Indonesia insists B40 biodiesel execution to proceed on Jan. 1
Industry participants looking for phase-in period expect progressive introduction
Industry faces technical obstacles and cost concerns
Government funding concerns develop due to palm oil price variation
JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has sustained issues it might curb worldwide palm oil materials, looks progressively likely to be carried out gradually, analysts stated, as industry individuals look for a phase-in duration.
Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a jump in palm futures and might push costs even more in 2025.
While the government of President Prabowo Subianto has stated repeatedly the strategy is on track for full launch in the brand-new year, market watchers say costs and technical challenges are likely to lead to partial application before complete adoption throughout the stretching island chain.
Indonesia's biggest fuel seller, state-owned Pertamina, said it requires to modify some of its fuel terminals to blend and save B40, which will be completed throughout a "shift duration after government develops the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without providing information.
During a meeting with government officials and biodiesel manufacturers last week, fuel merchants requested a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, informed Reuters.
Hiswana Migas, the fuel sellers' association, did not instantly respond to a request for comment.
Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be executed slowly, which biodiesel producers are ready to supply the higher blend.
"I have actually confirmed the preparedness with all manufacturers last week," she said.
APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, stated the federal government has not provided allowances for producers to sell to sustain retailers, which it generally has done by this time of the year.
"We can't provide the products without order files, and purchase order files are acquired after we get agreements with fuel business," Gunawan informed Reuters. "Fuel companies can just sign agreements after the ministerial decree (on biodiesel allowances)."
The federal government prepares to designate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its preliminary quote of 16 million kilolitres.
FUNDING CHALLENGES
For the government, funding the greater mix could also be a challenge as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses earnings from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.
In November, BPDPKS estimated it required a 68% boost in aids to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy hike looms.
However, the palm oil market would object to a levy hike, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would harm the market, including palm smallholders.
"I believe there will be a hold-up, because if it is executed, the subsidy will increase. Where will (the cash) come from?" he stated.
Nagaraj Meda, handling director of Transgraph Consulting, a commodity consultancy, said B40 execution would be challenging in 2025.
"The execution might be sluggish and progressive in 2025 and probably more busy in 2026," he stated.
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.)
