Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry individuals seeking phase-in period anticipate steady introduction

Industry faces technical difficulties and cost issues

Government financing problems develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has sustained issues it could suppress global palm oil materials, looks progressively most likely to be implemented slowly, analysts said, as market participants look for a phase-in duration.

Indonesia, the world's most significant 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 triggered a dive in palm futures and may press prices further in 2025.

While the government of President Prabowo Subianto has actually stated consistently the plan is on track for full launch in the brand-new year, industry watchers state costs and technical obstacles are most likely to lead to partial application before complete adoption throughout the sprawling island chain.

Indonesia's most significant fuel seller, state-owned Pertamina, said it needs to modify a few of its fuel terminals to mix and save B40, which will be completed throughout a "shift period after government establishes the required", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying information.

During a meeting with federal government authorities and biodiesel manufacturers recently, fuel sellers asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in presence, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed slowly, and that biodiesel producers are prepared to supply the greater mix.

"I have actually validated 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 government has not provided allocations for producers to sell to fuel sellers, which it usually has actually done by this time of the year.

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

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 initial estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the greater mix might also be a challenge as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia uses profits from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

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

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 industry, consisting of 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 said.

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

"The execution might be slow and gradual in 2025 and probably more hectic in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate even more to B50 or B60 to attain 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.)