Jakarta. Indonesia’s decision to increase the palm oil blend in its biodiesel can be risky if the country lacks a robust supply chain and proper quality audits, analysts have warned.

Indonesia is increasing the mandated blending rate of palm oil in its biodiesel to 50% from 40%, a move better known as the B50. President Prabowo Subianto will officially launch the program later this week. To gain public approval, the government repeatedly stated that the program would enable Indonesia to save Rp 157.28 trillion or $8.7 billion in foreign exchange from cutting fuel imports.

But a B50 rollout before Indonesia has a well-established methanol supply chain and quality control is extremely risky, according to automotive expert Yannes Martinus Pasaribu. For context, producing the so-called fatty acid methyl ester (FAME), the biodiesel made from palm oil, requires methanol.

"The best contingency plan is a combination of securing short-term methanol import sources, tightening quality oversight and technical readiness in the field, while still accelerating our domestic methanol development," Yannes said.

Indonesia’s national demand for methanol is around 2.9 million tons a year, which would cost the country up to Rp 20 trillion ($1.1 billion). Domestic production stands at only 400,000 tons, meaning that the country has to tap foreign supplies to plug the gap. But these estimates also show how the amount of money that Indonesia has to spend on methanol imports is only a tiny fraction of the Rp 157 trillion fuel import savings.

"Importing methanol while building a domestic industry remains much cheaper than relying on very large volumes of imported diesel. And we know how diesel fuel imports are vulnerable to Middle Eastern turmoil,” Yannes said.

Permata Bank Chief Economist Josua Pardede also finds it worrisome if the B50 mandate is in place without an adequate supporting supply chain.

Aside from the road tests, Indonesia needs to conduct audits on the fuel quality standards in factories and gas stations, crude palm oil and biodiesel stocks, methanol availability, and palm oil exports. Indonesia also has to implement a transparent pricing scheme for the biodiesel.

Josua also suggested that the government come up with emergency policy brakes. For instance, Indonesia should consider temporarily reducing the mandatory palm oil blend to 40% or 45% in certain regions amid supply, quality, or price disruptions.

"B50 can become a healthy instrument of energy independence, not a policy that trades dependence on fuel imports for new risks in the palm oil and methanol supply chain," Josua said.

KPBB, the non-governmental committee for phasing out leaded fuel, acknowledged that biofuel plays a strategic role in reducing reliance on fossil fuels. But this doesn't mean Indonesia should sit back and rest on its laurels on the green transition.

“Boosting vehicle electrification is more urgent. We must not only focus on biodiesel,” KPBB executive director Ahmad Safrudin said.

Indonesia is the world's largest palm oil supplier.

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