Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry individuals looking for phase-in period expect gradual introduction

Industry faces technical obstacles and cost concerns

Government financing concerns develop due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia’s strategy to broaden its biodiesel required from Jan. 1, which has actually fuelled concerns it could curb global palm oil supplies, looks progressively likely to be executed gradually, analysts stated, as market individuals seek a phase-in period.

Indonesia, the world’s biggest producer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off a jump in palm futures and might push rates even more in 2025.

While the federal government of President Prabowo Subianto has stated repeatedly the strategy is on track for full launch in the brand-new year, market watchers say costs and technical challenges are most likely to result in partial implementation before full adoption throughout the sprawling archipelago.

Indonesia’s biggest fuel merchant, state-owned Pertamina, said it needs to customize some of its fuel terminals to blend and save B40, which will be finished during a “transition period after federal government develops the required”, spokesperson Fadjar Djoko Santoso told Reuters, without offering information.

During a meeting with federal government authorities and biodiesel manufacturers recently, fuel merchants requested a period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, informed Reuters.

Hiswana Migas, the fuel merchants’ association, did not right away react to a demand for remark.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed slowly, and that biodiesel producers are ready to supply the higher blend.

“I have actually validated the preparedness with all manufacturers last week,” she said.

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

“We can’t perform without order documents, and purchase order documents are acquired after we get contracts with fuel companies,” Gunawan told Reuters. “Fuel business can just sign contracts after the ministerial decree (on biodiesel allocations).”

The government plans to allocate 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 higher mix might likewise be an obstacle as palm oil now costs around $400 per metric load more than unrefined oil. Indonesia uses earnings from palm oil export levies, managed by an agency called BPDPKS, to cover such spaces.

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

However, the palm oil market would challenge a levy hike, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would harm the market, including palm smallholders.

“I think there will be a delay, since if it is implemented, the subsidy will increase. Where will (the cash) come from?” he stated.

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

“The execution may be slow and gradual 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 required further 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