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

Industry participants looking for phase-in duration expect steady introduction

Industry deals with technical challenges and expense issues

Government financing issues occur due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia’s plan to broaden its biodiesel mandate from Jan. 1, which has fuelled issues it could suppress global palm oil supplies, looks progressively likely to be carried out gradually, experts said, as market participants seek a phase-in duration.

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

While the federal government of President has actually stated consistently the plan is on track for full launch in the brand-new year, market watchers say expenses and technical obstacles are most likely to lead to partial application before full adoption across the sprawling island chain.

Indonesia’s most significant fuel merchant, state-owned Pertamina, said it requires to modify some of its fuel terminals to blend and save B40, which will be finished throughout a “transition period after federal government establishes the required”, representative Fadjar Djoko Santoso told Reuters, without supplying details.

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

Hiswana Migas, the fuel merchants’ association, did not instantly respond to a demand for remark.

Energy ministry senior official Eniya Listiani Dewi told Reuters the required hike would not be carried out gradually, and that biodiesel producers are prepared to provide the higher mix.

"I have validated the preparedness with all manufacturers last week,” she stated.

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

"We can’t perform without purchase order documents, and purchase order documents are obtained after we get contracts with fuel business,” Gunawan informed Reuters. “Fuel business can only sign agreements after the ministerial decree (on biodiesel allocations).“

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

FUNDING CHALLENGES

For the government, funding the higher blend might also be a difficulty as palm oil now costs around $400 per metric ton more than crude oil. Indonesia utilizes earnings from palm oil export levies, handled by a firm called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it required 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 hike impends.

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

"I believe there will be a hold-up, because if it is carried out, the aid will increase. Where will (the money) originate from?” he said.

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

"The implementation may be slow and gradual in 2025 and most likely more busy 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 attain energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina