JAKARTA: Indonesia will increase its export levy for crude palm oil (CPO) to 10% from the current 7.5% to finance higher biodiesel subsidies, its chief economic minister said on Thursday.

The levy will be implemented once the relevant finance ministry regulation has been issued, Airlangga Hartarto said. Indonesia, the world’s top palm oil producer, collects levies to help subsidise its mandatory biodiesel programme, in which bio-content will be increased to 40%, called B40, starting Jan. 1 from the current 35%.

The higher blend is expected to increase the subsidy requirement. BPDPKS, the agency in charge of collecting and managing the palm oil funds, estimated in November that increasing the mandatory blend of biodiesel to 40% would increase the subsidy requirement by 68%.

“There will be funding from BPDPKS ... First, we will increase the levy to 10%,” Airlangga said when asked about the subsidy financing. Palm oil currently costs around $400 per metric ton more than crude oil. Indonesia currently imposes a 7.5% levy for CPO exports, while the levy for more refined palm oil products is charged at between 3% and 6% of the reference price.

Airlangga did not elaborate on the new levy rates for refined palm oil products. Palm oil group GAPKI is concerned a higher levy will reduce the competitiveness of Indonesian exports, chairman Eddy Martono said. “Compared to Malaysian palm oil, ours is more expensive due to levy, export tax and the domestic obligations. These are all burdensome,” he said.

The benchmark palm oil contract in Kuala Lumpur, which fell as much as 3.58% earlier on Thursday, pared most of its losses after Airlangga’s comment. It was trading 0.33% lower at 0937 GMT. A senior official at the energy ministry said the government planned to allocate 15.62 million kilolitres of unblended biodiesel to fuel retailers next year, up from 13.4 million kilolitres allocated for B35 this year.