Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry participants looking for phase-in duration anticipate steady intro

Industry deals with technical obstacles and cost concerns

Government financing problems occur due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has fuelled issues it could curb worldwide palm oil supplies, looks increasingly likely to be implemented gradually, analysts stated, as market individuals seek a phase-in duration.

Indonesia, the world's greatest manufacturer and of palm oil, prepares to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a dive in palm futures and might push rates even more in 2025.

While the federal government of President Prabowo Subianto has actually stated repeatedly the strategy is on track for complete launch in the brand-new year, market watchers state costs and technical obstacles are likely to lead to partial implementation before complete adoption throughout the sprawling archipelago.

Indonesia's greatest fuel retailer, state-owned Pertamina, said it needs to modify a few of its fuel terminals to mix and save B40, which will be completed throughout a "transition duration after government develops the mandate", representative Fadjar Djoko Santoso informed Reuters, without providing information.

During a meeting with federal government officials and biodiesel producers recently, fuel sellers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in presence, informed Reuters.

Hiswana Migas, the fuel retailers' association, did not right away react to a request for remark.

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate walking would not be carried out slowly, which biodiesel manufacturers are ready to supply the greater mix.

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

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

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

The government prepares to assign 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 could likewise be an obstacle as palm oil now costs around $400 per metric ton more than crude oil. Indonesia uses proceeds from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

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

However, the palm oil market would challenge a levy hike, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the industry, consisting of palm smallholders.

"I believe there will be a delay, because if it is carried out, 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 execution might be slow and gradual 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 achieve energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina