Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry participants looking for phase-in duration expect progressive intro

Industry deals with technical obstacles and cost concerns

Government funding concerns occur due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has actually sustained issues it could curb international palm oil products, looks increasingly most likely to be executed gradually, analysts stated, as industry participants look for a phase-in period.

Indonesia, the world's biggest 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 activated a jump in palm futures and might push rates even more in 2025.

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

Indonesia's greatest fuel retailer, state-owned Pertamina, said it needs to customize a few of its fuel terminals to blend and keep B40, which will be finished during a "shift period after government develops the mandate", representative Fadjar Djoko Santoso told Reuters, without providing details.

During a conference with federal government authorities and biodiesel producers recently, fuel sellers asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in presence, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate walking would not be implemented gradually, which biodiesel producers are all set to provide the higher blend.

"I have actually validated the preparedness with all producers recently," she said.

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

"We can't perform without order files, and order documents are acquired after we get agreements with fuel companies," Gunawan told Reuters. "Fuel business can just sign contracts 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 informed Reuters, less than its preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher mix might likewise be a challenge as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes proceeds from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

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

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

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

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

"The application may be slow and steady in 2025 and probably more busy in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the required further to B50 or B60 to accomplish 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.)