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

Industry participants looking for phase-in duration expect steady intro

Industry deals with technical difficulties and expense issues

Government funding issues develop due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has sustained issues it might suppress international palm oil materials, looks significantly most likely to be executed gradually, analysts said, as industry individuals seek a phase-in duration.

Indonesia, the world's biggest manufacturer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a dive in palm futures and may push prices further in 2025.

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

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

During a meeting with federal government authorities and biodiesel producers last week, fuel sellers requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in participation, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be executed slowly, which biodiesel producers are ready to provide the higher mix.

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

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

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

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

FUNDING CHALLENGES

For the federal government, funding the higher mix might likewise be a challenge as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses proceeds from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it required a 68% increase 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 looms.

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

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

Nagaraj Meda, managing director of Transgraph Consulting, a commodity consultancy, stated B40 execution would be challenging in 2025.

"The implementation might be slow and steady in 2025 and probably more hectic in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the required further to B50 or B60 to achieve 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.)