Indonesia firmly insists B40 biodiesel application to proceed on Jan. 1

Industry participants looking for phase-in period anticipate steady introduction

Industry faces technical difficulties and expense issues

Government funding issues arise due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled issues it could suppress global palm oil materials, looks progressively likely to be executed gradually, analysts said, as industry participants seek a phase-in duration.

Indonesia, the world's greatest producer 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 set off a dive in palm futures and might push prices further in 2025.

While the government of President Prabowo Subianto has said consistently the plan is on track for full launch in the brand-new year, market watchers say expenses and are likely to result in partial implementation before complete adoption throughout the stretching island chain.

Indonesia's most significant fuel merchant, state-owned Pertamina, said it requires to modify some of its fuel terminals to mix and store B40, which will be finished throughout a "transition period after federal government develops the required", spokesperson Fadjar Djoko Santoso told Reuters, without offering information.

During a conference with federal government authorities and biodiesel producers recently, fuel retailers asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, told Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to a demand for remark.

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

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

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

"We can't perform without purchase order files, and 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 allocations)."

The federal 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 price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher mix might likewise be an obstacle as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes profits from palm oil export levies, handled by a company called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it needed a 68% increase 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 walking is imminent.

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

"I believe there will be a hold-up, because if it is implemented, the aid will increase. Where will (the cash) originate from?" he stated.

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

"The application might be slow and progressive in 2025 and probably more fast-paced in 2026," he said.

Prabowo, who took office in October, campaigned on a platform to raise the required even more 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