Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry participants looking for phase-in duration anticipate steady intro

Industry faces technical challenges and expense concerns

Government funding concerns develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled issues it could curb international palm oil materials, looks increasingly likely to be implemented slowly, analysts said, as industry participants look for a phase-in duration.

Indonesia, the world's most significant producer 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 set off a dive in palm futures and might pressure rates further in 2025.

While the federal government of President Prabowo Subianto has actually said repeatedly the plan is on track for complete launch in the new year, market watchers state costs and technical challenges are likely to lead to partial execution before complete adoption across the sprawling archipelago.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it needs to modify a few of its fuel terminals to mix and save B40, which will be finished throughout a "transition period after government develops the required", spokesperson Fadjar Djoko Santoso told Reuters, without offering information.

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

Hiswana Migas, the fuel sellers' association, did not right away react to an ask for remark.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be executed slowly, and that biodiesel manufacturers are ready to supply the greater mix.

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

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

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

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 estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher blend could likewise be an obstacle as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% boost in aids to 47 trillion rupiah ($2.93 billion) next year and approximated 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 walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the industry, consisting of palm smallholders.

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

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

"The execution might be sluggish and steady in 2025 and most likely more fast-paced in 2026," he said.

Prabowo, who took office in October, campaigned on a platform to raise the mandate further 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