Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry individuals looking for phase-in duration expect progressive intro

Industry deals with technical challenges and cost issues

Government funding issues emerge due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) plan to expand its biodiesel mandate from Jan. 1, which has actually fuelled issues it could suppress international palm oil materials, looks increasingly likely to be executed slowly, experts stated, as market individuals seek a phase-in duration.

Indonesia, the world's biggest producer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a dive in palm futures and may push prices further in 2025.

While the federal government of President Prabowo Subianto has said consistently the plan is on track for complete launch in the brand-new year, industry watchers say costs and technical challenges are likely to result in partial execution before complete adoption across the sprawling archipelago.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it needs to modify some of its fuel terminals to blend and keep B40, which will be finished during a "transition period after government develops the mandate", representative Fadjar Djoko Santoso told Reuters, without supplying details.

During a conference with government authorities and biodiesel producers last week, fuel merchants asked for a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in participation, told Reuters.

Hiswana Migas, the fuel sellers' association, did not instantly react to a request for comment.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be carried out slowly, which biodiesel producers are all set to provide the greater blend.

"I have actually confirmed the preparedness with all manufacturers recently," she said.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not issued allotments for manufacturers to sell to sustain merchants, which it generally has done by this time of the year.

"We can't deliver the items without purchase order files, and order files are gotten after we get contracts with fuel companies," Gunawan told Reuters. "Fuel companies can just sign contracts after the ministerial decree (on biodiesel allocations)."

The federal 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 price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the higher blend could also be an obstacle as palm oil now costs around $400 per metric load more than crude oil. Indonesia uses profits from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% increase 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 impends.

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

"I believe there will be a hold-up, 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 commodity consultancy, stated B40 execution would be challenging in 2025.

"The execution might be sluggish and steady in 2025 and probably more hectic in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the required 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; Editing by Tony Munroe and Lincoln Feast.)