10/11/2012 (Jakarta Post) - Indonesia, the world’s largest palm oil producer, expects to see investment of up to US$2 billion in the downstream industry over the next three years, a move that will spur the growth of a wide range of oleochemicals and refined products, an industry association says.

The investment will be made by a number of big refiners, both foreign and local, including Singapore-based Wilmar International Ltd and US-based Proctor and Gamble (P&G) and local groups such as Sinar Mas Group, Musim Mas and Permata Hijau Group.

Several projects were currently being realized, Indonesian Vegetable Oil Refiners Association (GIMNI) executive director Sahat Sinaga said on Thursday.

“We have seen investment in the downstream palm oil industry accelerate since early this year. This year alone we’ve had around $1 billion and will soon see more in the upcoming years,” Sahat told The Jakarta Post, adding that this mainly resulted from the export tax structure, which created incentives for refiners and retained palm oil supply domestically.

Wilmar, for example, will spend up to $900 million in the next few years to build several palm oil processing facilities to make refined products and biodiesel, one such is currently being constructed in Gresik, East Java. Consumer-goods giant P&G is slated to build oleochemical plants in Sei Mangke, North Sumatra, next year.

Local firms are also developing various value-added products through new facilities, such as integrated oleofood and oleochemical plants by Sinar Mas Group totaling Rp 2.3 trillion ($239.15 million), integrated oleochemical plants by Musim Mas Group totaling Rp 2 trillion, integrated oleochemical and oleofood plants by Permata Hijau Group worth Rp 2 trillion.

Late last year, the government introduced a new tax regime that lowered export tax on refined palm oil products from 25 percent to 10 percent.

This new tax structure is supported by a progressive tax on the export of crude palm oil (CPO), which starts at 22.5 percent whenever the commodity price in the international market rises beyond $750 per ton. Exporters should pay an export tax of 1.5 percent for every $50 rise in the price above the threshold.

Apart from the investment, Sahat said, the new export structure has impacted the composition of palm oil exports.

Last year, CPO made up 60 percent of total palm oil exports, while the remaining 40 percent were refined products. As of October this year, refined products dominated overall palm oil exports with a 60.1 percent share, with CPO representing 39.9 percent.

Indonesia has been producing around 80 types of refined palm oil items since early this year, rising from 45 types last year, according to Sahat.