adding that the agency will provide around 3 trillion rupiah for the biofuel subsidy this year.
The balance of the fund will be allocated to:
Indonesia Palm Oil Producers Association (Gapki) said there had been an increase in palm oil shipments out of Indonesia over the past couple of months as exporters had anticipated the implementation of the levy.
Executive Director Fadhil Hasan told the Daily Express that all members, including Malaysian investors, are aware of the policy and the justification of the levy.
“The short-term effect will be burdensome for oil palm planters but we should look at the impact in the longer term. This levy will mainly go to the biodiesel subsidies. It will reduce Indonesia’s oil imports and, hopefully provide support to palm oil prices,” he said.
Analysts’ views
CIMB Investment Bank regional plantations research head Ivy Ng said the levy would impact Malaysian companies such as Sime Darby Bhd, Kuala Lumpur Kepong Bhd, IOI Corp Bhd and Genting Plantations Bhd.
The move is ‘neutral’ on integrated palm oil players such as PT Salim Invomas Pratama, Golden Agri-Resources Ltd and First Resources Ltd. It is short-term ‘negative’ for pure upstream Indonesian planters such as PT Astra Agro Lestari TBK, PT PP London Sumatra Indonesia Tbk, PT Eagle High Plantations Tbk and PT Sumber Air Mas Pratama.
“This policy is medium-term ‘positive” for CPO producers if Indonesia can significantly boost biodiesel demand to at least 4 million tonnes and shore up CPO prices significantly. We maintain our ‘neutral’ rating on the sector,” Ng said.
Gapki has projected that Indonesia will produce 32.5 million tonnes of CPO this year. About 10 million tonnes are usually consumed within the country, with close to half this volume going to biodiesel usage.
Four months ago, Indonesia announced an increase in the biofuel subsidy to 4,000 rupiah per litre, from 1,500 rupiah per litre, to compensate biofuel producers for the price difference between regular diesel and biodiesel due to the low petroleum price.
In April, the mandatory biofuel content in diesel blending was raised from 10% to 15%. A big chunk of the palm oil levy will go towards the biodiesel subsidy, thus ensuring better compliance with the B15 mandate.
Sources: The Business Times, July 22, 2015;
Daily Express, July 1, 2015;
Foreign Agricultural Service, June 24, 2015
