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

Industry participants seeking phase-in period expect progressive intro

Industry faces technical difficulties and expense issues

Government funding problems develop due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has actually sustained concerns it could suppress international palm oil materials, looks significantly likely to be carried out gradually, experts said, as market participants seek a phase-in period.

Indonesia, the world's greatest 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 set off a jump in palm futures and might press costs even more in 2025.

While the of President Prabowo Subianto has stated repeatedly the strategy is on track for complete launch in the new year, market watchers say costs and technical difficulties are most likely to lead to partial implementation before complete adoption across the sprawling island chain.

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

During a meeting with government officials and biodiesel producers last week, fuel sellers requested a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in attendance, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate hike would not be implemented slowly, which biodiesel producers are prepared to provide the higher blend.

"I have verified the preparedness with all manufacturers recently," she stated.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not provided allotments for manufacturers to sell to sustain merchants, which it generally has done by this time of the year.

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

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

FUNDING CHALLENGES

For the federal government, funding the greater mix could likewise be a challenge as palm oil now costs around $400 per metric heap more than petroleum. Indonesia utilizes proceeds from palm oil export levies, handled by a company called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% boost in subsidies 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 is impending.

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

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

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

"The execution might be sluggish and steady 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 attain energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina