InfoSAWIT, JAKARTA – Initially, palm oil was intended solely for cooking oil needs; however, it can now also be processed into “dozens of oleochemical products” and “biofuels” such as biodiesel and bio gasoline (palm oil gasoline, jet fuel, gas). The total demand for biofuels is around 130 million tons per year. If Indonesia wants to reduce its dependence on fossil fuels, strengthening palm oil production is a viable alternative. While there are many other sources of biofuels, they are less efficient.
As of 2023, the area of palm oil plantations is 16.8 million hectares, consisting of 6.3 million hectares of smallholder plantations, 8.4 million hectares of private plantations, and only 0.56 million hectares of state-owned plantations. Palm oil is a strategic commodity that should not be dominated by the private sector; therefore, permits for the development of palm oil plantations must be halted immediately. Furthermore, state-owned plantations must be expanded.
The table below shows that state-owned plantations yield the highest productivity, at 51.3% of their potential. In comparison, private plantations yield 43.04%, and smallholder plantations yield 31.99%. State-owned plantations are the best performers. When comparing state-owned to private plantations, there is a 19% difference, but if comparing state-owned to smallholder plantations, the difference is 60%. This significant gap is believed to be due to issues with fertilizers and crop management.
Technology for processing palm oil into biofuels is available; however, the main issue lies in the supply of palm oil as raw material, as there is a large gap between potential and realization. Currently, domestic consumption is around 25 million tons, export demand is 25 million tons, and palm oil production is 50 million tons (Bisnis.com).
In 2024, the government set a quota for subsidized Pertalite fuel at 31.6 million kiloliters (kl), while the subsidized diesel quota is 19.58 million kl, totaling 51.18 million kl of subsidized oil (CNBC Indonesia, January 2, 2025). The total demand for all fuels is 126.39 million kl in 2023 (Bisnis.com, December 6, 2024), meaning that non-subsidized fuel amounts to 75.21 million kl.
The total fuel demand in 2025 is estimated at 130 million tons. If all fuel is replaced with biofuels, the palm oil requirement would be at least 130 million tons, plus the export quota of 25 million tons, totaling 155 million tons, while current production is only 50 million tons, indicating a shortfall of 105 million tons. Indonesia must achieve a national production of at least 160 million tons per year.
The existing palm oil plantations, if managed intensively, could potentially increase production to 100 million tons. The remaining 50 million tons could be obtained by developing new land of approximately 11 million hectares, with available land including 3.5 million hectares of idle palm oil permits (European Forest Institute, 2024), 20.5 million hectares of unused land (Kompas.com, May 13, 2024), and 20 million hectares of forest land that can be converted (Kompas.tv, January 3, 2025). Thus, Indonesia can truly achieve energy independence, as sufficient land is available.
The challenge in increasing national palm oil production is the involvement of eight agencies: 1. Ministry of Agriculture, 2. Ministry of Industry, 3. Ministry of Trade, 4. PT Pertamina, 5. BPDPKS, 6. ATR, 7. Local Government, and 8. Banking. Therefore, good coordination is needed, or a separate body is required to unify these eight agencies. The issue is how to manage these eight agencies to work together and support the fulfillment of national palm oil production needs. Indonesia must become a global leader in palm oil and stop importing low-quality fossil fuels.
Certainly, a long-term plan is needed, including:
Increasing national palm oil production from 50 million tons to 100, then to 150 million tons through various programs, namely: a. Providing subsidized fertilizers from an average of 1 kg/tree/year to 8 kg/tree/year, significantly boosting productivity. b. Utilizing the Production Force Management method, which allows productivity to increase by 60-100%. c. It is estimated that 5-10% of palm oil plantations need waterlogging control. d. Improving production road networks to ensure that all production can be delivered to palm oil mills in the shortest time possible.
Field facts indicate that many smallholder plantations and even large plantations are not familiar with fertilizers, which is why subsidized fertilizers are necessary. This subsidy will return in the form of taxes, export duties, and levies, amounting to twice the expenditure for subsidies. In state-owned plantations with the highest productivity, fertilizers are also rarely used to their full potential. The calculation is that the cost of fertilizers is incurred this year, while the benefits are felt the following year, often creating a dilemma, as the final benchmark is the profit of the business in that year.
