Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry individuals seeking phase-in duration expect steady introduction

Industry deals with technical challenges and expense issues

Government financing problems arise due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has fuelled issues it might suppress worldwide palm oil products, looks increasingly likely to be executed gradually, experts 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 actually set off a dive in palm futures and might pressure costs further in 2025.

While the government of President Prabowo Subianto has stated consistently the plan is on track for full launch in the brand-new year, industry watchers say expenses and technical difficulties are most likely to result in partial implementation before full adoption across the stretching archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, said it requires to customize some of its fuel terminals to blend and save B40, which will be completed during a "shift period after federal government develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

During a meeting with federal government authorities and biodiesel producers last week, fuel merchants requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be executed gradually, which biodiesel producers are ready to supply the greater blend.

"I have actually validated the preparedness with all manufacturers recently," she stated.

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

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

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

FUNDING CHALLENGES

For the federal government, funding the higher blend could also be an obstacle as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia utilizes proceeds from palm oil export levies, managed 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 approximated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking is imminent.

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

"I think there will be a hold-up, due to the fact that if it is executed, the aid will increase. Where will (the cash) come from?" he said.

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

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

Prabowo, who took office in October, campaigned on a to raise the required further to B50 or B60 to achieve 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.)