Indonesia says it won't reduce palm oil production below 30%

DAVOS, Switzerland - Indonesia hasn't plans to reduce palm oil in biodiesel below its current level of 30% in order to ensure the country's energy supply, its minister for economic affairs, Airlangga Hartarto, told Reuters on Monday.

We reduce our dependence on oil with palm oil. If we compare palm oil's price and energy, you have to subsidise more to energy. The issue will be energy security, Hartarto said in an interview.

The blending percentage will not be reduced as energy security is top priority, he added on the sidelines of the World Economic Forum in the Swiss Alpine resort of Davos.

In Indonesia, which is the source of 60% of the world's palm oil, had imposed a 30% level in biofuel to reduce the country's dependence on crude oil, according to Hartarto.

If you're dependent on oil, you are in a disaster situation, because the price of oil is approaching $110 a barrel, Hartarto said, adding that the Indonesian budgeting price has been increased to $100 from $60.

Indonesia stopped exports of crude palm oil and some derivative products in April in an effort to bring down the soaring local prices of cooking oil. The ban rattled global edible oil markets at a time of shortages due to the war in Ukraine.

The price of energy is not transmitted to the people in Indonesia. Hartarto said that the government would pay the delta difference between the energy price and affordable price.

The Indonesian Trade Ministry issued rules on Monday stating that businesses must obtain an export permit that would only be granted to those able to meet a so-called Domestic Market Obligation DMO. The regulation did not detail what that DMO would entail, but permits would be valid for six months.

A DMO policy, whereby producers are required to sell a portion of their products locally at a certain price level, was used prior to the recent ban as a means to ensure local supplies, but failed to tame cooking oil prices.

Hartarto said the goal was to make it 20%, asked what portion of palm oil must be sold domestically under the DMO.

The DMO is 30%, but it will be reduced to 20% if oil prices fall, he said.

Hartarto said that Indonesia's growth outlook had been one of the strongest in the region, at 5% over the past two quarters, and was comparable to Vietnam's.

He said that the growth could be 5%, but subject to the price of energy.