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Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry participants looking for phase-in period anticipate steady introduction

Industry deals with technical challenges and cost issues

Government funding issues develop due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has sustained issues it might suppress international palm oil materials, looks progressively likely to be implemented gradually, experts said, as market individuals seek a phase-in duration.

Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a dive in palm futures and may pressure rates even more in 2025.

While the government of President Prabowo Subianto has actually said consistently the plan is on track for full launch in the brand-new year, industry watchers state costs and technical difficulties are most likely to lead to partial implementation before complete adoption across the sprawling archipelago.

Indonesia's most significant fuel retailer, state-owned Pertamina, stated it needs to modify some of its fuel terminals to blend and keep B40, which will be completed during a "shift period after government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

During a meeting with government authorities and biodiesel producers last week, fuel sellers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in participation, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate walking would not be carried out slowly, which biodiesel producers are prepared to supply the greater mix.

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be mixed with diesel fuel, said the federal government has actually not provided allocations for manufacturers to sell to fuel sellers, which it normally has done by this time of the year.

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

The government prepares to assign 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, funding the greater mix could likewise be an obstacle as palm oil now costs around $400 per metric load more than crude oil. Indonesia utilizes profits from palm oil export levies, managed by a firm called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it needed a 68% increase in aids to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking looms.

However, the palm oil market would challenge a levy hike, stated Tauhid Ahmad, a senior expert with INDEF, as it would harm the industry, consisting of palm smallholders.

"I believe there will be a hold-up, because if it is carried out, the aid will increase. Where will (the cash) come from?" he said.

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

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

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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)