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

Industry individuals seeking phase-in period anticipate progressive intro

Industry deals with technical obstacles and cost concerns

Government funding issues occur due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has fuelled issues it could suppress global palm oil products, looks progressively likely to be implemented slowly, experts said, as market participants seek a phase-in period.

Indonesia, the world's biggest producer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a dive in palm futures and may push prices further in 2025.

While the federal government of President Prabowo Subianto has actually said repeatedly the strategy is on track for full launch in the new year, industry watchers state costs and technical challenges are likely to lead to partial execution before complete adoption throughout the sprawling archipelago.

most significant fuel seller, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and keep B40, which will be finished throughout a "shift period after government develops the mandate", representative Fadjar Djoko Santoso told Reuters, without offering information.

During a meeting with federal government authorities and biodiesel manufacturers last week, fuel merchants requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in presence, informed Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to a demand for comment.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be carried out slowly, which biodiesel manufacturers are ready to provide the greater mix.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, said the government has not provided allocations for manufacturers to sell to fuel merchants, which it usually has actually done by this time of the year.

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

The federal government plans to assign 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the greater blend could likewise be a challenge as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS approximated it required a 68% increase 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 walking is imminent.

However, the palm oil industry would object to a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, including palm smallholders.

"I believe there will be a delay, since if it is carried out, the aid will increase. Where will (the cash) come from?" he stated.

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

"The application might be slow and gradual in 2025 and probably more busy in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the mandate even more 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.)