Indonesia's Higher Biodiesel Mandate Rollout May Be Gradual,
Indonesia firmly insists B40 biodiesel application to continue on Jan. 1
Industry individuals looking for phase-in duration expect gradual introduction
Industry deals with technical obstacles and cost issues
Government funding problems develop due to palm oil rate variation
JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually fuelled concerns it could curb international palm oil products, looks increasingly likely to be executed gradually, experts stated, as industry participants look for a phase-in duration.
Indonesia, the world's biggest producer and exporter of palm oil, prepares to raise the mandatory 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 stated repeatedly the plan is on track for full launch in the new year, market watchers say expenses and technical obstacles are likely to result in partial application before full adoption throughout the stretching archipelago.
Indonesia's biggest fuel seller, state-owned Pertamina, stated it requires to customize some of its fuel terminals to blend and save B40, which will be completed during a "transition period after government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without providing details.
During a conference with government officials and biodiesel manufacturers recently, fuel retailers asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in participation, told Reuters.
Hiswana Migas, the fuel retailers' association, did not immediately respond to an ask for comment.
Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be implemented slowly, which biodiesel producers are prepared to provide the greater blend.
"I have actually confirmed the preparedness with all producers recently," she stated.
APROBI, whose members make fat methyl ester (FAME) from palm oil to be mixed with diesel fuel, said the government has actually not provided allocations for manufacturers to offer to fuel retailers, which it normally has actually 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 informed Reuters. "Fuel companies can just sign contracts after the ministerial decree (on biodiesel allowances)."
The government prepares to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its estimate of 16 million kilolitres.
FUNDING CHALLENGES
For the government, funding the greater blend might likewise be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses proceeds from palm oil export levies, handled by a firm 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 approximated 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 walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the market, including 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, managing director of Transgraph Consulting, a commodity consultancy, said B40 execution would be challenging in 2025.
"The application may be sluggish and progressive in 2025 and probably more busy in 2026," he stated.
Prabowo, who took office in October, campaigned on a platform to raise the mandate even more 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.)