Strengthening state-owned plantations (PTPN) to ensure they cover at least 51% of the total area of national palm oil, for the following reasons: a. PTPN currently covers only 3.5% of the total area of palm oil plantations in Indonesia, which needs to be increased to 51% or at least 11 million hectares. b. PTPN should be developed rather than merged. At least 11 million hectares of additional area should be managed by PTPN, requiring 11-12 PTPNs managing palm oil at 1 million hectares each. c. PTPN yields the highest productivity, 11% above private plantations and 19% above smallholder plantations. d. PTPN has relatively good human resources, with its own educational institutions and research bodies. e. PTPN pays more taxes than private plantations, meaning that developing PTPN benefits the state. f. PTPN pays dividends to the state every year, while private plantations do not pay royalties or anything other than taxes. g. A separate state-owned enterprise for biofuel processing is needed to produce all types of biofuels (Biodiesel, Bio Jet Fuel, Bio Gasoline). It is risky for this strategic biofuel sector to be entirely controlled by the private sector.
The direct impact of subsidizing fertilizers for oil palm crops is an increase in fresh fruit bunch (FFB) productivity, subsequently raising the income of palm oil farmers/businesses. Furthermore, the government will receive both tax and non-tax revenues amounting to twice the value of the subsidy costs. Additionally, due to the increased income of farmers/businesses, there will be an escalation of money circulation and economic activity in the region, job creation, and a reduction in poverty rates. The indirect impact (multiplier effect) is the double effect that occurs when economic activities increase due to rising income and spending.
Developing state-owned plantations (PTPN) can be achieved through various means, including assigning state-owned plantations to take over abandoned private companies, taking over plantations facing issues with banks since collateral 2 or 3, opening new land on idle/abandoned land, and opening new land in neglected or convertible forest areas.
PTPN is easier to manage by the government, with 10 out of 14 units managing palm oil. The distribution includes 1 unit in Java, 7 units in Sumatra, 1 unit in Kalimantan, and 1 unit in Sulawesi. The potential for development lies in Sumatra, Kalimantan, and Sulawesi, but the most significant potential is in Papua. Developing PTPN from 9 to 18 PTPNs, which are state-owned enterprises, is safer, as palm oil is a strategic commodity. The development of PTPN and the area of plantations, including plasma, can be achieved within 10 years, necessitating a long-term plan as follows:
Developing land in PTPN in Sumatra covering 1.5 million hectares, spread across 6 provinces except Lampung due to unsuitable climate.
Increasing the number of PTPNs as follows: a. Adding 2 PTPNs in Kalimantan, namely 1. West Kalimantan, 2. Central and South Kalimantan, and 3. East and North Kalimantan. These 3 PTPNs can be tasked with adding palm oil areas of 3 million hectares. b. Adding 3 PTPNs in Sulawesi, namely 1. South and West Sulawesi, 2. Central Sulawesi, 3. North Sulawesi and Gorontalo, and 4. Southeast Sulawesi. These 4 PTPNs can be tasked with developing palm oil plantation areas of 3 million hectares. c. Adding 1 PTPN in Maluku (North and South), tasked with managing palm oil plantations covering 500,000 hectares. d. Adding 3 PTPNs in Papua, namely 1. Papua, 2. West Papua, and 3. Central and South Papua. These 3 PTPNs in Papua will be tasked with planting palm oil over 3 million hectares.
Although current palm oil production is around 50 million tons, considering its potential, this development can be carried out as follows:
Phase 1 (First 5 Years): Meeting the shortfall of subsidized palm oil biofuels by 52 million tons.
Phase 2 (Next 5 Years): Meeting the total demand for subsidized and non-subsidized palm oil of 130 million tons.
Politically, the discovery of biodiesel, gasoline, bio jet fuel, and bio gas from crude palm oil is very encouraging; however, it may disrupt many import businesses. The government must also anticipate potential negative impacts.
