JAKARTA: Indonesia’s plan to expand its biodiesel mandate from Jan. 1, which has fuelled concerns it could curb global palm oil supplies, looks increasingly likely to be implemented gradually, analysts said, as industry participants seek a phase-in period.
Indonesia, the world’s biggest producer and exporter of palm oil, plans to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has triggered a jump in palm futures and may pressure prices further in 2025.
While the government of President Prabowo Subianto has said repeatedly the plan is on track for full launch in the new year, industry watchers say costs and technical challenges are likely to result in partial implementation before full adoption across the sprawling archipelago.
Indonesia’s biggest fuel retailer, state-owned Pertamina, said it needs to modify some of its fuel terminals to mix and store B40, which will be completed during a “transition period after government establishes the mandate”, spokesperson Fadjar Djoko Santoso told Reuters, without providing details. During a meeting with government officials and biodiesel producers last week, fuel retailers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, told Reuters. Hiswana Migas, the fuel retailers’ association, did not immediately respond to a request for comment.
Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be implemented gradually, and that biodiesel producers are ready to supply the higher blend. “I have confirmed the readiness with all producers last week,” she said. APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be mixed with diesel fuel, said the government has not issued allocations for producers to sell to fuel retailers, which it typically has done by this time of the year.
“We can’t deliver the goods without purchase order documents, and purchase order documents are obtained after we get contracts with fuel companies,” Gunawan told Reuters. “Fuel companies can only sign contracts 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 told Reuters, less than its initial estimate of 16 million kilolitres.
FUNDING CHALLENGES
For the government, funding the higher blend could also be a challenge as palm oil now costs around $400 per metric ton more than crude oil. Indonesia uses proceeds from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.
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 hike is imminent. However, the palm oil industry would object to a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the industry, including palm smallholders.
“I think there will be a delay, because if it is implemented, the subsidy will increase.
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