Indonesia firmly insists B40 biodiesel execution to proceed on Jan. 1
Industry participants looking for phase-in duration expect steady introduction
Industry deals with technical challenges and cost concerns
Government funding issues emerge due to palm oil rate variation
JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has actually fuelled issues it could curb global palm oil products, looks progressively likely to be carried out gradually, analysts said, as industry participants look for a phase-in period.
Indonesia, the world's greatest producer and exporter of palm oil, plans 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 press costs even more in 2025.
While the government of President Prabowo Subianto has said repeatedly the plan is on track for complete launch in the new year, industry watchers say costs and technical obstacles are most likely to result in partial application before full adoption throughout the sprawling island chain.
Indonesia's greatest fuel merchant, state-owned Pertamina, stated it requires to modify a few of its fuel terminals to mix and store B40, which will be finished throughout a "transition duration after federal government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without supplying information.
During a conference with federal government authorities and biodiesel producers recently, fuel merchants asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, informed Reuters.
Hiswana Migas, the fuel merchants' association, did not right away react to an ask for remark.
Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be implemented slowly, which biodiesel producers are all set to supply the higher mix.
"I have confirmed the preparedness with all manufacturers last week," she stated.
APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the government has actually not released allocations for producers to offer to fuel merchants, which it normally has actually done by this time of the year.
"We can't perform without order documents, and order files are gotten after we get contracts with fuel business," Gunawan informed Reuters. "Fuel business can only sign agreements after the ministerial decree (on biodiesel allocations)."
The government plans to allocate 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 federal government, moneying the higher mix could also be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses earnings from palm oil export levies, managed by a company called BPDPKS, to cover such spaces.
In November, BPDPKS approximated it needed a 68% boost 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 impends.
However, the palm oil market would object to a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the industry, including palm smallholders.
"I think there will be a hold-up, because if it is implemented, the subsidy will increase. Where will (the cash) originate from?" he stated.
Nagaraj Meda, managing director of Transgraph Consulting, a commodity consultancy, said B40 application would be challenging in 2025.
"The execution may be slow and steady in 2025 and most likely more hectic in 2026," he said.
Prabowo, who took workplace in October, campaigned on a platform to raise the mandate further 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.)
