Indonesia s Higher Biodiesel Mandate Rollout May Be Gradual

Indonesia insists B40 biodiesel implementation to continue on Jan. 1


Industry individuals looking for phase-in duration anticipate gradual introduction


Industry deals with technical obstacles and cost issues


Government financing issues emerge due to palm oil price variation


JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has fuelled issues it might suppress global palm oil materials, looks increasingly most likely to be carried out gradually, analysts stated, as industry individuals look for a phase-in period.


Indonesia, the world's most significant 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 may pressure costs even more in 2025.


While the federal government of President Prabowo Subianto has said repeatedly the strategy is on track for full launch in the brand-new year, industry watchers state expenses and technical obstacles are most likely to lead to partial implementation before full adoption throughout the stretching island chain.


Indonesia's biggest fuel retailer, state-owned Pertamina, said it needs to modify a few of its fuel terminals to blend and keep B40, which will be finished during a "shift period after government establishes the mandate", representative Fadjar Djoko Santoso told Reuters, without providing information.


During a meeting with government officials and biodiesel producers recently, fuel sellers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, informed Reuters.


Hiswana Migas, the fuel retailers' association, did not instantly react to an ask for remark.


Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be carried out slowly, which biodiesel manufacturers are prepared to provide the greater mix.


"I have actually verified the readiness with all manufacturers recently," she said.


APROBI, whose members make fat methyl ester (FAME) from palm oil to be mixed with diesel fuel, stated the federal government has actually not issued allowances for producers to sell to fuel sellers, which it normally has actually done by this time of the year.


"We can't perform without purchase order files, and order documents are acquired after we get agreements with fuel companies," Gunawan informed Reuters. "Fuel companies can only sign agreements after the ministerial decree (on biodiesel allotments)."


The federal 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 price quote of 16 million kilolitres.


FUNDING CHALLENGES


For the government, funding the greater mix could also 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, managed by a firm called BPDPKS, to cover such spaces.


In November, BPDPKS approximated it needed a 68% increase in aids 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 market would challenge a levy hike, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the industry, including palm smallholders.


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


Nagaraj Meda, handling director of Transgraph Consulting, a product consultancy, stated B40 implementation would be challenging in 2025.


"The implementation may be sluggish and progressive in 2025 and probably more busy in 2026," he stated.


Prabowo, who took office in October, campaigned on a platform to raise the required even more 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.)