Indonesia insists B40 biodiesel implementation to proceed on Jan. 1
Industry individuals looking for phase-in duration expect progressive intro
Industry deals with technical difficulties and cost issues
Government funding issues develop due to palm oil cost disparity
JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has actually fuelled issues it could curb global palm oil products, looks progressively most likely to be implemented gradually, analysts said, as industry individuals look for a phase-in period.
Indonesia, the world's greatest manufacturer and exporter of palm oil, plans to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a dive in palm futures and may press rates further in 2025.
While the federal government of President Prabowo Subianto has said consistently the strategy is on track for complete launch in the new year, market watchers say costs and technical challenges are likely to lead to partial implementation before full adoption throughout the stretching island chain.
Indonesia's biggest fuel retailer, state-owned Pertamina, stated it requires to modify some of its fuel terminals to blend and keep B40, which will be finished throughout a "shift duration after government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without offering details.
During a conference with federal government officials and biodiesel producers recently, fuel retailers asked for a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, told Reuters.
Hiswana Migas, the fuel retailers' association, did not instantly react to an ask for comment.
Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be implemented gradually, and that biodiesel manufacturers are ready to supply the greater blend.
"I have verified the preparedness with all manufacturers last week," she stated.
APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, stated the federal government has actually not provided allocations for manufacturers to offer to fuel retailers, which it typically has done by this time of the year.
"We can't perform without purchase order documents, and order documents are acquired after we get agreements with fuel companies," Gunawan informed Reuters. "Fuel business can only sign agreements after the ministerial decree (on biodiesel allotments)."
The 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 price quote of 16 million kilolitres.
FUNDING CHALLENGES
For the federal government, funding the higher blend could also be a difficulty as palm oil now costs around $400 per metric load more than petroleum. Indonesia uses proceeds from palm oil export levies, managed by a company 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, fuelling market speculation that a levy walking is imminent.
However, the palm oil industry would object to a levy hike, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the industry, including palm smallholders.
"I believe there will be a hold-up, since if it is executed, the subsidy will increase. Where will (the cash) originate from?" he said.
Nagaraj Meda, managing director of Transgraph Consulting, a commodity consultancy, said B40 implementation 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 workplace in October, campaigned on a platform to raise the required further to B50 or B60 to achieve energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)
