Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants seeking phase-in period expect steady intro

Industry faces technical difficulties and expense issues

Government financing concerns develop due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has sustained issues it might suppress international palm oil materials, looks increasingly likely to be executed slowly, analysts stated, as market participants look for a phase-in period.

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

While the federal government of President Prabowo Subianto has actually stated consistently the plan is on track for full launch in the new year, market watchers say costs and technical difficulties are most likely to result in partial application before full adoption throughout the stretching island chain.

Indonesia's most significant fuel merchant, state-owned Pertamina, said it needs to customize a few of its fuel terminals to mix and keep B40, which will be completed during a "transition duration after government develops the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without providing details.

During a conference with federal government officials and biodiesel producers recently, fuel merchants asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in presence, told Reuters.

Hiswana Migas, the fuel sellers' association, did not instantly react to a demand for comment.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be carried out slowly, and that biodiesel manufacturers are to supply the higher mix.

"I have actually validated the readiness with all producers recently," she stated.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the government has not released allocations for producers to sell to fuel sellers, which it normally has done by this time of the year.

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

The federal government prepares to designate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its initial estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the greater mix might also be a difficulty as palm oil now costs around $400 per metric load more than unrefined oil. Indonesia utilizes earnings from palm oil export levies, managed by a company called BPDPKS, to cover such spaces.

In November, BPDPKS estimated 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 impends.

However, the palm oil industry would object to a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the market, including palm smallholders.

"I believe there will be a hold-up, due to the fact that if it is implemented, the subsidy will increase. Where will (the cash) come from?" he said.

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

"The implementation may be slow and steady in 2025 and most likely more hectic 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 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.)