Indonesia insists B40 biodiesel implementation to continue on Jan. 1

Industry participants looking for phase-in period anticipate progressive introduction

Industry faces technical obstacles and expense issues

Government financing issues occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has fuelled issues it could suppress worldwide palm oil materials, looks significantly likely to be executed gradually, experts stated, as industry participants look for a phase-in duration.

Indonesia, the world's biggest producer and exporter of palm oil, prepares 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 may pressure prices further in 2025.

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

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

During a meeting with government authorities and biodiesel producers recently, fuel retailers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in attendance, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed slowly, and that biodiesel manufacturers are prepared to provide the higher blend.

"I have confirmed the preparedness with all producers recently," she stated.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the federal government has actually not issued allotments for producers to offer to fuel merchants, which it usually has actually done by this time of the year.

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

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

FUNDING CHALLENGES

For the federal government, moneying the higher mix could also be an obstacle as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes profits from export levies, managed by a firm 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 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, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the industry, consisting of palm smallholders.

"I think there will be a hold-up, because if it is carried out, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

"The implementation might be slow and steady in 2025 and most likely more fast-paced in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the required even more 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