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

Industry individuals looking for phase-in duration anticipate gradual introduction

Industry deals with technical obstacles and cost concerns

Government funding concerns occur due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia’s plan to broaden its biodiesel required from Jan. 1, which has actually fuelled concerns it might suppress international palm oil materials, looks increasingly likely to be implemented slowly, analysts said, as market individuals look for a phase-in duration.

Indonesia, the world’s most significant producer and exporter of palm oil, plans to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a jump in palm futures and might pressure rates even more in 2025.

While the government of President Prabowo Subianto has stated repeatedly the strategy is on track for complete launch in the brand-new year, industry watchers say costs and technical challenges are likely to result in partial application before full adoption across the stretching island chain.

Indonesia’s biggest fuel merchant, state-owned Pertamina, said it needs to modify some of its fuel terminals to mix and keep B40, which will be finished throughout a “transition period after federal government develops the required”, representative Fadjar Djoko Santoso informed Reuters, without providing details.

During a conference with federal government officials and biodiesel producers last week, fuel sellers asked for a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, told Reuters.

Hiswana Migas, the fuel sellers’ association, did not immediately react to an ask for remark.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate hike would not be executed slowly, and that biodiesel producers are prepared to provide the greater blend.

“I have confirmed the preparedness with all producers last week,” she stated.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the federal government has actually not provided allocations for producers to sell to fuel merchants, which it typically has done by this time of the year.

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

The government prepares to designate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, moneying the higher blend might likewise be an obstacle as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia uses earnings from palm oil export levies, managed by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it needed 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 walking impends.

However, the palm oil market would object to a levy hike, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the market, consisting of palm smallholders.

“I think there will be a delay, due to the fact that if it is carried out, the subsidy will increase. Where will (the cash) originate from?” he stated.

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

“The implementation may be slow and progressive in 2025 and most likely more busy in 2026,” he said.

Prabowo, who took office in October, campaigned on a to raise the required further to B50 or B60 to attain energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina