Indonesia s Higher Biodiesel Mandate Rollout May Be Gradual

Indonesia insists B40 biodiesel execution to proceed on Jan. 1


Industry individuals looking for phase-in duration anticipate steady introduction


Industry faces technical difficulties and cost concerns


Government financing concerns occur due to palm oil cost disparity


JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has fuelled issues it might suppress global palm oil products, looks significantly likely to be executed slowly, experts said, as market individuals seek a phase-in period.


Indonesia, the world's most significant producer and exporter of palm oil, prepares to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a dive in palm futures and might press costs further in 2025.


While the government of President Prabowo Subianto has said repeatedly the strategy is on track for full launch in the new year, market watchers state costs and technical challenges are likely to result in partial application before full adoption across the sprawling archipelago.


Indonesia's most significant fuel merchant, state-owned Pertamina, said it requires to modify some of its fuel terminals to blend and keep B40, which will be completed during a "shift period after federal government establishes the mandate", representative Fadjar Djoko Santoso told Reuters, without offering information.


During a conference with government authorities and biodiesel producers recently, fuel retailers asked for a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, told Reuters.


Hiswana Migas, the fuel merchants' association, did not immediately react to a request for remark.


Energy ministry senior main Eniya Listiani Dewi informed Reuters the would not be carried out gradually, and that biodiesel producers are all set to supply the higher mix.


"I have actually confirmed the preparedness with all manufacturers last week," she stated.


APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be combined with diesel fuel, said the government has actually not released allocations for manufacturers to sell to sustain sellers, which it typically has actually done by this time of the year.


"We can't deliver the items without order files, and order files are gotten after we get agreements with fuel business," Gunawan told Reuters. "Fuel companies can only sign agreements after the ministerial decree (on biodiesel allocations)."


The federal government plans to assign 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its preliminary price quote of 16 million kilolitres.


FUNDING CHALLENGES


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


In November, BPDPKS approximated it required a 68% increase in aids 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 impending.


However, the palm oil industry would object to a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the industry, including palm smallholders.


"I think there will be a delay, 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, said B40 application would be challenging in 2025.


"The execution may be slow and gradual in 2025 and probably more hectic in 2026," he stated.


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