Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry participants looking for phase-in duration anticipate gradual introduction

Industry faces technical obstacles and expense concerns

Government funding problems arise due to palm oil cost disparity

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

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

While the federal government of President Prabowo Subianto has actually said consistently the strategy is on track for full launch in the new year, market watchers say expenses and technical challenges are most likely to result in partial execution before complete adoption across the stretching archipelago.

Indonesia's greatest fuel merchant, state-owned Pertamina, stated it requires to modify some of its fuel terminals to mix and keep B40, which will be completed throughout a "transition period after federal government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without supplying information.

During a conference with government officials and biodiesel producers last week, fuel merchants requested a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be carried out gradually, which biodiesel producers are all set to supply the higher blend.

"I have actually validated the preparedness with all producers recently," she said.

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

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

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

FUNDING CHALLENGES

For the federal government, moneying the greater mix might also be a challenge as palm oil now costs around $400 per metric lot more than crude oil. Indonesia utilizes proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

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

However, the palm oil industry would challenge a levy hike, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the industry, 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) come from?" he stated.

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

"The execution might be slow and gradual in 2025 and most likely more busy in 2026," he said.

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 annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)