KUALA LUMPUR (Nov 8): The tax structure on crude palm oil (CPO) and palm oil based products in Indonesia has been used to attack its government but the move masks an entirely different story, an Indonesian biofuel industry representative alleged yesterday.

Speaking at the final day of the  Oils and Fats International Congress 2014 (OFIC 2014), Indonesia Biofuel Producers Association vice chairman Paulus Tjakrawan acknowledged that the nation's tax structure is problematic for trade, but asserted that there are other factors playing up the sentiments of traders in the European Union (EU).

Reports have pointed out that Europe imports almost a quarter of its biodiesel and 90% of that comes from two countries – Indonesia and Argentina – which both operate differential export tax (DET) regimes that the EU says make raw materials more expensive than the finished product.

The DET allows both countries to access soybean and palm oil at 35%-40% lower than the rest of the world and when the product is transformed into biediesel locally, would not be taxed when it is exported.

"We admit that it has opened the door for the EU to attack us but we have to look at the global perspective," he said when answering questions from attendees of the congress after his presentation. 

He was responding to a question from the audience on whether the tax structure in the trade of plam oil should be removed to better reflect the real value of CPO.

"Palm oil generally has a (perception) problem in the EU, Australia and other countries in areas such as health, environment, greenhouse gas emissions, Indonesia's subsidies and dumping," he added.

Tjakrawan also alleged that Argentinian government's move in 2012 to seize back majority control of the country’s largest energy firm, YPF, in which Spanish oil company Repsol owns a 57% stake, has dragged Indonesia into the tussle where biodiesel imports are concerned.

"Spain had complained to the European Commission, which led to the EU taking issue with dumping. So, really, politics and economics have to do with it as well," he added.

The Spanish government had reportedly decided to restrict imports of biodiesel fuel from Argentina in retaliation to the Argentinian government's decision to take over Repsol’s YPF. 

After two years of battling at the international courts, Repsol's board of directors approved a US$5 billion settlement with the government of Argentina.

Prior to the case's conclusion, Bloomberg had reported last year that the EU had imposed tariffs on biodiesel from Argentina and Indonesia for five years.

The duties were placed as a punitive action against biodiesel exporters in Argentinia and Indonesia for allegedly selling it in the EU below cost, also known as dumping.

But after investigations conducted by European authorities found no proof of dumping, the decision was put on hold, said Tjakrawan.

He also said after "many" discussions with the Indonesian government, it looks like the tax structure is here to stay.

Indonesia implemented the tax structure to help draw investment to downstream businesses in the palm oil industry, among others, he added. 

Nevertheless, he said Indonesia is already looking to expand its biodiesel market, with China, India and other nations already in the loop.

"We are not worried if the EU decreases their biodiesel imports from us because our exports have already increased to other countries like China and India," he said.

Indonesia exports 95% of its biodiesel to the EU after satisfying local demand. He said Indonesia's plan to implement the B20 biodiesel mandate in the country by 2016 will help keep stocks in check.

Under the B20 programme, 20% of palm oil methyl ester will be required to be added to diesel.

Tjakrawan said Indonesia currently produces five kilolitres of biodiesel, of which three kilolitres is channelled towards domestic consumption.

OFIC 2014, which started on Nov 5 and ended yesterday, is jointly organised by the Malaysian Oil Scientists' and Technologists' Association and Oils & Fats International, in collaboration with the Malaysian Palm Oil Board. The Edge Media Group is the media partner.