Indonesia’s biodiesel programme remains structurally unprofitable without subsidies, and higher blending mandates would likely increase subsidy requirements and heighten fiscal risks.
PETALING JAYA: The deferred rollout of the B50 biodiesel mandate by the world’s largest palm oil producer, Indonesia, indicates structural hurdles amid subsidy and funding concerns, says TA Research.
Indonesia last Friday cited both technical readiness and funding limitations as reasons for delaying its B50 policy, which mandates a blend of 50% palm-based biodiesel and 50% fossil fuel.
According to TA Research, this development was not a surprise, as its recent Annual Strategy 2026 highlighted that the B50 mandate would likely face delays due to structural challenges.
These include the need to stabilise the Badan Pengelola Dana Perkebunan Kelapa Sawit fund in 2026; narrow the widening price gap between biodiesel and fossil diesel; expand supporting infrastructure for production, logistics and distribution; and strengthen quality testing and overall operational readiness.
To recap, Indonesia had originally planned to implement the B50 mandate in the second half of 2026.
At the same time, the government is proceeding with plans to raise the palm oil export levy from 10% to 12.5% starting from March 1, likely as a measure to strengthen fiscal revenues and support broader policy objectives.
TA Research said: “We view this delay as indicative of structural challenges rather than simple timing issues.
“From a regional competitiveness perspective, our calculations indicate that Malaysia holds a competitive edge in crude palm oil (CPO) exports due to lower export duties, lowering costs and enhancing pricing flexibility.”
In contrast, Indonesia’s higher export levy, while generating additional funds for domestic subsidies, increases export costs and may limit its ability to compete on price, it pointed out.
CPO is currently trading at a significant premium over gasoil, estimated at roughly US$350 to US$380 per tonne. When the palm oil-gas oil (Pogo) spread is wide, palm-based biodiesel is substantially more expensive to produce than fossil diesel.
“We believe that the volatility in CPO prices, global crude oil, and gasoil markets could further widen the Pogo spread, increasing fiscal pressure and potentially delaying B50 implementation if subsidy levels are insufficient,” TA Research noted.
Overall, Indonesia’s biodiesel programme remains structurally unprofitable without subsidies, and higher blending mandates would likely increase subsidy requirements and heighten fiscal risks.
Based on its back-of-the-envelope calculations, assuming a subsidy of US$200 per tonne and that 50% of the total 19.7 million kilolitres of biodiesel allocation is funded, the total subsidy requirement would amount to approximately US$1.73bil.
If the subsidy per tonne increased by US$100, the total subsidy would rise proportionally by 50%, reaching roughly US$2.6bil, said TA Research.
The research house maintained its “neutral” stance on the plantation sector.
“Looking ahead to 2026, we expect CPO prices to moderate, averaging around RM4,000 per tonne,” it added.
TA Research kept its “buy” calls on Kuala Lumpur Kepong Bhd
with a target price (TP) of RM23.09, TSH Resources Bhd with a TP of RM1.43 and United Malacca Bhd with a TP of RM6.72.
