Indonesia s Higher Biodiesel Mandate Rollout May Be Gradual

Indonesia insists B40 biodiesel application to continue on Jan. 1


Industry individuals seeking phase-in period anticipate steady intro


Industry deals with technical obstacles and expense concerns


Government financing issues arise due to palm oil price disparity


JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has fuelled concerns it might suppress global palm oil materials, looks increasingly most likely to be carried out slowly, experts said, as market participants look for a phase-in period.


Indonesia, the world's biggest producer and exporter of palm oil, prepares to raise the compulsory 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 prices even more in 2025.


While the government of President Prabowo Subianto has stated consistently the plan is on track for full launch in the brand-new year, industry watchers say expenses and technical obstacles are most likely to result in partial implementation before complete adoption throughout the stretching archipelago.


Indonesia's most significant fuel seller, state-owned Pertamina, said it requires to modify some of its fuel terminals to blend and keep B40, which will be finished during a "transition duration after federal government develops the required", spokesperson Fadjar Djoko Santoso told Reuters, without offering details.


During a meeting with government authorities and biodiesel manufacturers last week, fuel sellers asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, told Reuters.


Hiswana Migas, the fuel merchants' association, did not right away respond to a request for remark.


Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate hike would not be implemented gradually, and that biodiesel manufacturers are ready to supply the greater mix.


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


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


"We can't deliver the products without purchase order files, and purchase order files are gotten after we get contracts with fuel companies," Gunawan informed Reuters. "Fuel companies can only sign contracts after the ministerial decree (on biodiesel allowances)."


The government prepares to 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 blend might also be a challenge as palm oil now costs around $400 per metric heap more than petroleum. Indonesia uses profits from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.


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


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


"I think there will be a delay, because if it is implemented, the subsidy will increase. Where will (the cash) originate from?" he said.


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


"The implementation may be slow and progressive in 2025 and most likely more fast-paced in 2026," he said.


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.)