Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry participants seeking phase-in period anticipate gradual introduction

Industry faces technical challenges and expense issues

Government funding problems arise due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has actually sustained issues it could suppress international palm oil products, looks increasingly most likely to be executed slowly, experts stated, as industry participants look for a phase-in period.

Indonesia, the world's biggest 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 actually triggered a jump in palm futures and may press rates further in 2025.

While the federal government of President Prabowo Subianto has stated consistently the plan is on track for full launch in the new year, market watchers say expenses and technical difficulties are likely to result in partial application before complete adoption throughout the stretching island chain.

Indonesia's most significant fuel merchant, state-owned Pertamina, said it needs to modify a few of its fuel terminals to blend and save B40, which will be completed during a "transition duration after federal government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without offering information.

During a conference with federal government officials and biodiesel manufacturers recently, fuel retailers 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 sellers' association, did not immediately respond to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate walking would not be implemented slowly, and that biodiesel producers are all set to supply the higher mix.

"I have actually confirmed the preparedness with all producers recently," she stated.

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

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

The government plans to designate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its initial quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher mix might also be an obstacle as palm oil now costs around $400 per metric load more than petroleum. Indonesia utilizes profits from palm oil export levies, handled by a firm 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, sustaining market speculation that a levy hike looms.

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

"I think there will be a delay, since if it is implemented, the aid will increase. Where will (the cash) originate from?" he stated.

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

"The execution might be sluggish and progressive 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 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.)