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

Industry participants looking for phase-in period expect gradual introduction

Industry faces technical challenges and expense concerns

Government funding problems arise due to palm oil cost variation

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

Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a jump in palm futures and might push prices further in 2025.

While the federal government of President Prabowo Subianto has stated consistently the plan is on track for complete launch in the new year, market watchers state costs and technical challenges are most likely to result in partial application before full adoption across the sprawling archipelago.

Indonesia's most significant fuel retailer, state-owned Pertamina, said it requires to customize a few of its fuel terminals to blend and save B40, which will be completed throughout a "shift duration after government establishes the required", representative Fadjar Djoko Santoso told Reuters, without supplying information.

During a conference with government officials and biodiesel manufacturers last week, fuel retailers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, informed Reuters.

Hiswana Migas, the fuel retailers' association, did not immediately react to an ask for remark.

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate hike would not be carried out slowly, and that biodiesel producers are all set to provide the higher mix.

"I have confirmed the preparedness with all producers last week," she said.

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

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

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

FUNDING CHALLENGES

For the government, funding the greater mix could likewise be a difficulty as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia utilizes earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it needed 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 walking is imminent.

However, the palm oil industry would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the market, including palm smallholders.

"I believe there will be a delay, 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 implementation would be challenging in 2025.

"The execution might be slow and steady in 2025 and probably more busy 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 achieve energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina