Oil palm planters in Indonesia to pay levy

KUALA LUMPUR: Malaysia planters with estates in Indonesia are bracing for painful times ahead as the republic starts charging export levies on palm oil to fund biodiesel subsidies. 

Last week, Indonesia's Finance Minister Bambang Brodjonegoro said, effective July 1, Indonesia will collect palm oil export levies ranging from US$10 to US$50 per tonne, depending on the product variants, if palm oil prices fall below US$750 per tonne.

The levy for crude palm oil (CPO) is set at US$50 per tonne, while refined products like palm cooking oil, palm olein and biodiesel will be subjected to levies between US$20 and US$30 per tonne.

Indonesian Palm Oil Producers Association or Gabungan Pengusaha Kelapa Sawit Indonesia (Gapki) told Business Times that there had been rising palm oil shipments out of Indonesia in the past couple of months as exporters anticipate the implementation of the levy.

In a telephone interview from Jakarta yesterday, Gapki executive director Fadhil Hasan said all members, including Malaysia investors in Indonesia, are fully aware of the policy and justification for the levy.

“The short-term effect would be burdensome for oil palm planters but we should also look at the policy impact for the longer term. This levy will mainly go to biodiesel subsidies. It will reduce Indonesia's oil imports and hopefully, provide support to palm oil prices,” he said.

"Yes, in these couple of months palm oil shipments out from Indonesia had been on the rise as our members anticipate implementation of this new levy," he added.

CIMB Investment Bank regional head of plantations research Ivy Ng said the levies will impact Malaysia planters with estates in Indonesia 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. 

This is short term negative for pure upstream Indonesian planters like 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," she said.

Indonesia has launched a special public service agency (or Badan Layanan Umum) to take charge of the new levies. It is headed by a Board of Commissioners which will supervise executives in the levy usage. 

Fadhil said Gapki president Joko Supriyonno had been appointed as one of the commissioners and the levy collection mechanism will operate like an asset management company for return on investments that is based on good corporate governance.

Gapki forecasted that this year Indonesia is set to produce 32.5 million tonnes of CPO. Around 10 million tonnes is usually consumed in the country, of which close to half that amount goes to biodiesel usage.

Four months ago, Indonesia announced increment in biofuel subsidies from IDR 1,500 per litre to IDR 4,000 to compensate biofuel producers for the price differences between regular diesel and biodiesel due to low petroleum prices since mid-2014. 

In April, the mandatory biofuel content in diesel blending was raised from 10 per cent to 15. A big chunk of this palm oil levy to be collected will go to biodiesel subsidies, thus ensuring better compliance to the B15 mandate.

Fadhil noted a portion of this levy will also go to replanting, research and human resources development in the Indonesian palm oil industry.

It must be highlighted that when palm oil price is higher than the US$750 per tonne threshold, this levy is scrapped. This is a relief for oil palm planters in Indonesia as they will not have to face a double burden, in times of higher palm oil prices.

When prices exceed US$750 per tonne, oil palm planters pay CPO export taxes of between 7.5 and 22.5 per cent if they choose to ship out CPO. Should oil palm planters sell their CPO to local refiners, they are not not subjected to the CPO export tax.