Indonesia firmly insists B40 biodiesel implementation to continue on Jan. 1

Industry participants seeking phase-in duration anticipate gradual intro

Industry faces technical obstacles and expense concerns

Government funding concerns emerge due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has actually fuelled issues it might curb worldwide palm oil supplies, looks progressively most likely to be implemented gradually, analysts stated, as industry participants seek a phase-in duration.

Indonesia, the world's biggest manufacturer and exporter of palm oil, plans to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a dive in palm futures and may push rates further in 2025.

While the federal government of President Prabowo Subianto has actually stated repeatedly the plan is on track for complete launch in the new year, market watchers say expenses and technical difficulties are most likely to result in partial execution before full adoption across the sprawling archipelago.

Indonesia's greatest fuel seller, state-owned Pertamina, said it requires to modify some of its fuel terminals to mix and store B40, which will be completed throughout a "shift period after federal government establishes the required", representative Fadjar Djoko Santoso told Reuters, without offering information.

During a meeting with federal government authorities and biodiesel producers last week, fuel sellers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, informed Reuters.

Hiswana Migas, the fuel sellers' association, did not right away react to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate hike would not be executed gradually, and that biodiesel producers are ready to provide the greater blend.

"I have confirmed the readiness with all producers last week," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not issued allowances for manufacturers to offer to sustain retailers, which it usually has done by this time of the year.

"We can't perform without purchase order files, and purchase order files are acquired after we get agreements with fuel companies," Gunawan told Reuters. "Fuel companies can just sign agreements after the ministerial decree (on biodiesel allowances)."

The federal government prepares to allocate 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 mix could likewise be a difficulty as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes proceeds from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it needed a 68% increase in aids to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, fuelling market speculation that a levy hike looms.

However, the palm oil market would challenge a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the market, including palm smallholders.

"I believe there will be a hold-up, since if it is implemented, the subsidy will increase. Where will (the cash) originate from?" he said.

Nagaraj Meda, handling director of Transgraph Consulting, a product consultancy, stated B40 implementation would be challenging in 2025.

"The implementation may be slow and steady in 2025 and probably more hectic in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the mandate further to B50 or B60 to accomplish energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)