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

Industry participants looking for phase-in duration anticipate steady introduction

Industry faces technical challenges and cost issues

Government financing problems develop due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually sustained issues it might suppress global palm oil supplies, looks progressively likely to be carried out slowly, experts stated, as industry individuals seek a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, plans to raise the obligatory 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 push rates further in 2025.

While the federal government of President Prabowo Subianto has stated repeatedly the strategy is on track for full launch in the brand-new year, market watchers say expenses and technical challenges are likely to result in partial application before full adoption across the sprawling island chain.

Indonesia's biggest fuel retailer, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and save B40, which will be finished during a "shift period after federal government develops the mandate", representative Fadjar Djoko Santoso informed Reuters, without offering details.

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

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be carried out slowly, and that biodiesel producers are ready to provide the higher blend.

"I have actually confirmed the readiness with all producers last week," she stated.

APROBI, whose members make fat methyl ester (FAME) from to be blended with diesel fuel, stated the government has not released allotments for producers to offer to sustain sellers, which it usually has done by this time of the year.

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

The federal government prepares to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher mix could also be a challenge as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses profits from palm oil export levies, managed by an agency called BPDPKS, to cover such spaces.

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, fuelling market speculation that a levy hike looms.

However, the palm oil industry would object to a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, including palm smallholders.

"I believe there will be a hold-up, since if it is carried out, the subsidy will increase. Where will (the cash) come from?" he said.

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

"The implementation might be slow and gradual in 2025 and probably more fast-paced in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the mandate further to B50 or B60 to achieve energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)