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Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants looking for phase-in period anticipate progressive intro

Industry deals with technical difficulties and cost concerns

Government funding issues occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has actually fuelled concerns it might curb international palm oil products, looks increasingly likely to be carried out gradually, experts stated, as industry participants seek a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, prepares to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a jump in palm futures and might press costs even more in 2025.

While the government of President Prabowo has actually said consistently the strategy is on track for complete launch in the brand-new year, market watchers state costs and technical difficulties are most likely to result in partial implementation before full adoption throughout the stretching archipelago.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it needs to modify some of its fuel terminals to mix and store B40, which will be completed during a "shift period after federal government establishes the required", representative Fadjar Djoko Santoso told Reuters, without offering information.

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

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be carried out slowly, which biodiesel producers are prepared to supply the greater blend.

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

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

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

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 federal government, moneying the higher blend might also be a challenge as palm oil now costs around $400 per metric load more than crude oil. Indonesia utilizes proceeds from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% increase 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 market would challenge a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the market, including palm smallholders.

"I think there will be a delay, since if it is implemented, the aid will increase. Where will (the money) come from?" he stated.

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

"The execution might be slow and gradual in 2025 and probably more busy in 2026," he stated.

Prabowo, who took office 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.)