Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry participants seeking phase-in duration anticipate steady introduction

Industry faces technical challenges and expense issues

Government financing issues arise due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually sustained concerns it could suppress worldwide palm oil supplies, looks increasingly likely to be implemented gradually, analysts stated, as industry individuals seek a phase-in duration.

Indonesia, the world's most significant producer and exporter of palm oil, prepares to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off a jump in palm futures and may pressure costs even more in 2025.

While the government of President Prabowo Subianto has actually said repeatedly the plan is on track for full launch in the new year, market watchers say costs and technical obstacles are most likely to lead to partial application before full adoption across the sprawling island chain.

Indonesia's most significant fuel merchant, state-owned Pertamina, said it needs to modify a few of its fuel terminals to blend and store B40, which will be finished during a "transition period after government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without offering information.

During a with government officials and biodiesel producers recently, fuel retailers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

Hiswana Migas, the fuel sellers' association, did not instantly respond to a request for remark.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be implemented gradually, which biodiesel manufacturers are prepared to provide the greater mix.

"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 combined with diesel fuel, said the federal government has actually not provided allotments for manufacturers to sell to sustain sellers, which it generally has actually done by this time of the year.

"We can't perform without purchase order files, and order files are obtained after we get contracts with fuel business," Gunawan informed Reuters. "Fuel business can only sign contracts after the ministerial decree (on biodiesel allowances)."

The federal government prepares to designate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its preliminary estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the higher blend could likewise be an obstacle as palm oil now costs around $400 per metric lot more than crude oil. Indonesia utilizes earnings from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it needed a 68% boost 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 market would challenge a levy hike, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the industry, consisting of palm smallholders.

"I believe there will be a delay, because if it is implemented, the aid will increase. Where will (the cash) originate from?" he stated.

Nagaraj Meda, managing director of Transgraph Consulting, a commodity consultancy, stated B40 application would be challenging in 2025.

"The application may be sluggish and gradual in 2025 and probably more fast-paced in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the required even more to B50 or B60 to attain energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina