Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants seeking phase-in duration anticipate steady intro

Industry faces technical difficulties and expense concerns

Government funding issues arise due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has fuelled concerns it might suppress global palm oil materials, looks significantly most likely to be carried out slowly, experts stated, as industry participants seek a phase-in duration.

Indonesia, the world's most significant 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 set off a jump in palm futures and may push rates further in 2025.

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

Indonesia's most significant fuel seller, state-owned Pertamina, stated it requires to modify some of its fuel terminals to mix and save B40, which will be completed during a "transition duration after government establishes the required", representative Fadjar Djoko Santoso told Reuters, without providing information.

During a conference with government authorities and biodiesel manufacturers last week, fuel merchants requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, told Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to a request for remark.

Energy ministry senior main Eniya Listiani Dewi told Reuters the required walking would not be executed slowly, which biodiesel manufacturers are all set to provide the greater mix.

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

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

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

The federal government plans to assign 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher mix could likewise be a difficulty as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

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

However, the palm oil industry would challenge a levy walking, stated 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 carried out, the subsidy will increase. Where will (the money) originate from?" he said.

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

"The application might be slow and progressive in 2025 and most likely more busy in 2026," he said.

Prabowo, who took workplace 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.)