Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry participants looking for phase-in period expect gradual intro

Industry faces technical obstacles and expense issues

Government funding concerns develop due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has actually sustained concerns it might suppress global palm oil supplies, looks increasingly most likely to be executed slowly, analysts said, as market participants seek a phase-in period.

Indonesia, the world's greatest 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 set off a dive in palm futures and may pressure costs further in 2025.

While the government of President Prabowo Subianto has said consistently the strategy is on track for complete launch in the brand-new year, market watchers say costs and technical difficulties are likely to lead to partial implementation before full adoption throughout the sprawling archipelago.

Indonesia's greatest fuel seller, state-owned Pertamina, said it requires to customize a few of its fuel terminals to mix and keep B40, which will be finished during a "transition period after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying information.

During a conference with government officials and biodiesel manufacturers last week, fuel merchants requested a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in presence, told Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be executed slowly, and that biodiesel producers are all set to provide the greater mix.

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

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

"We can't perform without order documents, and purchase order documents are gotten after we get agreements with fuel companies," Gunawan told Reuters. "Fuel business can just sign agreements after the ministerial decree (on biodiesel allocations)."

The federal government plans 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 government, moneying the higher blend might also be a difficulty as palm oil now costs around $400 per metric lot more than crude oil. Indonesia uses proceeds from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.

In November, BPDPKS approximated it needed 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 walking is impending.

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

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

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

"The implementation may be sluggish 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 even more 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.)