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

Industry individuals looking for phase-in duration anticipate progressive introduction

Industry faces technical difficulties and cost concerns

Government financing issues occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has actually sustained concerns it might curb international palm oil supplies, looks progressively most likely to be executed gradually, analysts said, as market individuals look for a phase-in duration.

Indonesia, the world's greatest producer and exporter of palm oil, plans to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off a dive in palm futures and may pressure prices even more in 2025.

While the federal government of President Prabowo Subianto has said 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 complete adoption throughout the sprawling archipelago.

Indonesia's biggest fuel merchant, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and save B40, which will be finished during a "shift period after federal government develops the mandate", representative Fadjar Djoko Santoso told Reuters, without offering details.

During a meeting with federal government authorities and biodiesel producers last week, fuel merchants requested a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

Hiswana Migas, the fuel retailers' association, did not instantly react to a request for comment.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be executed slowly, which biodiesel manufacturers are all set to supply the greater blend.

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be combined with diesel fuel, stated the government has not provided allotments for manufacturers to sell to fuel retailers, which it generally has done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, funding the higher blend might likewise be a challenge as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes profits from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS approximated 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, sustaining market speculation that a levy hike 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 hurt the market, consisting of palm smallholders.

"I think there will be a delay, since if it is executed, the subsidy will increase. Where will (the money) originate from?" he stated.

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

"The application may 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 further 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.)