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

Industry individuals looking for phase-in period anticipate gradual intro

Industry faces technical challenges and expense issues

Government funding concerns emerge due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has sustained issues it might curb global palm oil materials, looks progressively most likely to be executed slowly, experts said, as market individuals seek a phase-in period.

Indonesia, the world's biggest manufacturer and exporter of palm oil, prepares to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off a jump in palm futures and might push costs even more in 2025.

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

Indonesia's most significant fuel seller, state-owned Pertamina, stated it requires to customize a few of its fuel terminals to blend and store B40, which will be finished throughout a "transition period after government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without offering details.

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

Hiswana Migas, the fuel merchants' association, did not immediately react to a demand for remark.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be implemented slowly, and that biodiesel producers are all set to provide the higher mix.

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

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

"We can't deliver the products without purchase order files, and order documents are acquired after we get contracts with fuel business," Gunawan informed Reuters. "Fuel business can just sign contracts after the ministerial decree (on biodiesel allocations)."

The federal government prepares to designate 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 federal government, funding the higher blend could likewise be a difficulty as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia uses profits from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it needed a 68% increase in subsidies to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking is impending.

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

"I think there will be a delay, because if it is implemented, the aid will increase. Where will (the money) originate from?" he said.

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

"The application might be slow and progressive in 2025 and probably more busy in 2026," he said.

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