Indonesia s Higher Biodiesel Mandate Rollout May Be Gradual

Indonesia firmly insists B40 biodiesel implementation to continue on Jan. 1


Industry participants seeking phase-in duration anticipate gradual introduction


Industry faces technical obstacles and expense issues


Government financing problems arise due to palm oil cost disparity


JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has actually fuelled issues it could curb global palm oil products, looks significantly likely to be implemented slowly, experts stated, as industry participants look for a phase-in period.


Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a jump in palm futures and might pressure costs further in 2025.


While the government of President Prabowo Subianto has stated consistently the plan is on track for complete launch in the new year, market watchers state expenses and technical obstacles are likely to result in partial implementation before complete adoption throughout the sprawling archipelago.


Indonesia's biggest fuel merchant, state-owned Pertamina, said it requires to modify some of its fuel terminals to mix and keep B40, which will be completed during a "shift duration after federal government establishes the required", spokesperson Fadjar Djoko Santoso informed Reuters, without providing details.


During a conference with federal government officials and biodiesel producers last week, fuel merchants requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, informed Reuters.


Hiswana Migas, the fuel retailers' association, did not instantly react to a demand for comment.


Energy ministry senior official Eniya Listiani Dewi informed Reuters the required walking would not be implemented slowly, which biodiesel manufacturers are ready to provide the higher blend.


"I have actually verified the preparedness with all producers recently," she stated.


APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, stated the government has actually not issued allocations for producers to sell to fuel retailers, which it normally has done by this time of the year.


"We can't deliver the goods without purchase order files, and order documents are obtained after we get agreements with fuel companies," Gunawan informed Reuters. "Fuel business can just sign agreements after the ministerial decree (on biodiesel allocations)."


The government prepares to assign 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its of 16 million kilolitres.


FUNDING CHALLENGES


For the government, funding the higher blend could also be an obstacle as palm oil now costs around $400 per metric load more than petroleum. Indonesia utilizes profits from palm oil export levies, managed by a firm called BPDPKS, to cover such spaces.


In November, BPDPKS approximated it needed a 68% boost in subsidies to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, fuelling market speculation that a levy walking is imminent.


However, the palm oil market would object to a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the industry, consisting of palm smallholders.


"I think there will be a hold-up, due to the fact that if it is executed, the subsidy will increase. Where will (the cash) originate from?" he said.


Nagaraj Meda, managing director of Transgraph Consulting, a commodity consultancy, stated B40 implementation would be challenging in 2025.


"The implementation might be slow and steady in 2025 and most likely more fast-paced in 2026," he said.


Prabowo, who took workplace in October, campaigned on a platform to raise the mandate even more to B50 or B60 to accomplish energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)