Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants looking for phase-in period expect steady introduction

Industry faces technical difficulties and cost issues

Government funding problems occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has actually fuelled concerns it might curb global palm oil products, looks increasingly likely to be implemented gradually, experts said, as market participants seek 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 dive in palm futures and might pressure rates further in 2025.

While the federal government of President Prabowo Subianto has stated consistently the strategy is on track for full launch in the brand-new year, industry watchers say expenses and technical obstacles are most likely to lead to partial execution before full adoption throughout the sprawling archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, said it needs to modify some of its fuel terminals to blend and keep B40, which will be finished throughout a "transition duration after government develops the required", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

During a conference with government authorities and biodiesel manufacturers recently, fuel merchants requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in participation, told Reuters.

Hiswana Migas, the fuel merchants' association, did not instantly react to an ask for comment.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate walking would not be executed gradually, and that biodiesel producers are prepared to provide the higher mix.

"I have actually validated the preparedness with all manufacturers 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 allocations for producers to sell to sustain merchants, which it typically has actually done by this time of the year.

"We can't deliver the products without purchase order files, and purchase order files are acquired after we get agreements with fuel business," Gunawan informed Reuters. "Fuel business can only 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 told Reuters, less than its initial estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher blend could likewise be a challenge as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia utilizes profits from palm oil export levies, managed by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS approximated 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, fuelling market speculation that a levy hike impends.

However, the palm oil market would challenge a levy hike, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would harm the market, consisting of palm smallholders.

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

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

"The implementation might be sluggish and gradual in 2025 and probably more busy in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the mandate 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.)