Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry individuals looking for phase-in duration expect progressive introduction

Industry deals with technical obstacles and cost issues

Government financing issues emerge due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia’s plan to expand its biodiesel mandate from Jan. 1, which has actually fuelled concerns it could curb global palm oil products, looks increasingly most likely to be executed slowly, analysts said, as market individuals seek a phase-in period.

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

While the federal government of President Prabowo Subianto has said consistently the strategy is on track for complete launch in the brand-new year, market watchers say costs and technical obstacles are likely to result in partial implementation before full adoption across the sprawling archipelago.

Indonesia’s most significant fuel seller, state-owned Pertamina, stated it needs to modify some of its fuel terminals to blend and store B40, which will be completed throughout a “transition period after federal government establishes the required”, representative Fadjar Djoko Santoso told Reuters, without supplying information.

During a conference with federal government officials and biodiesel producers last week, fuel retailers asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, informed Reuters.

Hiswana Migas, the fuel retailers’ association, did not right away respond to an ask for comment.

Energy ministry Eniya Listiani Dewi informed Reuters the mandate walking would not be implemented slowly, which biodiesel manufacturers are all set to provide the higher mix.

“I have actually verified the readiness with all manufacturers last week,” she said.

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

“We can’t deliver the products without order documents, and purchase order files are obtained after we get agreements with fuel business,” Gunawan told Reuters. “Fuel business can only sign agreements after the ministerial decree (on biodiesel allowances).”

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

FUNDING CHALLENGES

For the federal government, funding the greater mix might also be an obstacle as palm oil now costs around $400 per metric heap more than petroleum. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS approximated it required 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 impending.

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

“I think there will be a hold-up, because if it is implemented, the aid will increase. Where will (the money) come from?” he stated.

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

“The implementation might be slow and progressive in 2025 and most likely more fast-paced in 2026,” he stated.

Prabowo, who took office 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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina