Indonesia insists B40 biodiesel application to continue on Jan. 1
Industry participants looking for phase-in duration anticipate gradual intro
Industry deals with technical obstacles and cost concerns
Government funding issues emerge due to palm oil rate variation
JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually fuelled issues it might curb global palm oil materials, looks significantly likely to be carried out slowly, analysts said, as industry participants seek a phase-in duration.
Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has triggered a dive in palm futures and might push costs further in 2025.
While the federal government of President Prabowo Subianto has said repeatedly the plan is on track for complete launch in the brand-new year, industry watchers say expenses and technical obstacles are likely to lead to partial execution before full adoption throughout the stretching island chain.
Indonesia's greatest fuel retailer, state-owned Pertamina, stated it needs to modify a few of its fuel terminals to mix and keep B40, which will be finished during a "shift period after federal government develops the mandate", representative Fadjar Djoko Santoso informed Reuters, without supplying details.
During a meeting with government officials and biodiesel manufacturers last week, fuel sellers requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, told Reuters.
Hiswana Migas, the fuel retailers' association, did not right away react to a request for remark.
Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be implemented slowly, and that biodiesel producers are prepared to provide the greater mix.
"I have validated the preparedness with all producers recently," she stated.
APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not issued allowances for manufacturers to sell to fuel merchants, which it usually has done by this time of the year.
"We can't deliver the items without purchase order documents, and order files are acquired after we get agreements with fuel companies," Gunawan told Reuters. "Fuel business can just sign agreements after the ministerial decree (on biodiesel allowances)."
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 initial estimate of 16 million kilolitres.
FUNDING CHALLENGES
For the federal government, funding the greater mix could also be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses earnings from palm oil export levies, handled by a firm called BPDPKS, to cover such spaces.
In November, BPDPKS estimated it required a 68% increase 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 looms.
However, the palm oil market would challenge a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, consisting of palm smallholders.
"I think there will be a hold-up, due to the fact that if it is executed, the subsidy will increase. Where will (the cash) originate from?" he said.
Nagaraj Meda, handling director of Transgraph Consulting, a product consultancy, said B40 implementation would be challenging in 2025.
"The application might be sluggish and gradual in 2025 and probably more fast-paced 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 accomplish energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)
