Indonesia insists B40 biodiesel implementation to continue on Jan. 1

Industry individuals seeking phase-in duration expect progressive introduction

Industry deals with technical challenges and cost concerns

Government financing problems develop due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has actually fuelled issues it might curb worldwide palm oil products, looks progressively most likely to be executed gradually, analysts said, as industry participants seek a phase-in period.

Indonesia, the world's biggest producer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a dive in palm futures and might press rates further in 2025.

While the government of President Prabowo Subianto has said repeatedly the plan is on track for full launch in the new year, industry watchers state costs and technical obstacles are likely to result in partial execution before full adoption across the sprawling island chain.

Indonesia's most significant fuel retailer, state-owned Pertamina, stated it requires to modify some of its fuel terminals to blend and store B40, which will be completed during a "transition period after federal government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without providing details.

During a meeting with government authorities and biodiesel producers last week, fuel merchants asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in participation, informed Reuters.

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

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

"I have actually confirmed the preparedness with all manufacturers last week," she stated.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, said the federal government has actually not issued allocations for producers to offer to fuel retailers, which it generally has actually done by this time of the year.

"We can't perform without purchase order documents, and order documents are obtained 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 prepares to assign 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 federal government, moneying the higher mix might also be a challenge as palm oil now costs around $400 per metric load more than unrefined 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% 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 market would challenge a levy walking, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the market, including palm smallholders.

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

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

"The application might be slow and steady in 2025 and most likely more busy in 2026," he said.

Prabowo, who took workplace 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 annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)