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

Industry participants seeking phase-in period expect progressive intro

Industry deals with technical challenges and expense issues

Government funding issues develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has sustained concerns it might curb worldwide palm oil materials, looks significantly most likely to be implemented gradually, analysts stated, as industry participants look for a phase-in period.

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

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

Indonesia's most significant fuel seller, state-owned Pertamina, stated it requires to modify a few of its fuel terminals to mix and store B40, which will be finished during a "shift duration after federal government develops the mandate", representative Fadjar Djoko Santoso informed Reuters, without supplying details.

During a meeting with federal government authorities and biodiesel producers recently, fuel sellers asked for a two-month transition duration, 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 an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required walking would not be executed gradually, and that biodiesel manufacturers are all set to provide the greater mix.

"I have actually verified the preparedness with all manufacturers last week," she stated.

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

"We can't deliver the goods without order documents, and order documents are obtained after we get agreements with fuel companies," Gunawan told Reuters. "Fuel business can just sign contracts after the ministerial decree (on biodiesel allotments)."

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 initial price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the greater mix might also be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses profits from palm oil export levies, managed by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% increase in aids 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 industry would object to a levy hike, said 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, due to the fact that if it is implemented, the aid will increase. Where will (the cash) come from?" he said.

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

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

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