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

Industry individuals seeking phase-in duration expect progressive introduction

Industry deals with technical obstacles and expense concerns

Government funding concerns arise due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia’s strategy to broaden its biodiesel required from Jan. 1, which has fuelled issues it could suppress worldwide palm oil materials, looks increasingly most likely to be implemented gradually, experts said, as market individuals look for a phase-in duration.

Indonesia, the world’s biggest manufacturer and exporter of palm oil, plans to raise the of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a dive in palm futures and might press prices further in 2025.

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

Indonesia’s most significant fuel retailer, state-owned Pertamina, stated it needs to modify some of its fuel terminals to mix and store B40, which will be completed throughout a “transition period after government develops the required”, spokesperson Fadjar Djoko Santoso told Reuters, without providing information.

During a conference with government officials and biodiesel manufacturers last week, fuel sellers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, informed Reuters.

Hiswana Migas, the fuel sellers’ association, did not immediately react to a demand for comment.

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate walking would not be implemented gradually, which biodiesel producers are ready to supply the greater blend.

“I have validated the readiness with all producers recently,” 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 not provided allocations for producers to offer to fuel sellers, which it usually has actually done by this time of the year.

“We can’t deliver the products without purchase order files, and order documents are gotten after we get agreements with fuel business,” Gunawan told Reuters. “Fuel business can just sign contracts after the ministerial decree (on biodiesel allowances).”

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

FUNDING CHALLENGES

For the federal government, funding the higher blend could also be a difficulty as palm oil now costs around $400 per metric heap more than petroleum. Indonesia uses proceeds from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

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

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

“I think there will be a hold-up, because if it is executed, the aid will increase. Where will (the cash) come from?” he stated.

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

“The application may be sluggish and progressive in 2025 and probably 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