Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry participants seeking phase-in period expect steady introduction

Industry faces technical obstacles and cost concerns

Government funding concerns occur due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has sustained issues it could curb worldwide palm oil supplies, looks significantly likely to be implemented gradually, analysts stated, as industry 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 triggered a dive in palm futures and may pressure prices even more 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, market watchers state costs and technical challenges are most likely to result in partial implementation before full adoption across the sprawling island chain.

Indonesia's most significant fuel retailer, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and keep B40, which will be completed during a "transition period after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying information.

During a conference with federal government officials and biodiesel manufacturers last week, fuel merchants asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

Hiswana Migas, the fuel merchants' association, did not instantly react to an ask for remark.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be executed slowly, and that biodiesel producers are ready to provide the higher mix.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be mixed with diesel fuel, stated the government has not released allocations for manufacturers to offer to sustain retailers, which it generally has actually done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, funding the greater mix might likewise be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes proceeds from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.

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, sustaining market speculation that a levy walking is .

However, the palm oil market 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 hold-up, since if it is carried out, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

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

Prabowo, who took workplace 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