Denpasar. Indonesia's plan to cut fuel imports with its B40 biodiesel mandate is facing challenges as the cost of Fatty Acid Methyl Ester (FAME), the main ingredient in biodiesel, rises. Although the government expects the B40 program to save around Rp 147.5 trillion (about $9 billion) in foreign exchange in 2025, the increase in FAME prices could impact those savings.

FAME, primarily derived from crude palm oil (CPO), has been priced higher than diesel since October 2024, according to Samuel Hamonangan Lubis, Manager of Industrial Sales at Pertamina Patra Niaga, the sales arm of state-owned Pertamina.

“Last year, FAME was cheaper, with CPO priced lower than fossil fuels. However, this has reversed, and now CPO-based FAME is more expensive than diesel,” Samuel said at the International Conference on Oil Palm & Environment (ICOPE) 2025 in Bali, on Friday.

As Indonesia prepares to implement the B40 mandate in 2025, which calls for a 40 percent palm oil blending rate in biodiesel, the government’s strategy to reduce fossil fuel imports and promote cleaner energy faces growing financial challenges.

The rise in FAME prices is straining Pertamina’s cost management efforts, especially as the company continues its commitment to absorb 76 percent of the national biodiesel target of 15.6 million kiloliters (KL) for 2025. Pertamina is also dealing with the growing gap between subsidized and industrial-grade biodiesel prices.

"For the retail sector, the government continues to subsidize biodiesel through the Palm Oil Plantation Fund Management Agency (BPDPKS), but industrial consumers are now bearing the full cost difference," Samuel said. As a result, industries including hotels, mining, and plantations have experienced a 25 percent increase in the price gap between FAME and fossil diesel from December to January.

While these rising costs have complicated Indonesia's energy transition, Pertamina is adhering to government regulations, with the B40 program continuing to reduce fossil fuel imports, despite challenges in fully eliminating reliance on fossil fuels.

The Indonesian Biofuel Producers Association (APROBI) has praised Pertamina for its role in absorbing 100 percent of the country’s FAME production for 2024, despite facing cost increases. APROBI’s Vice Chairman for Promotion and Communication, Catra De Thouars, commended the success of the B40 program, which has seen biodiesel producers meet Purchase Orders (POs) issued by fuel companies in full compliance.

De Thouars also highlighted the program's significance in helping Indonesia meet its net-zero emissions targets, with the Public Service Obligation (PSO) sector set to hold 48 percent of the nation’s diesel market share for 2025, roughly 7.55 million KL. As a result, BPDPKS’s financial burden has been reduced, having previously covered 100 percent of the price difference for both PSO and Non-PSO sectors.