Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry individuals seeking phase-in period anticipate steady intro

Industry deals with technical obstacles and expense concerns

Government funding concerns occur due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has actually fuelled concerns it could curb worldwide palm oil materials, looks increasingly likely to be implemented slowly, experts stated, as market participants look for a phase-in period.

Indonesia, the world's greatest producer 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 set off a jump in palm futures and may press rates even more in 2025.

While the government of President Prabowo Subianto has actually said repeatedly the strategy is on track for full launch in the brand-new year, market watchers state expenses and technical obstacles are most likely to lead to partial implementation before full adoption throughout the stretching island chain.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it needs to modify some of its fuel terminals to mix and store B40, which will be completed throughout a "shift period after federal government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without offering information.

During a conference with federal government authorities and biodiesel producers recently, fuel merchants asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in presence, informed Reuters.

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

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

"I have actually validated the preparedness with all producers recently," she said.

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

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

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

FUNDING CHALLENGES

For the federal government, moneying the higher mix might likewise be a challenge as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses proceeds from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, BPDPKS approximated 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 is impending.

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

"I think there will be a delay, because if it is executed, the subsidy will increase. Where will (the cash) come from?" he stated.

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

"The implementation might be slow and gradual in 2025 and most likely more hectic in 2026," he stated.

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