Indonesia s Higher Biodiesel Mandate Rollout May Be Gradual

Indonesia firmly insists B40 biodiesel implementation to continue on Jan. 1


Industry participants seeking phase-in duration anticipate steady introduction


Industry deals with technical difficulties and expense issues


Government funding issues develop due to palm oil cost variation


JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has sustained concerns it could suppress worldwide palm oil products, looks increasingly likely to be implemented slowly, experts said, as market participants look for a phase-in duration.


Indonesia, the world's biggest producer and exporter of palm oil, plans to raise the compulsory mix of palm oil in to 40% - called B40 - from 35%, a policy that has set off a jump in palm futures and might press prices even more in 2025.


While the government of President Prabowo Subianto has said repeatedly the plan is on track for full launch in the new year, industry watchers say costs and technical challenges are most likely to result in partial execution before complete adoption across the sprawling island chain.


Indonesia's biggest fuel seller, state-owned Pertamina, stated it needs to modify a few of its fuel terminals to mix and keep B40, which will be finished throughout a "shift period after government establishes the required", representative Fadjar Djoko Santoso told Reuters, without supplying information.


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


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


Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be carried out slowly, which biodiesel manufacturers are ready to provide the higher blend.


"I have actually confirmed the readiness with all producers last week," she said.


APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be combined with diesel fuel, said the government has not released allocations for manufacturers to sell to fuel merchants, which it generally has done by this time of the year.


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


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


FUNDING CHALLENGES


For the federal government, moneying the higher blend might likewise be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes proceeds from palm oil export levies, handled by a firm called BPDPKS, to cover such spaces.


In November, BPDPKS approximated 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 is impending.


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


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


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


"The application may be slow and steady in 2025 and probably more hectic in 2026," he stated.


Prabowo, who took workplace in October, campaigned on a platform to raise the mandate 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.)