Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants seeking phase-in period expect progressive intro

Industry deals with technical challenges and cost concerns

Government financing problems develop due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually sustained issues it could curb global palm oil supplies, looks significantly most likely to be carried out gradually, analysts said, as market individuals seek a phase-in duration.

Indonesia, the world's biggest producer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a dive in palm futures and might push prices further in 2025.

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

Indonesia's biggest fuel merchant, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and keep B40, which will be completed during a "transition period after federal government develops the required", representative Fadjar Djoko Santoso informed Reuters, without offering details.

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

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be out gradually, and that biodiesel producers are ready to supply the higher mix.

"I have confirmed the preparedness with all producers last week," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, said the federal government has not released allotments for manufacturers to sell to fuel sellers, which it normally has actually done by this time of the year.

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

The federal 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, funding the higher mix could likewise be a difficulty as palm oil now costs around $400 per metric lot more than crude oil. Indonesia utilizes proceeds from palm oil export levies, handled by a company 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, sustaining market speculation that a levy walking is imminent.

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, including palm smallholders.

"I believe there will be a delay, due to the fact that if it is implemented, the subsidy will increase. Where will (the money) come from?" he stated.

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

"The execution may be slow and progressive in 2025 and most likely more busy 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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina