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

Industry participants looking for phase-in period expect progressive intro

Industry deals with technical challenges and cost concerns

Government funding issues occur due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has fuelled issues it could curb worldwide palm oil supplies, looks progressively likely to be implemented gradually, said, as market participants look for a phase-in duration.

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 actually activated a jump in palm futures and might push prices even more 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, industry watchers state expenses and technical obstacles are likely to result in partial execution before complete adoption throughout the sprawling archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, stated it needs to modify some of its fuel terminals to mix and keep B40, which will be finished throughout a "transition duration after federal government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without offering details.

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

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required walking would not be implemented gradually, which biodiesel manufacturers are all set to provide the greater blend.

"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 combined with diesel fuel, said the government has actually not provided allocations for manufacturers to offer to sustain sellers, which it usually has done by this time of the year.

"We can't provide the items without purchase order documents, and order files are gotten after we get contracts with fuel companies," Gunawan told Reuters. "Fuel companies can just sign contracts after the ministerial decree (on biodiesel allocations)."

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

FUNDING CHALLENGES

For the government, funding the greater blend could likewise be an obstacle as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated 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, fuelling market speculation that a levy walking looms.

However, the palm oil industry would object to 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, due to the fact that if it is implemented, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

"The application may be slow and steady 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 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.)