Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry individuals looking for phase-in period expect gradual introduction

Industry deals with technical difficulties and cost concerns

Government funding problems emerge due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled concerns it might suppress global palm oil materials, looks increasingly most likely to be executed gradually, analysts stated, as market participants seek a phase-in duration.

Indonesia, the world's most significant manufacturer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a dive in palm futures and might pressure costs further in 2025.

While the government of President Prabowo Subianto has actually said consistently the strategy is on track for complete launch in the brand-new year, industry watchers state costs and technical challenges are likely to result in partial application before full adoption across the stretching island chain.

Indonesia's biggest fuel merchant, state-owned Pertamina, said it requires to customize a few of its fuel terminals to mix and store B40, which will be finished during a "transition duration after federal government develops the required", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

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

Hiswana Migas, the fuel sellers' association, did not right away react to a demand for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate walking would not be executed gradually, which biodiesel manufacturers are all set to provide the higher mix.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, said the federal government has actually not released allotments for producers to offer to sustain sellers, which it generally has actually done by this time of the year.

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

The government prepares to designate 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 federal government, moneying the greater mix could likewise be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes profits from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required 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 market would challenge a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the industry, including palm smallholders.

"I believe there will be a delay, due to the fact that if it is implemented, the aid will increase. Where will (the money) come from?" he said.

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

"The implementation might be sluggish and steady in 2025 and most likely more busy in 2026," he said.

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; Editing by Tony Munroe and Lincoln Feast.)