Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry individuals looking for phase-in period anticipate progressive intro

Industry deals with technical challenges and cost issues

Government financing concerns develop due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled concerns it could suppress worldwide palm oil materials, looks progressively most likely to be implemented slowly, experts said, as market participants seek a phase-in period.

Indonesia, the world's greatest producer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a dive in palm futures and may push costs even more in 2025.

While the government of President Prabowo Subianto has actually stated repeatedly the strategy is on track for complete launch in the brand-new year, industry watchers state expenses and technical obstacles are likely to lead to partial execution before full adoption across the sprawling archipelago.

Indonesia's biggest fuel retailer, state-owned Pertamina, stated it requires to customize a few of its fuel terminals to mix and store B40, which will be completed throughout a "transition duration after government establishes the mandate", representative Fadjar Djoko Santoso told Reuters, without providing details.

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

Hiswana Migas, the fuel merchants' association, did not immediately respond to a demand for comment.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate walking would not be carried out gradually, and that biodiesel manufacturers are prepared to supply the greater mix.

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not released allowances for manufacturers to offer to fuel merchants, which it typically has done by this time of the year.

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

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

FUNDING CHALLENGES

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

In November, BPDPKS approximated it needed a 68% increase in aids to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy hike is imminent.

However, the palm oil industry would challenge a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the industry, consisting of palm smallholders.

"I believe there will be a delay, because if it is executed, the aid will increase. Where will (the money) originate from?" he stated.

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

"The execution may be slow and steady in 2025 and probably more hectic 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