Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry participants seeking phase-in duration expect progressive introduction

Industry faces technical difficulties and cost concerns

Government funding concerns occur due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has actually sustained concerns it might suppress worldwide palm oil materials, looks significantly likely to be executed gradually, experts stated, as industry participants look for a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, plans to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a jump in palm futures and may push costs further in 2025.

While the government of President Prabowo Subianto has actually said repeatedly the strategy is on track for full launch in the brand-new year, market watchers say costs and technical difficulties are likely to lead to partial implementation before full adoption throughout the stretching island chain.

Indonesia's biggest fuel merchant, state-owned Pertamina, stated it requires to modify a few of its fuel terminals to mix and save B40, which will be finished during a "shift duration after federal government establishes the required", representative Fadjar Djoko Santoso told Reuters, without offering details.

During a meeting with federal government authorities and biodiesel manufacturers recently, fuel retailers asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in participation, informed Reuters.

Hiswana Migas, the fuel retailers' association, did not instantly respond to an ask for comment.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required walking would not be implemented slowly, and that biodiesel manufacturers are prepared to supply the higher blend.

"I have verified the readiness with all manufacturers last week," she said.

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

"We can't deliver the items without purchase order files, and purchase order files are obtained after we get contracts with fuel business," Gunawan told Reuters. "Fuel business can only sign agreements after the ministerial decree (on biodiesel allowances)."

The federal government plans 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, moneying the greater mix might also be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes earnings from palm oil export levies, managed by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% boost in aids 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 impending.

However, the palm oil market would challenge a levy walking, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the market, consisting of palm smallholders.

"I think there will be a delay, because if it is carried out, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

"The implementation might be sluggish and steady in 2025 and probably 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.)