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

Industry participants looking for phase-in period anticipate steady intro

Industry faces technical challenges and cost issues

Government financing problems emerge due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has fuelled concerns it might suppress international palm oil products, looks increasingly likely to be carried out slowly, experts said, as industry participants seek a phase-in period.

Indonesia, the world's biggest manufacturer 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 triggered a dive in palm futures and might press prices further in 2025.

While the federal government of President Prabowo Subianto has actually stated consistently the plan is on track for full launch in the brand-new year, market watchers say expenses and technical difficulties are most likely to result in partial implementation before full adoption across the stretching island chain.

Indonesia's greatest fuel retailer, state-owned Pertamina, said it requires to customize some of its fuel terminals to mix and store B40, which will be finished throughout a "shift duration after government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without supplying information.

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

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed gradually, which biodiesel manufacturers are all set to provide the greater blend.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, stated the federal government has not issued allowances for producers to offer to sustain sellers, which it usually has actually done by this time of the year.

"We can't deliver the items without order files, and order documents are acquired after we get agreements with fuel business," Gunawan informed Reuters. "Fuel business can only sign contracts 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 told Reuters, less than its preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

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

In November, BPDPKS approximated it required 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 is impending.

However, the palm oil industry 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 think there will be a hold-up, since if it is carried out, the aid will increase. Where will (the money) originate from?" he stated.

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

"The application might be sluggish and progressive in 2025 and probably more busy in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the required further to B50 or B60 to achieve energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)