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

Industry participants seeking phase-in period expect progressive intro

Industry deals with technical challenges and cost concerns

Government financing issues occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has sustained issues it might suppress global palm oil materials, looks significantly likely to be carried out slowly, experts said, as industry participants seek a phase-in duration.

Indonesia, the world's biggest manufacturer and exporter of palm oil, plans 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 might pressure rates even more in 2025.

While the federal government of President Prabowo Subianto has actually said consistently the strategy is on track for complete launch in the brand-new year, industry watchers state expenses and technical obstacles are likely to lead to partial application before complete adoption across the stretching island chain.

Indonesia's most significant fuel retailer, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and store B40, which will be finished during a "transition period after government establishes the required", representative Fadjar Djoko Santoso told Reuters, without offering details.

During a conference with government authorities and biodiesel manufacturers last week, fuel retailers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in presence, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be implemented gradually, which biodiesel producers are ready to provide the greater mix.

"I have actually confirmed the readiness with all producers recently," she said.

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

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

The government plans to allocate 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 government, funding the higher blend could likewise be a difficulty as palm oil now costs around $400 per metric ton more than crude oil. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

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

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

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

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

"The execution may be sluggish and gradual in 2025 and most likely more fast-paced in 2026," he said.

Prabowo, who took office in October, campaigned on a platform to raise the mandate further 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; Editing by Tony Munroe and Lincoln Feast.)