Indonesia’s plan to increase the palm oil blend in biodiesel to 40 percent (B40) starting January 1, 2025 appears to be implemented gradually after industry players voiced the need for a transition period despite the government’s readiness for the policy rollout.

President Prabowo Subianto, in his speech at the BNI Investor Summit in Jakarta on October 9, 2024, set an ambitious target to increase the biodiesel blend to B50 or B60. This policy is in line with his vision for energy independence. However, with various technical, logistical, and funding challenges, accelerating the B40 rollout remains a major puzzle.

As the world’s largest palm oil producer and exporter, the B40 policy aims to increase energy independence and reduce fuel imports by up to $20 billion per year. However, technical challenges and high costs are major obstacles to full implementation in the archipelagic country.

State-owned energy company PT Pertamina said that several fuel terminals need to be modified to blend and store B40.

"We need a transition period after the mandate is set," Pertamina spokesman Fadjar Djoko Santoso told the media on the sidelines of the COP 29 in Baku, Azerbaijan, on November 18, 2024.

The Biofuel Producers Association (APROBI) also said that until now the government has not issued a biodiesel allocation for producers. "We cannot ship goods without a purchase order document, which can only be issued after a ministerial decision," APROBI Secretary General, Ernest Gunawan, said as quoted by Reuters, on Wednesday, December 18, 2024.

At a meeting with the government and biodiesel producers, Hiswana Migas, a fuel retailer association, asked for a two-month transition period. However, a senior official at the Ministry of Energy and Mineral Resources (ESDM), Eniya Listiani Dewi, emphasized that the implementation of B40 would proceed without delay.

"I confirmed last week that this week the factory have produced the specifications for B40. Well, the specifications for B40 will be delivered (distributed) on January 1," said Eniya.

The challenge of funding is also in the spotlight. With the current price of palm oil around US$400 per metric ton more expensive than crude oil, the subsidy needed to support this program is estimated to reach Rp47 trillion (US$2.9 billion) in 2025, an increase by 68 percent from the previous year.

This funding comes from palm oil export levies managed by the Palm Oil Plantation Fund Management Agency (BPDPKS). However, BPDPKS only estimates the collection of levies of Rp21 trillion (U$1.3 billion), raising speculation about an increase in export levy rates.

On the other hand, the government is targeting an allocation of 15.62 million kiloliters of FAME (Fatty Acid Methyl Ester) for the B40 program in 2025, slightly lower than the initial projection of 16 million kiloliters.

Impact on palm oil market

The plan to increase the biodiesel blend has triggered a spike in palm oil prices on the futures market. Market observers predict that this policy will tighten global supply and push prices even higher in 2025. Although it has a positive impact on the domestic market, the success of implementing this policy will depend heavily on infrastructure readiness, funding support, and coordination between the government and related industries.