JAKARTA: Plans by Indonesia's government to ramp up bio-diesel subsidies passed another important legislative hurdle late on Wednesday, as an influential parliamentary committee backed a near-threefold increase.
President Joko Widodo's government is looking to protect Indonesia's fledgling bio fuel industry against lower crude prices and any increase in the subsidy could potentially boost demand for palm oil.
An influential energy parliamentary committee agreed late on Wednesday to increase Indonesia's bio-diesel subsidy to 4,000 rupiah (32 US cents) per litre from 1,500 rupiah per litre now. The government had proposed raising the subsidy to 5,000 rupiah a litre.
The subsidy increase proposal still needs approval from the parliamentary budget committee, which is due to give its verdict later this month. Government ministry officials say they are confident of a smooth passage.
Malaysian palm oil futures rose more than 3 percent to a two-week high on Thursday, buoyed by hopes that a plan by the world's top palm producer to increase bio-diesel subsidies will make blending profitable again.
Indonesia's parliamentary budget committee could yet make changes to the subsidy proposals, resulting in the matter being sent back to the energy committee for further discussions, said Kardaya Warnika, head of the energy committee.
Southeast Asia's biggest economy and the top producer of tropical palm oil introduced an ambitious regulation in August 2013 to boost the use of palm-based bio-diesel and cut its oil import bill.
Logistical and infrastructure problems have hindered the implementation of the regulation, and global crude oil prices that have tumbled up to 60 percent since last June are a further impediment to bio fuel development.
Indonesia's bio-diesel demand was about 1.7 million tonnes last year and that's set to climb to 2.8 million tonnes in 2015, according to industry estimates.
The energy committee also approved the government's suggestion to increase the bioethanol subsidy to 3,000 rupiah per litre from the current 2,000 rupiah per litre.
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