Indonesia insists B40 biodiesel implementation to continue on Jan. 1

Industry participants looking for phase-in period expect progressive introduction

Industry deals with technical challenges and cost issues

Government funding concerns emerge due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has actually sustained concerns it might suppress global palm oil products, looks significantly most likely to be carried out slowly, analysts said, as industry individuals look for a phase-in duration.

Indonesia, the world's biggest producer and exporter of palm oil, prepares to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a jump in palm futures and might press rates even more in 2025.

While the federal government of President Prabowo Subianto has actually said repeatedly the plan is on track for complete launch in the new year, industry watchers say expenses and technical challenges are likely to lead to partial application before complete adoption across the sprawling archipelago.

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

During a conference with federal government officials and biodiesel producers recently, fuel sellers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, told Reuters.

Hiswana Migas, the fuel retailers' association, did not instantly react to a request for comment.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be implemented gradually, which biodiesel producers are ready to supply the higher blend.

"I have actually verified the readiness with all producers last week," she stated.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be mixed with diesel fuel, said the government has actually not released allotments for manufacturers to sell to fuel sellers, which it normally has done by this time of the year.

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

The government plans 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 greater blend could also be a challenge as palm oil now costs around $400 per metric heap more than crude oil. Indonesia utilizes profits from palm oil export levies, handled by a firm called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it required a 68% boost in subsidies to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy hike looms.

However, the palm oil industry would challenge a levy walking, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the industry, including palm smallholders.

"I believe there will be a hold-up, due to the fact that if it is carried out, the aid will increase. Where will (the cash) originate from?" he stated.

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

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

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