PSO vs Non-PSO Biodiesel Under B40: Who Covers the Price Gap on 7.55 Million kL?

Under Indonesia's B40 programme in 2025, biodiesel is split into two segments: public service obligation (PSO) and non-PSO. Both must be blended at 40% into diesel, but only PSO volume has its price gap covered by the palm oil plantation fund managed by the Plantation Fund Management Agency (BPDP, formerly BPDPKS). Of this year's 15.62 million kL allocation, 7.55 million kL is PSO and 8.07 million kL non-PSO, according to the Ministry of Energy and Mineral Resources (ESDM).

What PSO and non-PSO biodiesel mean

Energy and Mineral Resources Minister Bahlil Lahadalia, quoted by Bloomberg Technoz in January 2025, defined PSO as the volume whose price gap is borne by the state. For non-PSO, the market selling price is said to be the same, but the state does not cover the incentive. The legal basis is ESDM Ministerial Decree No. 341.K/EK.01/MEM.E/2024 on 40% biodiesel blending within the BPDPKS financing framework.

Bloomberg Technoz described the split as a new scheme under B40, writing that it was introduced because BPDPKS funds were insufficient to cover incentives for the entire 2025 biodiesel volume.

Aspect	PSO	Non-PSO
B40 blending obligation	Yes	Yes
2025 allocation	7.55 million kL	8.07 million kL
Biodiesel–diesel price gap	Covered by BPDP funds	Not covered
Legal basis	ESDM Decree 341.K/EK.01/MEM.E/2024

How the incentive is calculated: the gap between two market index prices

The biodiesel incentive mechanism has been in place at least since the B20 era. ESDM explained in 2018 that palm oil funds are used to cover the shortfall between the market index price (HIP) of diesel and the HIP of biodiesel. Both HIPs are set by ESDM and form the basis for calculating the incentive. The aim is to keep the retail price of the blended fuel in line with the diesel price.

The logic is simple. Fuel companies must distribute biodiesel and sell it at the diesel price. When biodiesel is more expensive than diesel, the palm oil fund covers the gap. When biodiesel is cheaper, nothing needs to be paid. Then-BPDPKS President Director Eddy Abdurrachman told CNBC Indonesia in January 2023 that the agency paid no incentives at all from June to December 2022 because diesel prices had risen above biodiesel. Conversely, in 2021, when biodiesel prices spiked, price-gap payments reportedly reached IDR 51 trillion.

Volume allocations for each producer are set by ESDM. In 2018 the ministry explained that allocations are made pro rata based on each biofuel producer's quota and production capacity, and reviewed every six months. Monthly biodiesel HIP figures can be followed on the biodiesel HIP page.

Where the money comes from

The main source of incentive funding is the levy on palm product exports. Ahead of B40, Coordinating Minister for Economic Affairs Airlangga Hartarto said, as quoted by InfoSAWIT in December 2024, that the levy would be raised to 10% and its use prioritised for the PSO segment. The same report cited a finding by the Audit Board of Indonesia (BPK) that biodiesel incentives accounted for about 90% of BPDPKS fund usage and that the programme was at risk of funding difficulties.

The increase was implemented through PMK 30/2025, effective 17 May 2025: the CPO levy rose from 7.5% to 10%, while the biodiesel FAME levy went from 3% to 4.75%, according to DDTCNews. Since January 2025, the managing agency has also been renamed from BPDPKS to BPDP, with its remit widened to cocoa and coconut, as reported by Bloomberg Technoz.

The impact on the ground

The split has prompted complaints from non-PSO users. At the first-half 2025 performance briefing on 11 August, EBTKE Director General Eniya Listiani Dewi confirmed complaints from industrial companies about the high cost of non-PSO B40, with purchase prices said to vary — some at IDR 24 thousand, others at IDR 12 thousand (the unit was not specified), according to ANTARA. Bahlil said the government was looking for a formula that would let industry use B40 at affordable prices.

On the PSO side, funding needs have also shifted. Bloomberg Technoz reported in August 2025 that Airlangga, as chair of the steering committee, approved an additional IDR 16.8 trillion allocation of BPDPKS funds for B40 through December. Eniya stressed that the government was not depositing any new money; the request was only for a larger allocation from existing funds.

Put simply, the monthly burden on the palm oil fund is determined by the gap between the biodiesel HIP and the diesel HIP, multiplied by PSO volume. As long as the gap is positive and PSO volume is large, funding needs are high; when diesel prices rise above biodiesel, the incentive burden can fall to zero.