Indonesia s Higher Biodiesel Mandate Rollout May Be Gradual

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


Industry participants seeking phase-in period anticipate steady intro


Industry faces technical obstacles and cost issues


Government funding problems develop due to palm oil cost variation


JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has fuelled concerns it could curb international palm oil supplies, looks significantly most likely to be executed gradually, experts stated, as market participants look for a phase-in period.


Indonesia, the world's most significant 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 actually activated a dive in palm futures and might push rates further 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 expenses and technical challenges are most likely to lead to partial application before complete adoption across the stretching archipelago.


Indonesia's most significant fuel merchant, state-owned Pertamina, stated it requires to customize a few of its fuel terminals to blend and keep B40, which will be finished throughout a "transition duration after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without providing details.


During a conference with federal government officials and biodiesel manufacturers recently, fuel sellers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in participation, told Reuters.


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


Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate walking would not be implemented slowly, and that biodiesel manufacturers are prepared to supply the higher mix.


"I have actually validated the preparedness with all producers last week," she said.


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


"We can't deliver the goods without order files, and purchase order files are acquired after we get contracts with fuel companies," Gunawan informed Reuters. "Fuel business can only sign contracts after the ministerial decree (on biodiesel allowances)."


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


FUNDING CHALLENGES


For the government, funding the higher mix might likewise be an obstacle as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia utilizes earnings from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.


In November, BPDPKS approximated it required 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 looms.


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


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


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


"The implementation may be sluggish and progressive in 2025 and probably more fast-paced in 2026," he said.


Prabowo, who took workplace in October, campaigned on a platform to raise the required 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; by Tony Munroe and Lincoln Feast.)