Indonesia insists B40 biodiesel implementation to continue on Jan. 1

Industry participants seeking phase-in period expect gradual introduction

Industry faces technical challenges and cost issues

Government funding concerns arise due to palm oil price disparity

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

Indonesia, the world's biggest manufacturer and exporter of palm oil, plans to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has triggered a jump in palm futures and might press rates even more in 2025.

While the federal government of President Prabowo Subianto has actually said repeatedly the strategy is on track for full launch in the brand-new year, industry watchers say expenses and technical difficulties are likely to result in partial execution before complete adoption throughout the sprawling archipelago.

Indonesia's most significant fuel retailer, state-owned Pertamina, stated it requires to modify a few of its fuel terminals to mix and keep B40, which will be finished during a "transition period after government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without providing information.

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

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed slowly, which biodiesel manufacturers are ready to provide the greater blend.

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

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

"We can't deliver the goods without order files, and order documents are acquired after we get contracts with fuel companies," Gunawan told Reuters. "Fuel companies can only sign contracts after the ministerial decree (on biodiesel allocations)."

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 initial quote of 16 million kilolitres.

FUNDING CHALLENGES

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

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

However, the palm oil industry would object to a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, consisting of palm smallholders.

"I believe there will be a delay, due to the fact that if it is carried out, the aid will increase. Where will (the cash) come from?" he said.

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

"The implementation might be sluggish and progressive 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 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.)