Indonesia s Higher Biodiesel Mandate Rollout May Be Gradual

Indonesia firmly insists B40 biodiesel execution to proceed on Jan. 1


Industry individuals looking for phase-in duration expect gradual introduction


Industry faces technical challenges and cost issues


Government funding concerns emerge due to palm oil cost variation


JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has fuelled concerns it might curb global palm oil materials, looks increasingly likely to be carried out slowly, experts stated, as industry individuals look for a phase-in duration.


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


While the federal of President Prabowo Subianto has said repeatedly the plan is on track for full launch in the new year, market watchers state costs and technical difficulties are most likely to lead to partial execution before complete adoption across the stretching archipelago.


Indonesia's greatest fuel retailer, state-owned Pertamina, stated it needs to modify some of its fuel terminals to mix and keep B40, which will be completed during a "transition period after federal government establishes the required", representative Fadjar Djoko Santoso told Reuters, without supplying details.


During a conference with federal government officials and biodiesel producers last week, fuel retailers asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in presence, told Reuters.


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


Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate walking would not be carried out gradually, and that biodiesel manufacturers are prepared to provide the greater mix.


"I have confirmed the readiness 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 issued allocations for producers to sell to sustain retailers, which it normally has done by this time of the year.


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


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 initial price quote of 16 million kilolitres.


FUNDING CHALLENGES


For the federal government, moneying the higher mix might also be an obstacle as palm oil now costs around $400 per metric load more than unrefined oil. Indonesia utilizes earnings from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.


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


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


"I believe there will be a delay, because if it is carried out, the aid will increase. Where will (the cash) originate from?" he said.


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


"The implementation might be slow and steady in 2025 and most likely more busy 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.)