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

Industry individuals seeking phase-in period expect steady introduction

Industry deals with technical challenges and expense issues

Government financing concerns occur due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually fuelled issues it might curb international palm oil supplies, looks significantly likely to be executed gradually, analysts stated, as market individuals 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 actually activated a dive 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 new year, industry watchers say costs and technical challenges are likely to result in partial implementation before complete adoption throughout the sprawling island chain.

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

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

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be implemented slowly, which biodiesel producers are all set to supply the higher mix.

"I have actually confirmed the preparedness with all producers recently," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has not provided allotments for producers to offer to sustain retailers, which it usually has done by this time of the year.

"We can't perform without order documents, and purchase order files are acquired after we get contracts with fuel companies," Gunawan told Reuters. "Fuel business can just sign agreements after the ministerial decree (on biodiesel allowances)."

The federal government plans to assign 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the greater blend might likewise 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, handled by a company called BPDPKS, to cover such spaces.

In November, BPDPKS estimated 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, sustaining market speculation that a levy walking impends.

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

"I think there will be a delay, since if it is carried out, the subsidy will increase. Where will (the cash) originate from?" he said.

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

"The application may be sluggish and progressive in 2025 and probably more fast-paced 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 accomplish 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.)