Malaysia stands to gain as Indonesia’s B50 mandate deferred amid higher export levies

KUALA LUMPUR (Jan 20): The Indonesian government has deferred the rollout of the B50 biodiesel mandate this year, citing both technical readiness and funding limitations.

Analysts with TA Securities Bhd (TA Research) viewed this delay as indicative of structural challenges rather than simple timing issues, including the need to stabilise the domestic biodiesel fund, narrowing the growing cost gap between biodiesel and conventional diesel, enhancing logistics and infrastructure, and ensuring overall operational preparedness.

“From a regional competitiveness perspective, our calculations indicate that Malaysia holds a competitive edge in CPO exports, with lower export duties lowering costs and enhancing pricing flexibility,” it commented in its analysis yesterday.

“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.”

According to media reports, the Indonesian government has opted to delay the rollout of the 50 per cent biodiesel blend (B50) mandate this year due to technical preparedness challenges and funding limitations.

To recap, Indonesia had originally planned to implement the B50 mandate in the second half of 2026 (2H26). At the same time, the government is proceeding with plans to raise the palm oil export levy from 10 per cent to 12.5 per cent starting from March 1, 2026, likely as a measure to strengthen fiscal revenues and support broader policy objectives.

“We are not surprised by this development. Concerns are mounting over the adequacy of subsidy funding, particularly as the price differential between biodiesel and fossil diesel continues to widen. These concerns are compounded by reports of a fiscal deficit in 2024,” TA Research said.

“According to Bloomberg’s biodiesel profitability data, biodiesel margins in Indonesia have been highly volatile and largely dependent on subsidies over the past decade. Margins were mostly negative in 2015-2017, briefly turned positive in 2018-2019, and weakened sharply in 2020-2021 due to low oil prices.

“They surged in 2022 amid the global energy crisis, before normalising to near breakeven in 2023-2024 and slipping back into losses in 2025 and early 2026, at around negative USD200. This means the government would need to subsidise about USD200/tonne of biodiesel to cover the current gap.

“Overall, Indonesia’s biodiesel programme remains structurally unprofitable without subsidies, and higher blending mandates would likely increase subsidy requirements and heighten fiscal risk.”

From an analytical standpoint, TA Research said Malaysia’s lower CPO export duty translates into a cost advantage of approximately USD 103.2/tonne compared with Indonesia’s 12.5% export levy.

This differential not only reduces the effective export cost for Malaysian producers but also provides greater pricing flexibility in the global market.

Consequently, Malaysian exporters are better positioned to capture market share, particularly in price-sensitive regions like India, whereas Indonesian exporters face a trade-off between higher levy contributions, which are primarily used to fund domestic biodiesel subsidies, and sustaining international competitiveness.