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

Industry participants looking for phase-in period expect gradual introduction

Industry deals with technical challenges and expense issues

Government financing issues occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia’s strategy to expand its biodiesel mandate from Jan. 1, which has fuelled concerns it could curb worldwide palm oil products, looks significantly most likely to be carried out gradually, experts said, as industry individuals look for a phase-in duration.

Indonesia, the world’s greatest 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 activated a dive in palm futures and might pressure costs even more in 2025.

While the government of President Prabowo Subianto has said consistently the strategy is on track for complete launch in the brand-new year, industry watchers say expenses and technical difficulties are most likely to result in partial implementation before full adoption across the sprawling island chain.

Indonesia’s most significant fuel seller, state-owned Pertamina, said it requires to customize some of its fuel terminals to blend and store B40, which will be finished throughout a “shift period after federal government develops the mandate”, representative Fadjar Djoko Santoso told Reuters, without supplying 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 manufacturers association APROBI, who was in presence, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be carried out gradually, which biodiesel producers are ready to provide the greater mix.

“I have verified 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, stated the government has actually not released allowances for manufacturers to offer to sustain merchants, which it generally has actually done by this time of the year.

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

The government plans to assign 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 government, moneying the higher mix might also be an obstacle 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 gaps.

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

However, the palm oil industry would challenge a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, consisting of palm smallholders.

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

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

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

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