Indonesia insists B40 biodiesel execution to proceed on Jan. 1
Industry participants looking for phase-in period expect gradual introduction
Industry faces technical difficulties and cost concerns
Government financing concerns emerge due to palm oil cost disparity
JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually sustained issues it could suppress global palm oil materials, looks significantly most likely to be carried out gradually, experts said, as industry individuals look for a phase-in duration.
Indonesia, the world's biggest 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 triggered a jump in palm futures and might press costs even more in 2025.
While the federal government of President Prabowo Subianto has said repeatedly the strategy is on track for complete launch in the new year, market watchers state costs and technical obstacles are most likely to result in partial application before complete adoption throughout the stretching archipelago.
Indonesia's biggest fuel seller, state-owned Pertamina, said it needs to customize some of its fuel terminals to mix and save B40, which will be completed during a "shift period after government develops the required", spokesperson Fadjar Djoko Santoso told Reuters, without offering details.
During a meeting with government authorities and biodiesel producers recently, fuel sellers requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in attendance, informed Reuters.
Hiswana Migas, the fuel sellers' association, did not instantly react to a request for comment.
Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be carried out slowly, which biodiesel manufacturers are prepared to supply the greater blend.
"I have verified the preparedness with all producers last week," she stated.
APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be combined with diesel fuel, stated the federal government has not issued allotments for manufacturers to sell to fuel sellers, which it normally has actually done by this time of the year.
"We can't provide the items without order files, and purchase order files are acquired after we get contracts with fuel business," Gunawan told Reuters. "Fuel business can only sign agreements after the ministerial decree (on biodiesel allocations)."
The government prepares 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 government, moneying the higher mix might likewise be an obstacle as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses 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 approximated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking impends.
However, the palm oil market would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the industry, including palm smallholders.
"I think there will be a delay, because if it is carried out, the aid will increase. Where will (the cash) come from?" he stated.
Nagaraj Meda, handling director of Transgraph Consulting, a commodity consultancy, said B40 execution would be challenging in 2025.
"The implementation might be slow and steady in 2025 and most likely more hectic in 2026," he stated.
Prabowo, who took office in October, campaigned on a platform to raise the mandate further to B50 or B60 to attain 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.)
