Indonesia firmly insists B40 biodiesel application to continue on Jan. 1

Industry individuals looking for phase-in period anticipate progressive intro

Industry deals with technical obstacles and expense issues

Government funding concerns arise due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has sustained concerns it might curb international palm oil products, looks progressively most likely to be implemented slowly, experts stated, as market participants seek a phase-in period.

Indonesia, the world's biggest manufacturer 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 may push prices further in 2025.

While the government of President Prabowo Subianto has stated consistently the plan is on track for complete launch in the brand-new year, industry watchers say costs and technical obstacles are most likely to result in partial application before complete adoption across the stretching archipelago.

Indonesia's greatest fuel seller, state-owned Pertamina, said it requires to customize a few of its fuel terminals to mix and save B40, which will be completed during a "transition period after federal government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

During a meeting with government officials and biodiesel manufacturers last week, fuel retailers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in presence, told Reuters.

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be executed gradually, and that biodiesel producers are all set to supply the higher mix.

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

APROBI, whose members make methyl ester (FAME) from palm oil to be combined with diesel fuel, said the government has actually not released allocations for producers to offer to fuel retailers, which it typically has actually 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 agreements with fuel business," Gunawan told Reuters. "Fuel companies can only sign contracts after the ministerial decree (on biodiesel allocations)."

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 initial quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher mix might likewise be a challenge as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses proceeds from palm oil export levies, managed by a company 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 hike impends.

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

"I believe there will be a delay, due to the fact that 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 product consultancy, stated B40 application would be challenging in 2025.

"The implementation may be sluggish and progressive in 2025 and most likely more fast-paced in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the required 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